-----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, IKKDTXIvuDnUnlvr8xBCJjYO4LzjTq+cFFuJBX8ecKeeoDNsZbUSn9XzMU3SeLN/ cxqRloWRA/YEj97bC9OUTA== 0000892569-97-000985.txt : 19970414 0000892569-97-000985.hdr.sgml : 19970414 ACCESSION NUMBER: 0000892569-97-000985 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19970127 FILED AS OF DATE: 19970411 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CKE RESTAURANTS INC CENTRAL INDEX KEY: 0000919628 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 330602639 STATE OF INCORPORATION: DE FISCAL YEAR END: 0130 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11313 FILM NUMBER: 97578769 BUSINESS ADDRESS: STREET 1: 1200 N HARBOR BLVD CITY: ANAHEIM STATE: CA ZIP: 92801 BUSINESS PHONE: 7147745796 10-K 1 ANNUAL REPORT FOR THE FISCAL YEAR ENDED 01/27/97 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K --------- [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 27, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 1-13192 CKE RESTAURANTS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) --------- DELAWARE 33-0602639 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1200 NORTH HARBOR BOULEVARD ANAHEIM, CALIFORNIA 92801 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 774-5796 --------- 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 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ----- The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 31, 1997 was $552,153,292. The number of shares outstanding of the registrant's common stock was 33,356,566 as of March 31, 1997. DOCUMENTS INCORPORATED BY REFERENCE. Portions of the registrant's Proxy Statement for the 1997 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after January 27, 1997, are incorporated by reference into Part III of this Report. The Exhibit Index is contained in Part IV herein on Page E-1. 2 CKE RESTAURANTS, INC. AND SUBSIDIARIES INDEX TO ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 27, 1997 PART I Page ---- Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . 13 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . 13 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . 16 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 22 PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . 22 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . 22 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . 22 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . 23
3 PART I ITEM 1. BUSINESS OVERVIEW CKE Restaurants, Inc., a Delaware corporation ("CKE" and collectively with its subsidiaries, the "Company"), is engaged primarily in the food service industry. The Company owns, operates, franchises and licenses the Carl's Jr.(R) quick-service hamburger restaurant concept, which is the seventh largest quick-service hamburger restaurant chain in the United States. As of January 27, 1997, the Carl's Jr. system included 673 restaurants, of which 415 were operated by the Company and 258 were operated by the Company's franchisees and licensees. The Carl's Jr. restaurants are located in the western United States, predominantly in California, and in Mexico and the Pacific Rim. Primarily as a result of recent acquisitions, the Company also operates and franchises a total of 257 other restaurants, including 107 Taco Bueno(R) quick-service Mexican food restaurants located in Texas and Oklahoma. The first Carl's Jr. restaurant was opened in 1956 by Carl N. Karcher, the Company's founder, in Anaheim, California. After an extended period of growth, the Company made certain strategic decisions and experienced certain operational difficulties in the early 1990s which adversely impacted the Company's sales and profitability. In response to the introduction of value pricing by its quick-service restaurant competitors, the Company reduced prices and initiated an extensive value-priced menu advertising campaign. Beginning in October 1994, the Company hired a new management team that began implementing a variety of strategic and operational programs designed to revitalize the Carl's Jr. brand and improve financial results. These programs included, among others, a renewed focus on offering superior products, the elimination of most value-priced menu items, a new advertising campaign, a dual-branding program with The Green Burrito(R) and the commencement of a remodeling program for Carl's Jr. restaurants. As a result of these strategies, together with the Company's successful efforts to reduce expenses at both the corporate and operating levels, the Company experienced significant improvements in sales and operating results in fiscal 1996 and fiscal 1997. The Company is continuing to implement its dual-branding and remodeling programs and to focus on reducing expenses, and believes it will continue to benefit from such activities in the future. BUSINESS STRATEGY The Company's objective is to enhance and reinforce its position as one of the leading operators of quick-service restaurants within its targeted markets. The Company's current management team has implemented a business strategy which has revitalized the Carl's Jr. brand and increased sales and profitability. The Company believes that certain elements of this business strategy can be used successfully to improve the financial performance and revitalize the brands of its recent and future acquisitions. Key elements of the Company's business strategy are as follows: Established, Differentiated Brand. The Company is committed to further developing established restaurant brands that have a strong consumer identity in regional markets and target a specific market niche. With over 40 years of operation, Carl's Jr. is a distinct and identifiable brand and its Happy Star(R) logo is widely recognized in its core markets. Unlike many quick-service restaurants which emphasize lower prices, Carl's Jr. restaurants focus on offering customers a higher quality dining experience at a reasonable price. The Company believes that Carl's Jr.'s superior food quality, generous portions, broad menu and attentive customer service differentiate it from its competitors and are critical to its success. 1 4 Maintain Efficient Operations. The Company believes its operating and distribution systems, experienced restaurant-level management and strong employee training programs are critical to its ability to achieve strong Carl's Jr. restaurant-level margins. The Company has designed and implemented restaurant managerial and operating procedures that enable it to control expenses while improving food quality and customer service. The Carl's Jr. distribution system takes advantage of volume purchasing of food and supplies and provides system-wide consistency and economies of scale. To develop and motivate its restaurant managers, the Company offers performance-based incentive compensation and opportunities for advancement. Continue Dual-Branding Programs. The Company believes dual-branding programs increase sales and customer counts by offering its customers an additional distinct concept and a separate menu at a single restaurant location, without requiring a substantial investment or significantly increasing operating complexities. The Company believes that its dual-branding program with The Green Burrito has attracted new customers while increasing the frequency of customer visits at converted restaurants. The Company plans to aggressively continue the conversion of Carl's Jr. restaurants to the Carl's Jr./Green Burrito concept and is considering dual-branding certain of its recently acquired Taco Bueno restaurants with other quick-service restaurant concepts. Innovative Advertising. The Company is committed to aggressively promoting and enhancing its brand awareness through innovative advertising. In early 1995, the Company discontinued its value pricing strategy for Carl's Jr. and focused its advertising programs on building the Carl's Jr. brand by emphasizing the key differentiating attributes of its concept. Since the start of this innovative advertising campaign, the Company has experienced seven consecutive quarterly increases in Company-operated Carl's Jr. same-store sales as compared with the corresponding quarters of the prior year. Continue Development of Extensive Franchise System. The Company's franchise strategy is to increase market penetration without increasing the total capital required by the Company for development of new restaurants. The Company has developed a strong Carl's Jr. franchise system by attracting franchisees with experience in multi-unit restaurant operations and ensuring that each franchisee adheres to the Company's high operating and quality standards. The Company believes that the recent strong sales results in the Carl's Jr. system will attract new franchisees and encourage existing franchisees to open new restaurants. The Company is also considering franchising certain of its recently acquired concepts. GROWTH STRATEGY The Company is currently pursuing a strategy of growth and expansion through (i) increasing sales and profitability at its existing restaurants, (ii) the opening of both Company-operated and franchised restaurants in existing and new markets, and (iii) acquisitions of, or investments in, similar concepts to create new avenues for growth. Increasing Restaurant Sales and Profitability. The Company believes it can increase consumer awareness, restaurant sales and profitability by continuing its dual-branding strategy, completing its remodeling and image enhancement programs and expanding its advertising and marketing program. The Company's original agreement with GB Foods Corporation ("GB Foods") provided for an aggregate of 140 dual-brand conversions over the five-year term of the agreement. The original agreement was modified in February 1997 to provide for the conversion of a minimum of 60 restaurants per year to dual-brand Green Burrito locations for each of the next four years, accelerating the original 140-unit commitment to a minimum of 306 stores, including the 66 Company-operated and franchised locations that had been converted as of the date the agreement was amended. Post-conversion revenues in the 59 Company-operated restaurants converted to Carl's Jr./Green Burrito dual-brand restaurants (including restaurants converted during the year) as of January 27, 1997 were approximately 25% higher than same-store sales in the comparable prior year period. The Company is also considering dual-branding certain of its recently acquired Taco Bueno restaurants with other quick-service restaurant concepts. 2 5 The Company is currently remodeling Company-operated Carl's Jr. restaurants with a fresher, more contemporary look. Exterior improvements include brighter colors, red awnings and a large, tilted Happy Star logo. The new interiors feature the same fresh colors, food murals, display cases for salads and desserts and accent lighting throughout the dining area. The Company believes that its new restaurant design will further increase the consumer's awareness of the Carl's Jr. brand. As of January 27, 1997, the Company had remodeled over half of its Company-operated Carl's Jr. restaurants and plans to complete the remodeling of substantially all of its Company-operated Carl's Jr. restaurants by the end of fiscal 1998. In accordance with the Company's franchise agreements, the Company's franchisees will have until August 1999 to remodel their restaurants. The Company is also in the process of enhancing the Taco Bueno brand image with new signage and menu boards and is considering a more extensive remodeling program. The Company also plans to continue its advertising campaign with innovative television commercials emphasizing the Carl's Jr. brand and its quality products. Based upon the success of its advertising campaign, most of the Company's franchisees have agreed to increase their contributions for marketing and advertising, and the Company plans to partially match such contributions. Opening New Restaurants. The Company intends to accelerate its expansion program by opening new restaurants in both traditional, freestanding structures and alternative formats. The Company opened 12 new Carl's Jr. restaurants during fiscal 1997 and presently anticipates that it will open up to 30 new Carl's Jr. restaurants and is evaluating opening additional Taco Bueno restaurants in its existing markets during fiscal 1998. The Company's franchisees and licensees opened 14 new Carl's Jr. restaurants during fiscal 1997, and the Company presently anticipates that its franchisees and licensees will open up to 15 new Carl's Jr. restaurants during fiscal 1998. The Company believes that its existing core and developing markets offer significant growth opportunity for both Company-operated and franchised restaurant development. The Company's expansion strategy is designed to increase market penetration and consumer awareness, thereby enabling the Company to take advantage of operational and advertising efficiencies through restaurant clustering within television markets. The Company believes that increases in average restaurant sales can be achieved in those markets in which it can open multiple restaurants. The Company will attempt to attract new qualified franchisees and encourage existing franchisees to open additional restaurants, and the Company will continue to co-develop markets with its franchisees. In determining which new markets to develop, the Company considers many factors, including the size of the market, demographic trends, competition and real estate availability and pricing. Pursuing Complementary Acquisitions. The Company also seeks to enhance its growth and expansion through selective acquisitions of, or investments in, other restaurant concepts. When evaluating possible acquisitions and investments, the Company identifies (i) similar concepts for conversion to Carl's Jr. restaurants, (ii) underperforming brands that the Company believes can be turned around by improving unit economics and reducing overhead and (iii) restaurant concepts that the Company believes present the potential for an additional growth vehicle. The Company intends to apply certain elements of its business strategy used to improve the performance of its Carl's Jr. restaurants to its recent and future acquisitions. In addition, the Company believes that its efficient operating systems and established corporate infrastructure will enable it to improve restaurant-level margins and eliminate redundant corporate functions at companies which it acquires or in which it makes a significant investment. 3 6 CARL'S JR. Concept. The Company believes that its Carl's Jr. restaurants' superior food quality, diverse menu and attentive customer service differentiate the Company from its competitors and are critical to its success. Unlike many quick-service restaurants that emphasize lower prices, Carl's Jr. restaurants focus on offering customers a higher quality dining experience at a reasonable price. Carl's Jr. charbroiled hamburgers, chicken sandwiches and signature items are generally made-to-order, meet exacting quality standards and are offered in generous portions. Carl's Jr.'s diverse menu and all-you-can-eat salad bar appeal to a broad audience but remain sufficiently limited to maintain both a distinct identity and operational efficiencies. By providing partial table service, unlimited drink refills and an attractive restaurant decor, Carl's Jr. restaurants offer a pleasant, customer-friendly environment. The Company believes that its focus on customers and customer service, superior food quality and generous portions enables the Carl's Jr. restaurants to maintain a strong price-value image with its customers. Menu and Restaurant Design. Carl's Jr. restaurants offer a variety of products that have a strong reputation for quality and taste. The Carl's Jr. menu is relatively uniform throughout the chain and features several charbroiled hamburgers and chicken sandwiches, including the Famous Star, Western Bacon Cheeseburger(R), Super Star(R), Charbroiler Chicken Sandwiches(R) and Crispy Chicken Sandwiches. Other entrees include a fish sandwich, stuffed baked potatoes and prepackaged salads. Side orders, such as french fries, onion rings and fried zucchini, are also offered. Most restaurants also have a breakfast menu including eggs, bacon, sausage, French Toast Dips(R), the Sunrise Sandwich(R) and a breakfast burrito. In addition, the restaurants sell a variety of promotional products on a limited basis. The Company was also among the first to offer self-service salad bars and all-you-can-drink beverage bars. Most Carl's Jr. restaurants are freestanding, ranging in size from 2,500 to 4,000 square feet, with a seating capacity of 65 to 115 persons and drive-thru facilities. Some restaurants are located in shopping malls and other in-line facilities. Currently, several building designs and floor plans are in use system-wide, depending upon operational needs, local zoning requirements and real estate availability. Operations. The Company strives to maintain high standards in all materials used by its restaurants, as well as the operations related to food preparation, service and cleanliness. Hamburgers and chicken sandwiches at Carl's Jr. restaurants are generally prepared or assembled after the customer has placed an order and are served promptly. Hamburger patties and chicken breasts are charbroiled in a gas-fired double broiler that sears the meat on both sides. The meat is conveyed through the broiler automatically to maintain uniform heating and cooking time. Each Company-operated Carl's Jr. restaurant is operated by a manager who has received nine to 13 weeks of management training. This training program involves a combination of classroom instruction and on-the-job training in specially designated training restaurants. Other restaurant employees are trained by the restaurant manager in accordance with Company guidelines. Restaurant managers are supervised by district managers, each of whom is responsible for 11 to 14 restaurants. Approximately 35 district managers are under the supervision of four regional vice presidents, all of whom regularly inspect the operations in their respective districts and regions. Purchasing and Distribution. The Company purchases most of the primary food products and packaging supplies used in the Carl's Jr. restaurant system and warehouses and distributes such items to both Company-operated and franchised Carl's Jr. restaurants. Although not required to do so, substantially all of the Company's Carl's Jr. franchisees purchase most of their food and paper supplies from the Company. The Company is one of the few businesses in the quick-service restaurant industry that has elected not to outsource all of its distribution activities. The Company believes its mature procurement process allows it to effectively manage 4 7 food costs, provide adequate quantities of food and supplies at competitive prices, generate revenues from franchisees by adding a nominal mark-up to cover the direct costs and provide better over all service to the Carl's Jr. restaurants. The Company seeks competitive bids from suppliers on many of its food products, approves suppliers of those products and requires them to adhere to product specifications established by the Company. Whenever possible, the Company negotiates sole source contracts for particular products which tend to produce deeper discounts. The Company operates a distribution center at its corporate headquarters in Anaheim, California and a smaller distribution facility in Manteca, California. The food products and supply items are distributed to Carl's Jr. restaurants, generally twice a week, by refrigerated trucks leased and operated by the Company. Green Burrito Development Agreement. Dual-branding is an emerging concept in the quick-service restaurant industry that allows a single restaurant to offer customers two distinct brand menus. In May 1995, the Company entered into a five-year agreement with GB Foods, the operator and franchisor of The Green Burrito quick-service Mexican food concept, to offer the Green Burrito as a second brand menu at selected Carl's Jr. locations. The Company believes that Green Burrito's position in the popular Mexican food segment and its dinner menu orientation complement the Carl's Jr. menu. Customers in the Carl's Jr./Green Burrito dual-brand restaurants are able to order items from both the Carl's Jr. menu board and the Green Burrito menu board from the same counter, and both menus are available to customers utilizing the drive-thru. The Green Burrito menu offered at the dual-brand restaurants features a broad range of traditional Mexican food items, including burritos, tostadas, enchiladas, tacos, tacquitos and nachos. A variety of condiments such as jalapeno peppers, hot sauce and mild and hot salsa are available at self-serve salsa bars so that customers can spice and garnish their meals according to individual taste. The Company believes that this dual-branding program has attracted new customers while increasing the frequency of customer visits at converted restaurants. In order to convert an existing Carl's Jr. restaurant to a Carl's Jr./Green Burrito restaurant, the additional equipment necessary to offer the Green Burrito menu is added to the Carl's Jr. restaurant, as well as new menu boards and new signage, both inside and outside, indicating the offering of both brands. In most cases, changes to the seating area or other parts of the physical structure of the restaurant are unnecessary. The Company's agreement with GB Foods initially provided for the conversion of 140 Carl's Jr. restaurants to Carl's Jr./Green Burrito dual-brand restaurants by July 2000. The original agreement was modified in February 1997 to provide for the conversion of a minimum of 60 restaurants per year to dual-brand locations for each of the next four years. The Company is required to pay an initial franchise fee for each store opened and remit royalties on Green Burrito food sales to GB Foods. At the end of fiscal 1996, the Company elected to sub-franchise, and recently began offering the Carl's Jr./Green Burrito dual-brand to its franchise community. There are currently five franchised Carl's Jr. restaurants that have been converted to the Carl's Jr./Green Burrito concept. The Company will receive a portion of the fee for each franchise conversion and royalties from its franchisees' Green Burrito food sales. Franchised and Licensed Operations. The Company's franchise strategy is designed to further the development of the Carl's Jr. chain and reduce the total capital required of the Company for development of new Carl's Jr. restaurants. Franchise arrangements with Carl's Jr. franchisees, who operate in Arizona, California, Hawaii, Nevada, Oregon and Utah, generally provide for initial fees and continuing royalty payments to the Company based upon a percentage of sales. Additionally, most franchisees purchase food, paper and other supplies from the Company. Franchisees may also be obligated to remit lease payments for the use of Company-owned or leased restaurant facilities and to pay related occupancy costs, which include maintenance, insurance and property taxes. The Company also plans to continue to pursue non-traditional franchise development opportunities through innovative formats, including gasoline stations, convenience stores and institutional food service outlets. 5 8 The Company's franchising philosophy is such that only candidates with appropriate experience are considered for the program. Specific net worth and liquidity requirements must also be satisfied. Area development agreements generally require franchisees to open a specified number of Carl's Jr. restaurants in a designated geographic area within a specified time period. As of January 27, 1997, 258 Carl's Jr. restaurants were operated by the Company's franchisees and licensees. The majority of the Company's franchisees own more than one restaurant, with 13 franchisees owning seven or more restaurants. The Company presently anticipates that its franchisees and licensees will open up to 15 new Carl's Jr. restaurants during fiscal 1998. To expand the Carl's Jr. presence internationally, the Company entered into nine exclusive licensing agreements that allow the Carl's Jr. licensees to use the Carl's Jr. name and trademarks and provide for initial fees and continuing royalties based upon a percent of sales. In May 1995, the Company entered into a joint venture agreement with its Malaysia-based licensee that provides for the development of Carl's Jr. restaurants in the Pacific Rim. As of January 27, 1997, there were 30 licensed restaurants in operation, most of which are located in Mexico and the Pacific Rim. Royalties from the Company's licensing agreements were not material in fiscal 1997, 1996 or 1995. Carl's Jr. Restaurant Locations. The following table sets forth the locations of Company-operated and franchised and licensed Carl's Jr. restaurants as of January 27, 1997:
FRANCHISED OR COMPANY-OPERATED LICENSED TOTAL ---------------- -------- ----- California . . . . . . . . . . . . . . . . . . . . . . . . . . . 399 157 556 Arizona . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 27 38 Nevada . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 27 27 Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 15 18 Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 -- 2 Hawaii . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1 1 Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1 1 ----- ----- ----- Total United States . . . . . . . . . . . . . . . . . . 415 228 643 ----- ----- ----- International . . . . . . . . . . . . . . . . . . . . . . . . . . -- 30 30 ----- ----- ----- Total . . . . . . . . . . . . . . . . . . . . . . . . . 415 258 673 ===== ===== =====
TACO BUENO Casa Bonita Incorporated ("Casa Bonita"), which was acquired by the Company in October 1996, currently owns and operates 107 Taco Bueno quick-service Mexican restaurants located in Texas and Oklahoma. Taco Bueno seeks to differentiate itself from its principal competitors by offering a broad menu featuring generous portions of freshly prepared food items. In addition to typical quick-service Mexican offerings, such as burritos, tacos, tostadas and combination meals, Taco Bueno features a number of signature menu items such as fresh salads and Mexican platters. Taco Bueno's Mexican platters include taco and burrito platters, beef and chicken taco salads and nacho platters, each of which are accompanied by rice, beans, freshly prepared guacamole and chips. The restaurants also feature a salsa bar that includes sliced jalapenos, diced onions and freshly prepared pico de gallo and hot sauce. Taco Bueno restaurants generally feature a "Santa Fe/Pueblo" architecture and exterior decor, which is designed to increase visibility and consumer recognition, and generally range in size from 2,400 square feet to 3,200 square feet. Restaurant interiors include wooden tables and chairs, booth seating, stucco walls, warm 6 9 colors and a southwestern theme, all of which are intended to create a distinctive atmosphere. The Company is also in the process of enhancing the Taco Bueno brand image with new signage and menu boards and is considering a more extensive remodeling program. The Company's strategy with respect to its Taco Bueno concept is to increase its market share and competitive presence in existing markets. The Company believes that the growing popularity of Mexican food and the relatively few national or regional Mexican quick-service restaurant chains provide a significant opportunity to expand the Taco Bueno concept within its core markets in the areas of Dallas/Ft. Worth, Tulsa and Oklahoma City and to enter into new markets. The Company is evaluating opening additional Taco Bueno restaurants in its existing markets during fiscal 1998. The Company may franchise the Taco Bueno concept and is considering dual-branding certain of its Taco Bueno restaurants with other quick-service restaurant concepts. INVESTMENTS IN OTHER RESTAURANT CONCEPTS The Company seeks to enhance its growth and expansion through the selective acquisitions of, or investments in, other restaurant concepts. The following is a brief description of the Company's investments in other restaurant concepts: Checkers Drive-In Restaurants, Inc. ("Checkers"). Checkers operates and franchises the Checkers Drive-In Restaurants double drive-thru quick-service hamburger restaurant concept. As of December 30, 1996, there were 478 Checkers restaurants operating in 23 states, of which 232 were operated by Checkers and 246 were operated by franchisees. During fiscal 1997, the Company, together with a group of investors, including certain related parties, purchased and subsequently restructured $35.8 million of aggregate principal amount of Checkers 13.0% senior secured debt, due on July 31, 1999. The Company paid $12.9 million for $13.2 million, or 36.75% share of the debt and also contributed $0.5 million as part of a $2.5 million revolving line of credit to Checkers, of which a combined total of $10.1 million remained due from Checkers as of January 27, 1997. In connection with the restructuring, the Company received warrants to purchase 7,350,423 shares of Checkers common stock at an exercise price of $0.75 per share (the "Checkers Warrants"). Subsequent to January 27, 1997, the Company purchased 6,162,299 shares of Checkers common stock at $1.14 per share and 61,636 shares of Checkers Series A preferred stock at $114.00 per share for an aggregate purchase price of $14.1 million in connection with a private placement of Checkers' securities to the Company and other investors, including certain related parties. The shares of Checkers common stock acquired by the Company represent approximately 10% of Checkers' outstanding shares. The shares of Series A preferred stock acquired by the Company are convertible into an aggregate of 6,162,299 additional shares of common stock; provided, however, that such conversion is subject to the approval of Checkers' stockholders at its next annual meeting. Assuming full exercise of the Checkers Warrants and the conversion of all of the Series A preferred stock into Checkers common stock, the Company would beneficially own approximately 22% of Checkers' outstanding shares. See Note 6 of Notes to Consolidated Financial Statements. Rally's Hamburgers, Inc. ("Rally's"). Rally's operates and franchises the Rally's Hamburgers double drive-thru quick-service hamburger restaurant concept. As of February 24, 1997, there were 471 Rally's restaurants operating in 19 states, of which 214 were owned and operated by Rally's, 230 were operated by its franchisees and 27 were owned by Rally's but were operated as Rally's restaurants by the Company. The Company and Rally's entered into an operating agreement, effective in July 1996, pursuant to which the Company began operating 28 Rally's-owned restaurants located in California and Arizona. Pursuant to the terms of the operating agreement, Rally's retains ownership of the assets of such restaurants and receives a percentage of the restaurants' sales. One of the Rally's restaurants operated by the Company has been converted into a Carl's 7 10 Jr. "Jr." restaurant, which offers a limited Carl's Jr. menu in a double drive-thru and walk-up service format. The Company is considering the conversion of more of these Rally's restaurants to Carl's Jr. "Jr." restaurants. The Company's results of operations include the revenue and expenses of these 28 restaurants commencing July 2, 1996. As of January 27, 1997, the Company's investment in Rally's was $7.9 million, representing an approximate 18% ownership interest. In addition, the Company has the right to acquire an additional 2% ownership interest in Rally's upon exercise of 775,488 warrants to purchase Rally's common stock at $2.25 per share that were acquired pursuant to the Company's participation in Rally's rights offering and 750,000 warrants to purchase Rally's common stock at $4.375 per share that were issued to the Company in December 1996. See Note 6 of Notes to Consolidated Financial Statements. On March 25, 1997, Checkers and Rally's agreed in principle to a merger transaction, pursuant to which Rally's would be acquired by Checkers. The agreement contemplates that each share of Rally's common stock will be converted into three shares of Checkers common stock. Consummation of the Rally's - Checkers merger is subject to negotiation of definitive agreements, the receipt of fairness opinions and stockholder and other required approvals, as well as other customary conditions. Summit Family Restaurants Inc. ("Summit"). Summit, which was acquired by the Company in July 1996, operates three restaurant concepts: JB's Restaurant, a family dining chain of 73 Company-operated and 22 franchised restaurants; 16 HomeTown Buffet restaurants, which are operated by Summit as a franchisee of HomeTown Buffet, Inc.; and six Galaxy Diners, a "50's style" casual theme restaurant. Since the Summit acquisition, the Company has determined that its principal focus is on the quick-service segment of the restaurant industry as opposed to the family-dining segment in which Summit operates. As such, the Company is considering selling or otherwise disposing all of or a portion of Summit. Since completing the acquisition of Summit, the Company has eliminated a substantial portion of Summit's corporate staff, resulting in reduced general and administrative expenses. In addition, the Company has closed five JB's Restaurants. Summit's results of operations have not been material to the Company's overall operating performance since the date of acquisition. See Note 2 of Notes to Consolidated Financial Statements. Boston Market. The Company continues to hold an interest in Boston West, L.L.C. ("Boston West"), which acquired the Company's Boston Market restaurant assets and operations in fiscal 1995 and is developing Boston Markets in designated markets in California under an area development agreement with Boston Chicken, Inc. ("BCI"), the franchisor of the Boston Market restaurant concept. As of January 27, 1997, Boston West operated 84 Boston Market stores located in southern California. The Company's investment in Boston West as of January 27, 1997 and January 29, 1996 was $22.3 million and $19.8 million, respectively, which is recorded at cost and approximates the estimated fair value of the Company's common and preferred equity units in Boston West. See Note 6 of Notes to Consolidated Financial Statements. SOURCES OF RAW MATERIALS The Company's ability to maintain consistent quality depends in part upon its ability to acquire and distribute food products, restaurant equipment, signs, fixtures and supplies from reliable sources in accordance with Company specifications. The Company, its franchisees and its licensees have not experienced any material shortages of these items that the Company purchases from numerous independent suppliers. Alternate sources of these items are generally available. 8 11 TRADEMARKS AND SERVICE MARKS The Company owns numerous trademarks and service marks. The Company has registered many of those marks, including Carl's Jr.(R), the Happy Star(R) logo, Taco Bueno(R) and proprietary names for a number of the Carl's Jr. and Taco Bueno menu items, with the United States Patent and Trademark Office. The Company believes that its trademarks and service marks have significant value and play an important role in its marketing efforts. SEASONALITY The Company's business is moderately seasonal. Average restaurant sales are normally higher in the summer months than during the winter months. WORKING CAPITAL PRACTICES Currently, the Company is utilizing cash flows from operations to fund the expansion of new Carl's Jr. restaurants, the remodeling of its restaurants under the Company's image enhancement program and the conversion of its dual-concept restaurants. The Company does not carry significant amounts of inventory, experience material returns of merchandise, or generally provide extended payment terms to its franchisees or licensees. Cash from operations, along with cash and cash equivalents, and a combination of proceeds from its revolving credit facility and borrowings from other banks or financial institutions should enable the Company to meet its financing requirements. GOVERNMENT REGULATION Each Company-operated and franchised restaurant must comply with regulations adopted by federal agencies and with licensing and other regulations enforced by state and local health, sanitation, safety, fire and other departments. In addition, these restaurants also must comply with federal and state environmental regulations, but those regulations have not had a material effect on the restaurants' operations. More stringent and varied requirements of local governmental bodies with respect to zoning, land use, and environmental factors can delay and sometimes prevent development of new restaurants and remodeling of existing restaurants in particular locations. The Company is also subject to federal and a substantial number of state laws regulating the offer and sale of franchises. Such laws impose registration and disclosure requirements on franchisors in the offer and sale of franchises and may also apply substantive standards, including limitations on the ability of franchisors to terminate franchisees and alter franchise arrangements, to the relationship between franchisor and franchisee. The Company believes it is operating in substantial compliance with applicable laws and regulations governing its operations. The Company and its franchisees must comply with the Fair Labor Standards Act and various federal and state laws governing employment matters, such as minimum wages, overtime and other working conditions and citizenship requirements. Many of the Company's employees are paid hourly rates related to the federal and state minimum wage laws and accordingly, increases in the minimum wage increase the Company's labor cost. 9 12 COMPETITION The food service industry is intensely competitive with respect to the quality and value of food products offered, concept, service, price, dining experience and location. The Company primarily competes with major restaurant chains, some of which dominate the quick-service restaurant industry, and also competes with a variety of other take-out food service companies and fast-food restaurants. Certain of the major quick-service restaurant chains have increasingly offered selected food items and combination meals at discounted prices. In recent years, the Company's restaurant sales were adversely affected by aggressive promotions and price reductions by its competitors. The Company also faces competition from other quick-service operators, retail chains, other companies and developers for desirable site locations, which may adversely affect the cost, implementation and timing of the Company's expansion plans. RESEARCH AND DEVELOPMENT The Company maintains a test kitchen for its Carl's Jr. operations at its headquarters in which new products and production concepts are developed on an ongoing basis. In addition, the Company is currently testing a number of dual-concepts which include the sale of other branded products from within the Company's Carl's Jr. and Taco Bueno restaurants. While these efforts are critical to the Company, amounts expended for these activities are not considered material. There are no customer-sponsored research and development activities. ENVIRONMENTAL MATTERS Compliance with federal, state and local environmental provisions regulating the discharge of materials into the environment or otherwise relating to the protection of the environment did not have a material effect on capital expenditures, earnings or the competitive position of the Company in fiscal 1997. The Company cannot predict the effect on its operations from possible future legislation or regulation. EMPLOYEES As of January 27, 1997, the Company employed approximately 19,400 persons, of whom approximately 18,000 were hourly restaurant, distribution or clerical employees and the remainder were managerial, salaried employees engaged in administrative and supervisory capacities. A majority of the hourly employees are employed on a part-time basis to provide service necessary during peak periods of restaurant operations. None of the Company's employees are currently covered by a collective bargaining agreement. The Company has never experienced a work stoppage attributable to labor disputes and believes its employee relations are good. CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS The Company wishes to caution readers that the forward-looking statements contained in this Form 10-K under "Item 1. Business," "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Form 10-K involve known and unknown risks and uncertainties which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by any forward-looking statements made by or on behalf of the Company. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company is filing the following cautionary statements identifying important factors that in some cases have affected, and in the future could cause, the Company's actual results to differ materially from those expressed in any such forward-looking statements. 10 13 In addition to factors discussed in this Form 10-K, among the other factors that could cause the Company's results to differ materially are: general economic and business conditions; the impact of competitive products and pricing; success of operating initiatives; development and operating costs; advertising and promotional efforts; adverse publicity; acceptance of new product offerings; consumer trial and frequency; changes in business strategy or development plans; quality of management; availability, terms, and deployment of capital; the results of financing efforts; business abilities and judgment of personnel; availability of qualified personnel; food, labor, and employee benefit costs; changes in, or the failure to comply with, government regulations; weather conditions and construction schedules and risks that sales growth resulting from the Company's current and future remodeling and dual-branding of restaurants can be sustained at the current levels experienced. The Company and its franchisees are pursuing an aggressive growth strategy. There can be no assurance that the Company or its franchisees will achieve growth objectives or that new restaurants will be profitable. The success of the Company's planned expansion will be dependent upon numerous factors, many of which are beyond the Company's control, including the identification of suitable markets, the availability and leasing or purchase of suitable sites on acceptable terms, the hiring, training and retention of qualified management and other restaurant personnel, the ability to obtain necessary governmental permits and approvals, the availability of appropriate financing and general economic conditions. In addition to the recent acquisitions of Casa Bonita and Summit, the Company has had preliminary acquisition discussions with, and has evaluated the potential acquisition of, other companies over the last few years. As part of its growth strategy, the Company will continue to consider acquiring, or making investments in, other companies in the food service industry that the Company believes may complement or expand its existing business. Acquisitions involve a number of special risks that could adversely affect the Company's operating results, including the diversion of management's attention, the assimilation of the operations and personnel of the acquired companies, the amortization of acquired intangible assets, if any, and the potential loss of key employees. In addition, the Company's acquisition strategy includes the identification of companies or properties that are viewed as underperforming by the Company. This element of the Company's strategy may increase the risks involved with the Company's acquisitions. There can be no assurance that any such acquisition or investment will enhance the Company's business. As of January 27, 1997, the Company's investment in Boston West was $22.3 million, which is recorded at cost and approximates the estimated fair value of the Company's common and preferred equity units in Boston West. Boston West has incurred significant operating losses and there can be no assurance that the franchisor, BCI, will continue its support. As of January 27, 1997, the Company's investment in Rally's was $7.9 million. Rally's reported a net loss of $46.9 million for its fiscal year ended December 31, 1995 and net income of $2.0 million (including an extraordinary gain, net of tax, of $5.3 million from the early extinguishment of debt) for its fiscal year ended December 29, 1996. Subsequent to January 27, 1997, the Company purchased an ownership interest in Checkers, and as of February 20, 1997, the Company's investment in Checkers was $14.1 million. Checkers reported net losses of $33.2 million and $46.4 million for its fiscal years ended January 1, 1996 and December 30, 1996, respectively. There can also be no assurance that the fair values of the Company's investments in Boston West, Rally's or Checkers will continue to support their recorded carrying values. See Note 6 of Notes to Consolidated Financial Statements. 11 14 EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company are as follows:
NAME AGE POSITION ---- --- -------- William P. Foley II 52 Chairman of the Board and Chief Executive Officer C. Thomas Thompson 47 President and Chief Operating Officer Rory J. Murphy 49 Executive Vice President, Restaurant Operations Carl A. Strunk 58 Executive Vice President, Chief Financial Officer Andrew F. Puzder 46 Executive Vice President, General Counsel Robert E. Wheaton 44 Executive Vice President Loren C. Pannier 55 Senior Vice President, Investor Relations
William P. Foley II became Chief Executive Officer in October 1994, Chairman of the Board of Directors in March 1994, and has served as a director since December 1993. Since 1981, Mr. Foley has been Chairman of the Board, President (until January 1995) and Chief Executive Officer of Fidelity National Financial, Inc. ("Fidelity"), a company engaged in title insurance and related services. Mr. Foley is also a member of the Boards of Directors of Micro General Corporation, Rally's and Checkers. C. Thomas Thompson was appointed President and Chief Operating Officer in October 1994. Mr. Thompson has been a franchisee of the Company since 1984, and currently operates 15 Carl's Jr. restaurants in the San Francisco Bay Area. Mr. Thompson has more than 20 years of experience in the restaurant industry. He previously held positions with Jack-in-the-Box and Pacific Fresh Restaurants, a full-service restaurant chain in the Bay Area. Rory J. Murphy was appointed Executive Vice President, Restaurant Operations in June 1996, and had served as Senior Vice President, Restaurant Operations from February 1993 until June 1996. Mr. Murphy has been employed by the Company in various positions for 18 years. Carl A. Strunk was appointed Executive Vice President, Chief Financial Officer in February 1997. Mr. Strunk also serves as Executive Vice President, Chief Financial Officer for Fidelity and has been with Fidelity since 1992. Mr. Strunk previously served as President of Land Resources Corporation from 1986 to 1991. Mr. Strunk is a certified public accountant and is also a member of the Board of Directors of Micro General Corporation and Pac Rim Holding Corporation. Andrew F. Puzder became Executive Vice President, General Counsel in February 1997. Mr. Puzder also serves as Executive Vice President, General Counsel for Fidelity. Mr. Puzder has been with Fidelity since January 1995. From March 1994 to December 1994, he was a partner with the law firm of Stradling, Yocca, Carlson & Rauth. Prior to that, he was a partner with the law firm of Lewis, D'Amato, Brisbois & Bisgard, from September 1991 through March 1994, and he was a partner of the Stolar Partnership from February 1984 through September 1991. Robert E. Wheaton became Executive Vice President in January 1996. Mr. Wheaton served as Vice President and Chief Financial Officer of Denny's, Inc., a subsidiary of Flagstar Corporation, from April 1995 to January 1996. From 1991 to 1995, Mr. Wheaton served as President and Chief Executive Officer, and from 1989 to 1991 as Vice President and Chief Financial Officer, of The Bekins Company. Loren C. Pannier was appointed Senior Vice President, Investor Relations in September 1996 and served as Senior Vice President, Purchasing/Distribution from January 1996 to September 1996. Mr. Pannier also served as Chief Financial Officer of the Company from 1980 to May 1995. Mr. Pannier has been a Senior Vice President since 1980, and he has been employed by the Company for 25 years. 12 15 ITEM 2. PROPERTIES Substantially all of the restaurants operated by the Company are located on properties that are leased from others. In addition, the Company leases and subleases certain properties to its franchisees. The terms of the Company's leases or subleases generally range between three and 35 years and expire at various dates through 2035. The expiration of these leases is not expected to have a material impact on the Company's operations in any particular year as the expiration dates are staggered over a number of years and many of the leases contain renewal options. The Company's corporate headquarters and primary distribution center, located in Anaheim, California, are leased and contain approximately 78,000 and 102,000 square feet, respectively. The Manteca, California distribution facility has 42,000 square feet and is owned by the Company. ITEM 3. LEGAL PROCEEDINGS The Company is from time to time the subject of complaints, threat letters or litigation from guests alleging illness, injury or other food quality, health or operational concerns. Adverse publicity resulting from such allegations may materially adversely affect the Company and its restaurants, regardless of whether such allegations are valid or whether the Company is liable. The Company also is the subject of complaints or allegations from employees and franchisees from time to time. The Company believes that the lawsuits, claims and other legal matters to which it has become subject in the course of its business are not material to the Company's financial condition or results of operations, but an existing or future lawsuit or claim could result in an adverse decision against the Company that could have a material adverse effect on the Company's financial condition and results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Company's Common Stock is listed on the New York Stock Exchange under the symbol "CKR". As of March 31, 1997, there were approximately 1,800 record holders of the Company's Common Stock. The following table sets forth, for the periods indicated, the high and low closing sales prices of the Company's Common Stock, as reported on the New York Stock Exchange Composite Tape:
HIGH LOW ---- --- FISCAL 1996 First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5.42 $ 4.25 Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 7.50 4.92 Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 10.58 7.83 Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 11.92 9.58 FISCAL 1997 First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . $16.08 $ 9.92 Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 18.67 13.67 Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 22.83 15.42 Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 24.00 19.08
13 16 The foregoing prices have been adjusted to give retroactive effect to a three-for-two stock split of the Company's Common Stock, which was completed on January 22, 1997 in the form of a stock dividend. No equity securities of CKE were sold by the Company during the fiscal year ended January 27, 1997 that were not registered under the Securities Act of 1933, as amended. The Company has followed a policy of paying semi-annual cash dividends, at the annual rate of $0.05 per share (adjusted to give retroactive effect to the stock split), in each of the last three fiscal years. On March 27, 1997, the Company's Board of Directors increased the semi-annual dividend rate to $0.04 per share and declared a $0.04 cash dividend, which is payable on April 25, 1997 to holders of record on April 4, 1997. Continued payment of dividends on the Company's common stock will depend upon the Company's operating results, business requirements and financial condition, and such other factors that the Company's Board of Directors considers relevant. The Company's credit facility imposes restrictions on the Company's ability to pay dividends or other distributions on its common stock. 14 17 ITEM 6. SELECTED FINANCIAL DATA The information set forth below should be read in conjunction with the consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Form 10-K. Per share data has been retroactively adjusted for stock splits since the Company's inception. SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND RESTAURANT DATA)
FISCAL YEAR ENDED OR AS OF JANUARY 31, (1) ----------------------------------------------------------------- 1997(2) 1996 1995 1994(3) 1993 --------- --------- --------- --------- --------- CONSOLIDATED STATEMENTS OF INCOME DATA: Total revenues . . . . . . . . . . . . . . $ 614,080 $ 465,437 $ 443,747 $ 463,494 $ 505,390 Operating income . . . . . . . . . . . . . 42,000 25,735 8,602 10,508 (7,266) Interest expense . . . . . . . . . . . . . 9,877 10,004 9,202 10,387 13,630 Net income (loss) . . . . . . . . . . . . . 22,302 10,952 1,264 3,665 (5,507) Net income (loss) per common and common equivalent share (4) . . . . . . . . . . $ 0.73 $ 0.39 $ 0.05 $ 0.13 $ (0.20) Cash dividends paid per common share . . . $ 0.05 $ 0.05 $ 0.05 $ 0.05 $ 0.05 Common and common equivalent shares used in computing per share amounts (000) . . . . . . . . . . . . . 30,414 28,019 28,076 27,851 27,051 CARL'S JR. RESTAURANT OPERATING DATA (5): System-wide restaurant revenues: Company-operated restaurants . . . . . . $ 443,304 $ 389,214 $ 364,278 $ 384,859 $ 417,268 Franchised and licensed restaurants . . 204,700 193,984 201,170 209,214 202,109 --------- --------- --------- --------- --------- Total system-wide revenues . . . . . . $ 648,004 $ 583,198 $ 565,448 $ 594,073 $ 619,377 ========= ========= --------- ========= ========= Restaurants open (at end of fiscal year): Company-operated . . . . . . . . . . . . 415 394 383 376 379 Franchised and licensed . . . . . . . . 258 273 277 272 263 --------- --------- --------- --------- --------- Total . . . . . . . . . . . . . . . . 673 667 660 648 642 ========= ========= ========= ========= ========= Average annual sales per Company- operated restaurant (6) . . . . . . . . $ 1,114 $ 1,006 $ 966 $ 992 $ 1,070 Percentage increase (decrease) in comparable Company-operated restaurant sales (7) . . . . . . . . . . 10.7% 4.4% (3.8)% (6.5)% (5.6)% CONSOLIDATED BALANCE SHEET DATA: Total assets . . . . . . . . . . . . . . . $ 401,217 $ 246,759 $ 244,361 $ 242,135 $ 268,924 Total debt, including current portion . . . 87,412 82,874 81,618 79,861 111,879 Stockholders' equity . . . . . . . . . . . $ 214,804 $ 101,189 $ 88,474 $ 92,076 $ 84,732
(1) The Company's fiscal year is 52 or 53 weeks, ending the last Monday in January. For clarity of presentation, all years are presented as if the fiscal year ended January 31. (2) Fiscal 1997 includes results of operations of Rally's from and after July 2, 1996, Summit from and after July 15, 1996 and Casa Bonita from and after October 1, 1996. See Note (5) below. Share and per share data was also affected during fiscal 1997 by a public offering of 4,312,500 shares of common stock, completed in November 1996. (3) Fiscal 1994 includes 53 weeks. (4) Net income (loss) per common and common equivalent share in fiscal 1994 and 1993 is net of a cumulative effect of a change in accounting principle of $(0.03) and $(0.09) per share, respectively. (5) Includes Carl's Jr. restaurant operating data only. Restaurant revenues from Company-operated restaurants exclude revenues of $10.1 million, $57.3 million and $26.1 million, of revenues from the Company's Rally's, Summit and Casa Bonita operations, respectively, in fiscal 1997. Also excludes revenues of $4.3 million and $5.8 million in fiscal 1996 and 1995, respectively, from Boston Market stores which are no longer operated by the Company. See Note 6 of Notes to Consolidated Financial Statements. (6) Calculated on a 52- or 53-week trailing basis for all years presented. (7) Includes only Carl's Jr. restaurants open throughout the full years being compared. 15 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements and related notes and "Selected Financial Data" included elsewhere in this Form 10-K. OVERVIEW The Company owns, operates, franchises and licenses the Carl's Jr. quick-service restaurant concept, which is the seventh largest quick-service hamburger restaurant chain in the United States. As of January 27, 1997, the Carl's Jr. system included 673 restaurants, of which 415 were operated by the Company and 258 were operated by the Company's franchisees and licensees. The Carl's Jr. restaurants are located in the western United States, predominantly in California, and in Mexico and the Pacific Rim. Primarily as a result of recent acquisitions, the Company also operates and franchises a total of 257 other restaurants, including 107 Taco Bueno quick-service Mexican food restaurants located in Texas and Oklahoma. Background. The first Carl's Jr. restaurant was opened in 1956 by Carl N. Karcher, the Company's founder, in Anaheim, California. After an extended period of growth, the Company made certain strategic decisions and experienced operational difficulties in the early 1990s which adversely impacted the Company's sales and profitability. In response to the introduction of value pricing by its quick-service restaurant competitors, the Company reduced prices and initiated an extensive value-priced menu advertising campaign. Beginning in October 1994, the Company hired a new management team that began implementing a variety of strategic and operational programs designed to revitalize the Carl's Jr. brand and improve financial results. These programs included, among others, a renewed focus on offering superior products, the elimination of most value-priced menu items, a new advertising campaign, a dual-branding program with The Green Burrito and the commencement of a remodeling program for Carl's Jr. restaurants. As a result of these strategies, together with the Company's successful efforts to reduce expenses at both the corporate and operating levels, the Company experienced significant improvements in sales and operating results in fiscal 1996 and fiscal 1997. The Company is continuing to implement its dual-branding and remodeling programs and to focus on reducing expenses, and believes it will continue to benefit from such activities in the future. Image Enhancement and Dual-Branding Programs. During fiscal 1996, the Company commenced its image enhancement program, aimed at remodeling and revitalizing its Carl's Jr. restaurants. As of January 27, 1997, the Company had remodeled over half of its Carl's Jr. restaurants and plans to complete the remodeling of substantially all of its Company-operated Carl's Jr. restaurants by the end of fiscal 1998. The cost of remodeling ranges from $100,000 to $140,000 for each location. The Company also initiated its Green Burrito dual-branding program during fiscal 1996. As of January 27, 1997, the Company had converted 59 Company-operated Carl's Jr. restaurants to Carl's Jr./Green Burrito dual-brand locations and the Company plans to convert 60 additional restaurants during fiscal 1998. During fiscal 1997 post-conversion revenues in the 59 Company-operated restaurants converted to Carl's Jr./Green Burrito dual-brand restaurants (including restaurants converted during the year) were approximately 25% higher than same-store sales in the comparable prior year period. The Company incurs approximately $40,000 to $50,000 in equipment and signage costs in converting its Carl Jr. restaurants into dual-brand restaurants. At the time of the conversions of Carl's Jr. restaurants to Carl's Jr./Green Burrito dual-brand restaurants, the Company intends to remodel such restaurants as described above. See "Business -- Carl's Jr. -- Green Burrito Development Agreement." Restaurant Performance. For the trailing 52-week period ended January 27, 1997, the Company's average annual sales per Company-operated Carl's Jr. restaurant was $1,114,000. For fiscal 1997, Company-operated Carl's Jr. restaurants generated restaurant-level margins of 21.9%. The Company believes its Company-operated Carl's Jr. restaurants generate strong restaurant-level margins and per-store average sales that are among the highest of the major quick-service hamburger restaurant chains. General. The Company's revenues are derived primarily from sales by Company-operated restaurants and revenues from franchisees, including franchise and royalty fees, rentals under real property leases and sales 16 19 of food and packaging products. Restaurant operating expenses consist primarily of food and packaging costs, payroll and other employee benefits and occupancy and other operating expenses of Company-operated restaurants. Operating costs of the Company's franchised and licensed restaurants include the cost of food and packaging products sold to the Company's franchisees and licensees and lease payments on properties subleased to the Company's franchisees. Other operating expenses, including advertising expenses and general and administrative expenses, relate to Company-operated restaurants as well as franchisee and licensee operations. The Company's revenues and expenses are directly affected by the number and sales volumes of Company-operated restaurants and, to a lesser extent, franchised and licensed restaurants. Approximately 78% of the Company's fiscal 1997 revenues from franchised and licensed restaurants were derived from sales of food and packaging products through the Company's distribution operations to its Carl's Jr. franchisees and licensees. The Company's distribution operations support both Company-operated and franchised Carl's Jr. restaurants by maintaining system-wide product quality and consistency and by utilizing volume buying power which the Company believes lowers the costs of food and paper products. RESULTS OF OPERATIONS The following table sets forth the percentage relationship to total revenues, unless otherwise indicated, of certain items included in the Company's consolidated statements of income for the years indicated:
FISCAL YEAR ENDED JANUARY 31, ----------------------------------- 1997(1) 1996 1995 ------ ------ ------ Revenues: Company-operated restaurants . . . . . . . . . . . . . . . . . . . . . 87.4% 84.5% 83.4% Franchised and licensed restaurants . . . . . . . . . . . . . . . . . . 12.6 15.5 16.6 ------ ------ ------ Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% ====== ====== ====== Operating costs and expenses: Restaurants operations(2): Food and packaging . . . . . . . . . . . . . . . . . . . . . . . . . 31.2% 30.8% 30.3% Payroll and other employee benefits . . . . . . . . . . . . . . . . . 27.9 27.9 30.3 Occupancy and other operating expenses . . . . . . . . . . . . . . . 21.0 20.9 22.2 ------ ------ ------ 80.1 79.6 82.8 Franchised and licensed restaurants(3) . . . . . . . . . . . . . . . . 93.2 95.7 94.8 Advertising expenses(2) . . . . . . . . . . . . . . . . . . . . . . . . 5.3 5.1 5.4 General and administrative expenses . . . . . . . . . . . . . . . . . . 6.8 8.1 8.7 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8 5.5 1.9 Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.6) (2.1) (2.1) Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 0.5 0.7 ------ ------ ------ Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . 6.0 3.9 0.5 Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 1.5 0.2 ------ ------ ------ Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6% 2.4% 0.3% ====== ====== ======
(1) Fiscal 1997 includes results of operations of Rally's from and after July 2, 1996, Summit from and after July 15, 1996 and Casa Bonita from and after October 1, 1996. (2) As a percentage of revenues from Company-operated restaurants. (3) As a percentage of revenues from franchised and licensed restaurants. REVENUES Company-operated Restaurants. Revenues from Company-operated restaurants, comprised mainly of sales from Carl's Jr. restaurants, increased $143.3 million or 36.4% to $536.8 million in fiscal 1997 as compared 17 20 with $393.5 million in fiscal 1996. Carl's Jr. revenues for fiscal 1997 accounted for sales increases of $54.1 million, while revenues from the Company's Rally's, Summit and Casa Bonita restaurant concepts accounted for $10.1 million, $57.3 million and $26.1 million of revenues from Company-operated restaurants, respectively, in fiscal 1997. Fiscal 1996 revenues included approximately $4.3 million from the Company's Boston Market operations. On a same-store sales basis, the Company's Carl's Jr. sales, which are calculated using only restaurants open for the full years being compared, increased 10.7% as compared with a 4.4% increase a year ago. This marks the second consecutive yearly increase in same-store sales and the highest same-store sales reported by the Company's Carl's Jr. chain in nearly a decade. Per store averages in Company-operated Carl's Jr. restaurants continued to increase in fiscal 1997 and reached $1,114,000 on a 13-period rolling basis, an increase of $108,000 over the prior year and the highest per store average attained since fiscal 1991. The increase in revenues from Company-operated Carl's Jr. restaurants is primarily the result of the continued momentum in the Company's various sales enhancement programs that were implemented in fiscal 1996. These programs include the image enhancement of its restaurants through a chain-wide remodeling program, the continuation of its conversion of existing Carl's Jr. locations into Carl's Jr./Green Burrito dual-brand restaurants and the continued focus on promoting great tasting new and existing food products through increased innovative advertising. An increase in the number of Company-operated restaurants operating in fiscal 1997 as compared with the prior year also contributed to the increase in revenues from Company-operated Carl's Jr. restaurants. Revenues from Company-operated restaurants totaled $393.5 million in fiscal 1996, an increase of $23.4 million, or 6.3%, as compared with fiscal 1995. This increase was primarily the result of the sales enhancement programs that were implemented in fiscal 1996. Also contributing to the rise in revenues were higher average sales and transaction counts per restaurants and an increase in the number of Carl's Jr. restaurants in operation in fiscal 1996 as compared with 1995. The 4.4% increase in same-store sales in fiscal 1996 over fiscal 1995 was the first yearly increase in same-store sales experienced by the Company in six years. Franchised and Licensed Restaurants. Revenues from franchised and licensed restaurants for fiscal 1997 increased 7.4% to $77.3 million over fiscal 1996, while fiscal 1996 revenues decreased $1.8 million, or 2.4%, as compared with fiscal 1995. The fiscal 1997 increase is largely due to increased royalties from, and food purchases by, franchisees as a result of higher sales volume at franchised Carl's Jr. restaurants, partially offset by a decrease in the number of franchised and licensed Carl's Jr. restaurants operating as compared with the prior year. The decrease in 1996 was largely due to lower prices of food and other products supplied to franchisees by the Company, which were passed along to franchisees, along with a slight decrease in the number of franchised Carl's Jr. restaurants in operation in fiscal 1996 as compared with fiscal 1995. OPERATING COSTS AND EXPENSES Company-operated Restaurants. Restaurant-level margins of the Company's restaurant operations decreased 0.6% in fiscal 1997 to 19.9% as compared with fiscal 1996, primarily reflecting the impact of higher operating costs from Summit's family-style restaurant concepts since the date of acquisition. The family-style restaurant segment of the restaurant industry typically has lower margins than the quick-service segment of the industry, mainly due to increased labor and food costs. Excluding the $1.3 million effect of the adoption of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," during the first quarter of fiscal 1997, the Company's restaurant-level margins for the fiscal year would have been 20.1%. While the Company's consolidated restaurant-level margins decreased in fiscal 1997, the Company's efforts to reduce the restaurant-level cost structure of its Carl's Jr. restaurants, which began in fiscal 1994, have resulted in significant improvement in the Company's Carl's Jr. restaurant-level margins. These margins, as a percentage of revenues from Company-operated Carl's Jr. restaurants, were 21.9%, 20.6%, and 17.6% in fiscal 1997, 1996, and 1995, respectively. These improved results in the Company's Carl's Jr. restaurant-level operating margins in fiscal 1997 reflect the Company's continued commitment to improve the cost structure of its Carl's Jr. restaurants, particularly in the areas of improving labor productivity and reducing workers' compensation claims and losses. The 3.0% restaurant-level margin improvement in fiscal 1996 was primarily attributable to material declines in payroll and other employee benefit costs. 18 21 The Company's Carl's Jr. food and packaging costs have remained relatively consistent at 31.0%, 30.7% and 30.1% of revenues from Company-operated Carl's Jr. restaurants for fiscal 1997, 1996 and 1995, respectively. During fiscal 1997 and 1996, food costs increased marginally due to increased pressure from commodities prices and a change in the mix of products sold to higher food cost products, such as the Big Bacon Star which was introduced in the first quarter of fiscal 1997, the Guacamole Bacon Cheeseburger which was introduced in the fourth quarter of fiscal 1997, the Crispy Chicken Sandwiches which were introduced during the third quarter of fiscal 1996, and the Famous Star, which is offered at participating restaurants at $0.99 and is currently the Company's only value-priced product. Carl's Jr. payroll and other employee benefit costs, as a percentage of revenues from Company-operated Carl's Jr. restaurants, declined 1.4% in fiscal 1997 to 26.5% and decreased 2.3% in fiscal 1996 to 27.9%. These significant reductions in payroll and other employee benefit costs were achieved despite the October 1, 1996 increase in the federal minimum wage. The cost reductions came primarily as a result of labor productivity programs implemented during fiscal 1996 to further decrease costs and improve direct labor efficiencies. Moreover, the Company added new safety and other programs in fiscal 1994, which, coupled with changes in state regulations, have resulted in a decrease in work-related injuries and reduced the Company's worker's compensation claims and losses during fiscal 1997 and 1996. Many of the Company's employees are paid hourly rates related to the federal and state minimum wage laws. Recent legislation increasing the federal minimum wage as of October 1, 1996 has resulted in higher labor costs to the Company and its franchisees. An additional increase in the federal minimum wage will become effective in September 1997. Further, as a result of recent California state legislation, the state minimum wage in California was increased in March 1997. The Company anticipates that increases in the minimum wage may be offset through pricing and other cost control efforts; however, there can be no assurance that the Company or its franchisees will be able to pass such additional costs on to customers in whole or in part. Occupancy and other operating expenses for the Company's Carl's Jr. restaurant chain, as a percentage of revenues from Company-operated Carl's Jr. restaurants, were 20.6%, 20.8% and 22.2% in fiscal 1997, 1996 and 1995, respectively. The decreases in fiscal 1997 and 1996 were largely due to the Company's efforts to maintain costs at the prior fiscal year levels, which included reducing utility costs through the installation of energy-efficient lighting during fiscal 1996. Further, since these items are generally fixed in nature, they decrease as a percentage of Company-operated restaurant revenues as revenues increase. Franchised and Licensed Restaurants. Franchised and licensed restaurant costs have followed a similar trend over the past three fiscal years to the revenues from franchised and licensed restaurants. These costs increased 4.6% in fiscal 1997 to $72.0 million while fiscal 1996 costs decreased $1.0 million, or 1.5%, to $68.8 million. The overall increase in fiscal 1997 is primarily due to increased food purchases by Carl's Jr. franchisees, partially offset by a decrease in the number of franchised and licensed restaurants in operation in fiscal 1997 as compared with the prior year. The fiscal 1996 decrease was primarily attributable to the decrease in the number of franchised restaurants in operation. Advertising Expenses. Advertising expenses have become increasingly important in the current competitive environment and, accordingly, the Company increased the dollars spent on advertising by $8.4 million to $28.3 million in fiscal 1997 as compared with fiscal 1996, while keeping advertising expenses as a percentage of revenues from Company-operated restaurants relatively consistent with the prior fiscal years. In fiscal 1997, the Company spent more on advertising production and increased the number of weeks on electronic media as compared with the prior fiscal year. During fiscal 1996, a new advertising agency was appointed to assist the Company in redirecting its Carl's Jr. marketing programs and restoring its reputation of offering superior quality products. An innovative new advertising campaign was introduced in May 1995 and the Company has seen seven consecutive quarterly increases in same-store sales in Company-operated Carl's Jr. restaurants as compared with the corresponding quarters of the prior year since the start of the campaign. 19 22 General and Administrative Expenses. General and administrative expenses in fiscal 1997 increased $3.8 million to $41.6 million, or 6.8% of total revenues. However, as a percentage of total revenues, these expenses decreased 1.3% as compared to the prior fiscal year, reflecting the economies of scale the Company is achieving by collapsing certain costs from acquired businesses into the Company's existing infrastructure. The increase in general and administrative expenses in fiscal 1997 is primarily the result of recording incentive compensation accruals for regional restaurant management and selected corporate employees as a result of improved restaurant operating performance. Also contributing to the increase were increased amortization expense and various corporate legal expenses. In fiscal 1996, general and administrative expenses amounted to $37.9 million, or 8.1% of sales, a decrease of $0.9 million, or 2.4% from fiscal 1995. During fiscal 1996, the Company benefited, through reduced payroll and employee benefit costs, from various reorganizations and headcount reductions that occurred both in fiscal 1996 and prior years. Also contributing to the decrease in general and administrative expenses in fiscal 1996 was the formation in April 1995 of Boston West, whereby this entity assumed the operations of all of the Company's existing Boston Market stores and agreed to fulfill the Company's remaining obligations under its area development agreement with BCI. See Note 6 of Notes to Consolidated Financial Statements. Interest Expense. Interest expense for fiscal 1997 decreased 1.3% to $9.9 million as compared with the prior year as a result of lower levels of borrowings outstanding during fiscal 1997, the prepayment of certain indebtedness early in the year and lower interest rates. Interest expense for fiscal 1996 increased 8.7% to $10.0 million, primarily as a result of higher levels of borrowings and higher interest rates in fiscal 1996 as compared with fiscal 1995. Other Income, Net. Other income, net, is primarily comprised of investment income, interest on notes and leases receivable, gains and losses on sales of restaurants and income and loss from long-term investments. Other income, net, increased $2.4 million from fiscal 1996, primarily due to an increase in investment income as a result of increased cash levels on hand during fiscal 1997 and gain on the sale of restaurants in fiscal 1997 as compared with a loss in the prior year. These fiscal 1997 increases in other income, net, were partially offset by a decrease in interest income on notes receivable due to the sale of certain of its franchise notes receivable in fiscal 1996. In addition, included in fiscal 1996 was a $1.6 million decrease in the Company's Boston Market investment which resulted from the Company recording its pro-rata share of the losses from Boston West. Other income, net, decreased 25.9% to $2.2 million in fiscal 1996, largely due to decreases in investment income resulting from lower investment levels as compared with fiscal 1995. FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents increased $16.4 million to $39.8 million in fiscal 1997. Total cash provided by the Company's consolidated operations increased $25.4 million to $63.2 million which was primarily due to increased revenues and increased gross margins from its Carl's Jr. restaurants. Consolidated investing activities required the Company to use $114.9 million in cash to fund capital additions of $47.9 million, to complete the acquisitions of certain franchised restaurants, Summit and Casa Bonita, net of cash acquired, of $61.5 million, and to fund the Company's purchase of its long-term investment in Rally's of approximately $7.9 million and note receivable from Checkers of approximately $13.4 million. Cash outflows from investment activities were partially offset by cash proceeds of $17.1 million as a result of the sale of the Company's marketable securities portfolio and property and equipment and from the collection on and sale of notes receivable, related party receivables and leases receivable. Financing activities provided the Company with $68.1 million primarily as a result of cash proceeds of $77.6 million from the Company's common stock offering. See Note 11 to Notes of Consolidated Financial Statements. The increase in new borrowings of $76.8 million were primarily used to fund the acquisition of Casa 20 23 Bonita and to replace an existing $20.0 million term loan. Cash proceeds from the common stock offering, along with cash flows from operations and cash proceeds from the exercise of the Company's common stock options, were used to reduce the Company's long-term debt by approximately $86.3 million. Repayments of long-term debt included the repayment of the credit facility which was used to fund the Casa Bonita acquisition, the repayment of the existing $20.0 million term loan and the early repayment of indebtedness of $6.5 million. The Company also used cash to reduce capital lease obligations by $3.8 million and to pay dividends of $1.5 million. Effective August 12, 1996, the Company entered into a new credit agreement with a group of financial institutions. Under the terms of the credit agreement, the Company borrowed the principal amount of $20.0 million under a five-year, fully amortizing term loan, the proceeds of which were used to repay existing indebtedness. The credit agreement also provides the Company with (i) a revolving credit facility for working capital and other general corporate purposes, under the terms of which the Company may borrow from time to time up to $30.0 million (including a letter of credit subfacility of up to $20.0 million), and (ii) a revolving credit facility for the purpose of financing investments in and acquisitions of other companies, under the terms of which the Company may borrow from time to time up to $25.0 million. The amounts advanced, if any, to the Company and remaining outstanding under the revolving acquisition facility will convert after two years into a three-year, fully amortizing loan. The Company's revolving credit facility matures on July 31, 2001. As of January 27, 1997, no borrowings remained outstanding under this credit facility. The credit agreement also includes customary affirmative and negative covenants which, among other things, restrict the Company's ability to (i) incur or create indebtedness on or with respect to its properties, (ii) incur additional indebtedness, (iii) merge or consolidate with other entities, (iv) sell assets and (v) declare or pay dividends or repurchase shares of capital stock, subject in each of the foregoing cases to certain exceptions. In addition, the credit agreement requires the Company to maintain certain specified financial ratios and operating results. As of fiscal year end, the Company is in compliance with all of its covenants governing its credit facility. During the fourth quarter of fiscal 1997, the Company issued 4.3 million shares of its common stock at a public offering price of $19.08 per share (adjusted for the stock split). See Note 11 of Notes to Consolidated Financial Statements. Proceeds from the offering, net of underwriting discounts and commissions and other related expenses, were $77.6 million and were used primarily to repay indebtedness. The Company's primary source of liquidity is its revenues from Company-operated restaurants, which are generated in cash. Future capital needs will arise primarily for the construction of new Carl's Jr. and Taco Bueno restaurants, the remodeling of existing restaurants, and the conversion of certain restaurants to the Carl's Jr./Green Burrito dual-brand concept. The Company plans to open up to 30 new Carl's Jr. restaurants and is evaluating opening additional new Taco Bueno restaurants in its existing markets during fiscal 1998. During fiscal 1998, the Company also expects to continue to remodel the remaining Company-operated Carl's Jr. restaurants and to convert up to 60 Carl's Jr. locations into Carl's Jr./Green Burrito units. The Company believes cash generated from its various restaurant concept operations, cash and cash equivalents as of January 27, 1997 and amounts available under the Company's revolving credit facility, will be sufficient to satisfy the Company's capital spending requirements for at least the next 12 months. If those sources of capital are insufficient to satisfy the Company's capital spending and working capital requirements, or if the Company determines to make any significant acquisitions of or investments in other businesses, the Company may be required to sell additional equity or debt securities or obtain additional credit facilities. The sales, if any, of additional equity or convertible debt securities could result in additional dilution to the Company's shareholders. IMPACT OF INFLATION Management recognizes that inflation has an impact on food, construction, labor and benefit costs, all of which can significantly affect the Company's operations. Historically, the Company has been able to pass any associated higher costs due to these inflationary factors along to its customers because those factors have impacted nearly all restaurant companies. During fiscal 1997 and fiscal 1996, however, management emphasized cost controls rather than price increases, given the competitive pressure within the quick-service industry. 21 24 NEW ACCOUNTING PRONOUNCEMENTS In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), effective for fiscal years beginning after December 15, 1996. SFAS 128 introduces and requires the presentation of "basic" earnings per share which represents net earnings divided by the weighted average shares outstanding excluding all common stock equivalents. Dual presentation of "diluted" earnings per share reflecting the dilutive effects of all common stock equivalents, will also be required. The diluted presentation is similar to the current presentation of fully diluted earnings per share. Management believes the adoption of SFAS 128 will not have a material impact on the Company's consolidated financial position or results of operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Index included at "Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K." ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information pertaining to directors and executive officers of the registrant is hereby incorporated by reference to the Company's Proxy Statement to be used in connection with the Company's 1997 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 27, 1997. Information concerning the current executive officers of the Company is contained in Item 1 of Part I of this Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information pertaining to executive compensation is hereby incorporated by reference to the Company's Proxy Statement to be used in connection with the Company's 1997 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 27, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information pertaining to security ownership of certain beneficial owners and management is hereby incorporated by reference to the Company's Proxy Statement to be used in connection with the Company's 1997 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 27, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information pertaining to certain relationships and related transactions is hereby incorporated by reference to the Company's Proxy Statement to be used in connection with the Company's 1997 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 27, 1997. 22 25 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGE (A)(1) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS: NUMBER ------ Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1 Consolidated Balance Sheets -- as of January 31, 1997 and 1996 . . . . . . . . . . . . . . F-2 Consolidated Statements of Income -- for the years ended January 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3 Consolidated Statements of Stockholders' Equity -- for the years ended January 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4 Consolidated Statements of Cash Flows -- for the years ended January 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . F-6
(A)(2) INDEX TO FINANCIAL STATEMENT SCHEDULES: All schedules are omitted since the required information is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto. (A)(3) EXHIBITS: An "Exhibit Index" has been filed as a part of this Form 10-K beginning on page E-1 hereof and is incorporated herein by reference. (B) CURRENT REPORTS ON FORM 8-K: None. 23 26 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CKE RESTAURANTS, INC. By /s/ WILLIAM P. FOLEY II -------------------------------------- William P. Foley II Chairman of the Board and Chief Executive Officer Date: April 11, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE --------- ----- ---- /s/ WILLIAM P. FOLEY II Chairman of the Board and April 11, 1997 - --------------------------- Chief Executive Officer William P. Foley II (Principal Executive Officer) /s/ CARL A. STRUNK Executive Vice President, April 11, 1997 - --------------------------- Chief Financial Officer Carl A. Strunk (Principal Financial and Accounting Officer) /s/ Director April , 1997 - --------------------------- Byron Allumbaugh /s/ PETER CHURM Director April 11, 1997 - --------------------------- Peter Churm /s/ CARL L. KARCHER Director April 11, 1997 - --------------------------- Carl L. Karcher /s/ CARL N. KARCHER Director April 11, 1997 - --------------------------- Carl N. Karcher /s/ DANIEL D. (Ron) LANE Vice Chairman of the Board April 11, 1997 - --------------------------- Daniel D. (Ron) Lane /s/ W. HOWARD LESTER Director April 11, 1997 - --------------------------- W. Howard Lester /s/ FRANK P. WILLEY Director April 11, 1997 - --------------------------- Frank P. Willey 24 27 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders CKE Restaurants, Inc. and Subsidiaries: We have audited the accompanying consolidated financial statements of CKE Restaurants, Inc. and subsidiaries as listed in the accompanying index. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CKE Restaurants, Inc. and subsidiaries as of January 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended January 31, 1997 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Orange County, California March 17, 1997 F-1 28 CKE RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS A S S E T S
January 31 1997 1996 ---- ---- (Dollars in thousands) Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 39,782 $ 23,429 Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . -- 2,510 Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,942 7,295 Related party receivables . . . . . . . . . . . . . . . . . . . . . . . . 2,088 977 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,223 6,132 Deferred income taxes, net . . . . . . . . . . . . . . . . . . . . . . . 7,214 10,056 Other current assets and prepaid expenses . . . . . . . . . . . . . . . . 6,608 5,656 --------- --------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 72,857 56,055 Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . 205,805 119,128 Property under capital leases, net . . . . . . . . . . . . . . . . . . . . 37,115 28,399 Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,218 19,814 Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,210 7,801 Related party receivables . . . . . . . . . . . . . . . . . . . . . . . . . 9,325 969 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,687 14,593 --------- --------- $ 401,217 $ 246,759 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . $ 735 $ 8,575 Current portion of capital lease obligations . . . . . . . . . . . . . . 4,766 3,745 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,930 15,824 Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 44,463 31,756 --------- --------- Total current liabilities . . . . . . . . . . . . . . . . . . . . . 83,894 59,900 --------- --------- Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,770 30,321 Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . 48,141 40,233 Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . 20,608 15,116 Stockholders' equity: Preferred stock, $.01 par value; authorized 5,000,000 shares; none issued or outstanding . . . . . . . . . . . . . . . . . . . . . . -- -- Common stock, $.01 par value; authorized 50,000,000 shares; issued and outstanding 33,218,751 shares and 28,800,211 shares . . . . . . . . . . . . . . . . . . . . . . . . 332 288 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 126,279 38,617 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,193 67,393 Treasury stock, at cost; -0- shares and 1,005,450 shares . . . . . . . . -- (5,109) --------- --------- Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . 214,804 101,189 --------- --------- $ 401,217 $ 246,759 ========= =========
See accompanying notes to consolidated financial statements. F-2 29 CKE RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF INCOME
Fiscal year ended January 31 1997 1996 1995 ---- ---- ---- (In thousands except per share amounts) Revenues: Company-operated restaurants: Carl's Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 443,304 $ 389,214 $ 364,278 Taco Bueno . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,146 -- -- JB's Restaurants . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,517 -- -- HomeTown Buffet . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,590 -- -- Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,251 4,272 5,767 --------- --------- --------- 536,808 393,486 370,045 --------- --------- --------- Franchised and licensed restaurants: Carl's Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,491 71,951 73,702 JB's Restaurants . . . . . . . . . . . . . . . . . . . . . . . . . . . 781 -- -- --------- --------- --------- 77,272 71,951 73,702 --------- --------- --------- Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . 614,080 465,437 443,747 --------- --------- --------- Operating costs and expenses: Restaurant operations: Food and packaging . . . . . . . . . . . . . . . . . . . . . . . . . . 167,625 121,029 111,985 Payroll and other employee benefits . . . . . . . . . . . . . . . . . 149,846 109,942 112,177 Occupancy and other operating expenses . . . . . . . . . . . . . . . . 112,689 82,095 82,172 --------- --------- --------- 430,160 313,066 306,334 Franchised and licensed restaurants . . . . . . . . . . . . . . . . . . . 71,986 68,839 69,871 Advertising expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 28,291 19,940 20,148 General and administrative expenses . . . . . . . . . . . . . . . . . . . 41,643 37,857 38,792 --------- --------- --------- Total operating costs and expenses . . . . . . . . . . . . . . . . . 572,080 439,702 435,145 --------- --------- --------- Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,000 25,735 8,602 Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,877) (10,004) (9,202) Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,587 2,222 2,998 --------- --------- --------- Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . 36,710 17,953 2,398 Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,408 7,001 1,134 --------- --------- --------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,302 $ 10,952 $ 1,264 ========= ========= ========= Net income per common and common equivalent share . . . . . . . . . . . . . $ 0.73 $ 0.39 $ 0.05 ========= ========= ========= Common and common equivalent shares used in computing per share amounts . . . . . . . . . . . . . . . . . . . 30,414 28,019 28,076 ========= ========= =========
See accompanying notes to consolidated financial statements. F-3 30 CKE RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Treasury Stock ------------------------ ------------------------ Additional Total Number of Number of Paid-In Retained Stockholders' Shares Amount Shares Amount Capital Earnings Equity -------- -------- -------- -------- -------- -------- -------- (In thousands except per share amounts) BALANCE AT JANUARY 31, 1994 . . . . . 28,016 $ 280 -- $ -- $ 33,648 $ 58,148 $ 92,076 Cash dividends ($.05 per share) . . . . -- -- -- -- -- (1,499) (1,499) Exercise of stock options . 251 3 -- -- 1,096 -- 1,099 Tax benefit associated with exercise of stock options . . . . . -- -- -- -- 280 -- 280 Purchase of treasury stock . . . . . . . . . -- -- 885 (4,558) -- -- (4,558) Net unrealized loss on investment securities . . -- -- -- -- -- (188) (188) Net income . . . . . . . . -- -- -- -- -- 1,264 1,264 -------- -------- -------- -------- -------- -------- -------- BALANCE AT JANUARY 31, 1995 . . . . . 28,267 283 885 (4,558) 35,024 57,725 88,474 Cash dividends ($.05 per share) . . . . -- -- -- -- -- (1,460) (1,460) Exercise of stock options . 533 5 -- -- 2,745 -- 2,750 Tax benefit associated with exercise of stock options . . . . . -- -- -- -- 848 -- 848 Purchase of treasury stock . . . . . . . . . -- -- 120 (551) -- -- (551) Net unrealized gain on investment securities . -- -- -- -- -- 176 176 Net income . . . . . . . . -- -- -- -- -- 10,952 10,952 -------- -------- -------- -------- -------- -------- -------- BALANCE AT JANUARY 31, 1996 . . . . . 28,800 288 1,005 (5,109) 38,617 67,393 101,189 Cash dividends ($.05 per share) . . . . -- -- -- -- -- (1,502) (1,502) Exercise of stock options . 360 4 -- -- 2,226 -- 2,230 Purchase of Summit . . . . 752 7 -- -- 11,404 -- 11,411 Common stock offering, net 4,312 43 -- -- 77,572 -- 77,615 Retirement of treasury stock . . . . . . . . . (1,005) (10) (1,005) 5,109 (5,099) -- -- Tax benefit associated with exercise of stock options . . . . . -- -- -- -- 1,559 -- 1,559 Net income . . . . . . . . -- -- -- -- -- 22,302 22,302 -------- -------- -------- -------- -------- -------- -------- BALANCE AT JANUARY 31, 1997 . . . . . 33,219 $ 332 -- $ -- $126,279 $ 88,193 $214,804 ======== ======== ======== ======== ======== ======== ========
See accompanying notes to consolidated financial statements. F-4 31 CKE RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal year ended January 31 1997 1996 1995 ---- ---- ---- (Dollars in thousands) Net cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $22,302 $ 10,952 $ 1,264 Adjustments to reconcile net income to net cash provided by operating activities, excluding the effect of acquisitions: Noncash franchise (income) expense . . . . . . . . . . . . . . . (146) 209 170 Depreciation and amortization . . . . . . . . . . . . . . . . . 27,056 21,372 22,755 Loss on sale of property and equipment and capital leases . . . 1,520 1,828 2,118 Reversal of rent subsidy reserves . . . . . . . . . . . . . . . -- -- (2,680) Income (loss) from long-term investments . . . . . . . . . . . . (140) 1,898 -- Net noncash investment and dividend income . . . . . . . . . . . (1,117) (851) (25) Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 6,380 4,211 3,434 Write-down of long-lived assets . . . . . . . . . . . . . . . . 1,250 -- -- Settlement of notes receivable . . . . . . . . . . . . . . . . . -- (1,292) -- Net change in receivables, inventories and other current assets (5,204) (1,757) (4,329) Net change in other assets . . . . . . . . . . . . . . . . . . . (528) (463) (1,119) Net change in accounts payable and other current liabilities . . 11,834 1,672 (133) -------- -------- -------- Net cash provided by operating activities . . . . . . . . . . 63,207 37,779 21,455 -------- -------- -------- Cash flows from investing activities: Purchases of: Marketable securities . . . . . . . . . . . . . . . . . . . . . (760) (921) (3,549) Property and equipment . . . . . . . . . . . . . . . . . . . . . (47,906) (27,148) (40,010) Long-term investments . . . . . . . . . . . . . . . . . . . . . (7,855) (1,670) -- Proceeds from sale of: Marketable securities and long-term investments . . . . . . . . 5,418 1,972 15,994 Property and equipment . . . . . . . . . . . . . . . . . . . . . 7,816 905 110 Increases in notes receivable and related party receivables . . . . (14,020) (2,640) (1,985) Collections on and sale of notes receivable, related party receivables and leases receivable . . . . . . . . . . . . . . . 3,840 9,900 2,441 Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . (61,453) -- -- -------- -------- -------- Net cash used in investing activities . . . . . . . . . . . . (114,920) (19,602) (26,999) -------- -------- -------- Cash flows from financing activities: Net proceeds from common stock offering . . . . . . . . . . . . . . 77,614 -- -- Net change in bank overdraft . . . . . . . . . . . . . . . . . . . 8,355 (11,477) 10,203 Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . 1,200 57,060 32,806 Repayments of short-term debt . . . . . . . . . . . . . . . . . . . (1,200) (57,060) (13,981) Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . 76,808 14,573 -- Repayments of long-term debt . . . . . . . . . . . . . . . . . . . (86,274) (11,149) (14,771) Repayments of capital lease obligations . . . . . . . . . . . . . . (3,814) (3,129) (2,878) Net change in other long-term liabilities . . . . . . . . . . . . . (6,910) (327) (3,076) Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . -- (551) (4,558) Payment of dividends . . . . . . . . . . . . . . . . . . . . . . . (1,502) (1,460) (1,499) Exercise of stock options . . . . . . . . . . . . . . . . . . . . . 2,230 2,750 1,099 Tax benefit associated with the exercise of stock options . . . . . 1,559 848 280 -------- -------- -------- Net cash provided by (used in) financing activities . . . . . 68,066 (9,922) 3,625 -------- -------- -------- Net increase (decrease) in cash and cash equivalents . . . . . . . $ 16,353 $ 8,255 $ (1,919) ======== ======== ========
See accompanying notes to consolidated financial statements. F-5 32 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES A summary of certain significant accounting policies not disclosed elsewhere in the footnotes to the consolidated financial statements is set forth below. Description of Business CKE Restaurants, Inc. ("CKE" and collectively with its subsidiaries, the "Company") owns, operates, franchises and licenses the Carl's Jr. quick-service restaurant concept. As of January 31, 1997, the Carl's Jr. system included 673 restaurants, of which 415 were operated by the Company and 258 were operated by the Company's franchisees and licensees. The Carl's Jr. restaurants are located in the western United States, predominantly in California, and in Mexico and the Pacific Rim. Primarily as a result of acquisitions which occurred in fiscal 1997, the Company also operates and franchises a total of 257 other restaurants, including 107 Taco Bueno quick-service Mexican food restaurants located in Texas and Oklahoma. Basis of Presentation and Fiscal Year In June 1994, a plan of reorganization and merger (the "Merger") was approved by the stockholders of Carl Karcher Enterprises, Inc. ("Enterprises"), whereby Enterprises, the predecessor entity of the Company that was a publicly held corporation, and Boston Pacific, Inc. ("Boston Pacific") became wholly-owned subsidiaries of the Company, a Delaware corporation organized during fiscal 1995. In fiscal 1997, the Company made two restaurant acquisitions. Summit Family Restaurants Inc. ("Summit") was acquired in July 1996 and Casa Bonita Incorporated ("Casa Bonita") was acquired in October 1996 (see Note 2). Both Summit and Casa Bonita are wholly-owned subsidiaries of the Company. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions are eliminated. The Company's fiscal year is 52 or 53 weeks, ending the last Monday in January each year. Fiscal years 1997, 1996 and 1995 each included 52 weeks of operations. For clarity of presentation, the Company has described all years presented as if the fiscal year ended January 31. Cash Equivalents For purposes of reporting cash flows, highly liquid investments purchased with original maturities of three months or less are considered cash equivalents. The carrying amounts reported in the consolidated balance sheets for these instruments approximate their fair value. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market, and consist primarily of restaurant food items and paper supplies. Pre-opening Costs The Company capitalizes certain costs incurred in conjunction with the opening of new restaurants. These costs are amortized on a straight-line basis over a one-year period from the date of opening. F-6 33 Deferred Financing Costs Costs related to the issuance of debt are deferred and amortized on a straight-line basis as a component of interest expense over the terms of the respective debt issues. Investment in Joint Ventures In fiscal 1994, the Company entered into a joint venture agreement with a Mexican company to operate a Carl's Jr. restaurant in Baja California. The Company owns a 50% interest in this joint venture. In fiscal 1996, the Company entered into another joint venture agreement, in which the Company owns a 30% interest, with one of its licensees to operate 130 Carl's Jr. restaurants in 16 Asian countries over the next five years. Both joint venture agreements, which are accounted for by the equity method, are not considered material to the Company's consolidated financial statements. Restaurant Operating Agreement The Company and Rally's Hamburgers, Inc. ("Rally's") entered into an operating agreement, effective in July 1996, whereby the Company began operating 28 Rally's-owned restaurants located in California and Arizona. Rally's retains ownership of the restaurants' assets and receives a percentage of the restaurants' sales. One of the Rally's restaurants operated by the Company has been converted into a Carl's Jr. "Jr." restaurant, which offers a limited Carl's Jr. menu in a double drive-thru and walk-up service format. The Company is considering the conversion of more of these Rally's restaurants to Carl's Jr. "Jr." restaurants. The Company's results of operations include the revenue and expenses of these 28 restaurants from July 2, 1996. Property and Equipment Property and equipment are recorded at cost, less depreciation and amortization. Depreciation is computed using the straight-line method based on the assets' estimated useful lives, which range from three to forty years. Leasehold improvements are amortized on a straight-line basis over the lesser of the estimated useful lives of the assets or the related lease terms. Impairment of Long-Lived Assets In fiscal 1997 the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires the assessment of certain long-lived assets for possible impairment when events or circumstances indicate their carrying amounts may not be recoverable. Losses are recognized when the carrying value of these assets exceeds the total estimated undiscounted cash flows expected to be generated over the assets' estimated life. The Company adopted SFAS 121 in the first quarter of fiscal 1997 and recorded a $1.3 million noncash pretax charge, equivalent to $0.03 per share, to restaurant operations to adjust the carrying value of those assets identified as impaired. The cost in excess of net assets acquired is amortized on a straight-line basis, principally over 40 years. The Company periodically reviews the cost in excess of net assets acquired in accordance with SFAS 121. Accumulated amortization of cost in excess of net assets acquired was $2.6 million and $1.7 million at January 31, 1997 and 1996, respectively. Advertising Production costs of commercials and programming are charged to operations in the fiscal year first aired. The costs of other advertising, promotion and marketing programs are charged to operations in the fiscal year incurred. F-7 34 Income Taxes The Company accounts for income taxes using the asset and liability method of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under this method, income tax assets and liabilities are recognized using enacted tax rates for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A change in tax rates is recognized in income in the period that includes the enactment date. Estimations The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Share and Per Share Restatement On December 19, 1996, the Company declared a three-for-two stock split, payable in the form of a stock dividend, to shareholders of record on January 2, 1997, distributed on January 22, 1997. All data with respect to earnings per share, dividends per share and share information, including price per share where applicable, in the consolidated financial statements and notes to consolidated financial statements have been retroactively adjusted to reflect the stock split. Earnings per Share Earnings per share is computed based on the weighted average number of common shares outstanding during the year, after consideration of the dilutive effect of outstanding stock options. For all years presented, primary earnings per share approximate fully diluted earnings per share. Reclassifications Certain prior year amounts in the accompanying consolidated financial statements have been reclassified to conform with the fiscal 1997 presentation. NOTE 2 -- ACQUISITIONS On July 15, 1996, the Company acquired Summit, which was accounted for as a purchase. Summit has restaurant operations in nine western states, including 73 Company-operated and 22 franchised JB's Restaurants, 16 HomeTown Buffet restaurants and six Galaxy Diner restaurants. In connection with the acquisition, each of the 4,809,446 outstanding shares of Summit common stock was converted into the right to receive 0.15645 shares of the Company's common stock (and cash in lieu of fractional shares) and cash in the amount of $2.63. Accordingly, the aggregate number of shares of common stock of the Company issued in the acquisition was 752,082. The source of funds for the cash portion of the consideration was cash on hand and borrowings under the Company's then existing revolving credit facility. On October 1, 1996, the Company acquired Casa Bonita. Casa Bonita operates 107 Taco Bueno restaurants located in Texas and Oklahoma in addition to two Casa Bonita Restaurants and three Crystal's Pizza and Spaghetti Restaurants. All three of the Crystals were closed subsequent to the fiscal year end. The acquisition was completed by CBI Restaurants, Inc. ("CBI"), a newly-formed corporation in which the Company originally held an 80% equity interest. CBI paid $42.0 million in cash, which was financed by short-term loans of $9.0 million from the Company, $8.0 F-8 35 million from Fidelity National Financial, Inc. ("Fidelity"), and $5.0 million from Giant Group, Ltd. ("Giant"). The balance of the purchase price, $20.0 million, was financed through the Company's investment of $16.0 million in cash for an 80% equity interest in CBI and Fidelity's investment of $4.0 million in cash for the remaining 20% equity interest in CBI. The Company's investment in CBI was funded out of borrowings under the Company's revolving acquisition facility. The acquisition of CBI was accounted for as a purchase. On December 3, 1996, the Company purchased Fidelity's 20% equity interest in CBI for $4.5 million, giving the Company 100.0% ownership of CBI and Casa Bonita. CBI also repaid the short-term loans of $8.0 million to Fidelity and $5.0 million to Giant. The purchase of Fidelity's equity interest and the repayment of short-term loans was provided by the net proceeds of the Company's common stock offering (see Note 11). The assets acquired, including the cost in excess of net assets acquired, and liabilities assumed in the acquisitions of Summit and Casa Bonita are as follows:
(Dollars in thousands) Summit Casa Bonita -------- ----------- Tangible assets acquired at fair value . . . . . . . . . . . . . . . . . . . . . $ 59,772 $ 40,672 Costs in excess of net assets acquired . . . . . . . . . . . . . . . . . . . . . -- 9,860 Liabilities assumed at fair value . . . . . . . . . . . . . . . . . . . . . . . . (30,716) (8,532) -------- -------- Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,056 $ 42,000 ======== ========
Selected unaudited pro forma combined results of operations for the years ended January 31, 1997 and 1996, assuming the Summit and Casa Bonita acquisitions occurred on February 1, 1996 and 1995, using actual restaurant-level margins and general and administrative expenses prior to the acquisition of each entity, are presented as follows:
(Dollars in thousands, except per share amounts) 1997 1996 ---- ---- Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 747,586 $ 666,797 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,319 $ 11,026 Net income per common and common equivalent share . . . . . . . . . . . . . . . $ 0.72 $ 0.38
Since the Summit acquisition, the Company has determined that its principal focus is on the quick-service segment of the restaurant industry as opposed to the family-dining segment in which Summit operates. As such, the Company is considering selling or otherwise disposing of all of or a portion of Summit. However, the Company has not entered into any agreements providing for any such transaction and there can be no assurance that the Company will be able to sell or otherwise dispose of such assets for a financial gain, on favorable terms, or at all. NOTE 3 -- ACCOUNTS RECEIVABLE Details of accounts receivable are as follows:
(Dollars in thousands) 1997 1996 ---- ---- Accounts receivable: Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,982 $3,232 Notes receivable, current . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,022 594 Income tax receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 714 3,231 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224 238 ------- ------- $7,942 $7,295 ======= =======
F-9 36 NOTE 4 -- PROPERTY AND EQUIPMENT Property and equipment consists of the following:
Estimated (Dollars in thousands) Useful Life 1997 1996 ----------- ---- ---- Land . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,487 $ 27,891 Leasehold improvements . . . . . . . . . . . . . . . . . . 4-25 years 109,508 80,883 Buildings and improvements . . . . . . . . . . . . . . . . 7-40 years 99,245 34,476 Equipment, furniture and fixtures . . . . . . . . . . . . . 3-10 years 192,336 128,670 -------- -------- 451,576 271,920 Less: Accumulated depreciation and amortization . . . . . . 245,771 152,792 -------- -------- $205,805 $119,128 ======== ========
NOTE 5 -- LEASES The Company occupies land and buildings under terms of numerous lease agreements expiring on various dates through 2035. Many leases provide for future rent escalations and renewal options. In addition, contingent rentals, determined as a percentage of sales in excess of specified levels, are often stipulated. Most of these leases obligate the Company to pay costs of maintenance, insurance and property taxes. Property under capital leases is comprised of the following:
(Dollars in thousands) 1997 1996 ---- ---- Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 85,850 $ 64,186 Less: Accumulated amortization . . . . . . . . . . . . . . . . . 48,735 35,787 -------- -------- $ 37,115 $ 28,399 ======== ========
Amortization is calculated on the straight-line basis over the shorter of the respective lease terms or the estimated useful lives of the related assets. Minimum lease payments for all leases and the present value of net minimum lease payments for capital leases as of January 31, 1997 are as follows:
(Dollars in thousands) Capital Operating ------- --------- Fiscal Year 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,448 $ 37,456 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,128 36,268 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,545 34,052 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,017 31,280 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,537 29,211 Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . 43,231 216,677 -------- -------- Total minimum lease payments . . . . . . . . . . . . . . . . . . $ 90,906 $384,944 ======== Less: Amount representing interest . . . . . . . . . . . . . . . 37,999 -------- Present value of minimum lease payments . . . . . . . . . . . . . 52,907 Less: Current portion . . . . . . . . . . . . . . . . . . . . . . 4,766 -------- Capital lease obligations, excluding current portion . . . . . . $ 48,141 ========
F-10 37 Total minimum lease payments have not been reduced by minimum sublease rentals of $42.5 million due in the future under certain operating subleases. The Company has leased and subleased land and buildings to others, primarily as a result of the franchising of certain restaurants. Many of these leases provide for fixed payments with contingent rent when sales exceed certain levels, while others provide for monthly rentals based on a percentage of sales. Lessees generally bear the cost of maintenance, insurance and property taxes. Components of the net investment in leases receivable, included in other assets, are as follows:
(Dollars in thousands) 1997 1996 ---- ---- Net minimum lease payments receivable . . . . . . . . . . . . . . $ 6,680 $ 9,887 Less: Unearned income . . . . . . . . . . . . . . . . . . . . . . 2,721 5,135 -------- -------- Net investment . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,959 $ 4,752 ======== ========
Minimum future rentals to be received as of January 31, 1997 are as follows:
Capital Operating Leases or Lessor (Dollars in thousands) Subleases Leases --------- ------ Fiscal Year: 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 647 $ 258 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 652 260 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 651 260 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 644 260 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 649 261 Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . 3,437 1,768 -------- -------- Total minimum future rentals . . . . . . . . . . . . . . . . . . $ 6,680 $ 3,067 ======== ========
Total minimum future rentals do not include contingent rentals which may be received under certain leases. The Company's investment in land under operating leases was $1.6 million and $1.8 million at January 31, 1997 and 1996, respectively. Aggregate rents under noncancelable operating leases during fiscal 1997, 1996 and 1995 are as follows:
(Dollars in thousands) 1997 1996 1995 ---- ---- ---- Minimum rentals . . . . . . . . . . . . . . . . . . . . . . . . . $ 33,597 $ 29,225 $ 29,173 Contingent rentals . . . . . . . . . . . . . . . . . . . . . . . 1,937 1,384 1,459 Less: Sublease rentals . . . . . . . . . . . . . . . . . . . . . 5,644 5,058 5,029 -------- -------- -------- $ 29,890 $ 25,551 $ 25,603 ======== ======== ========
F-11 38 NOTE 6 -- LONG-TERM INVESTMENTS Checkers Drive-In Restaurants, Inc. On November 14, 1996, the Company, together with a group of investors purchased $35.8 million of aggregate principal amount of Checkers Drive-In Restaurants, Inc. ("Checkers") 13.75% senior secured debt, due on July 31, 1998. The aggregate purchase price for this senior secured debt was $35.1 million. In addition to the Company, the investors included KCC Delaware, a wholly-owned subsidiary of Giant, Fidelity, The Travelers Indemnity Company ("Travelers") and certain affiliated individual investors. The Company paid $12.9 million in cash for $13.2 million, or 36.75% share of the debt. On November 22, 1996, the investors restructured Checkers' indebtedness under its existing credit agreement. Pursuant to the restructuring, the term of the credit agreement was extended by one year until July 31, 1999 and the fixed interest rate on such indebtedness was reduced to 13.0%. The investors modified certain financial covenants and the timing and amount of principal payments due under the credit agreement. In connection with the restructuring, the Company received warrants to purchase 7,350,423 shares of Checkers common stock at an exercise price of $0.75 per share ("the Checkers Warrants"). The Company recorded the difference between the fair market value of Checkers' common stock and the exercise price of the Checkers Warrants on the date of grant as a reduction, or discount, to the note receivable from Checkers. This discount is amortized on a straight-line basis into interest income over the life of the note. The Company, KCC Delaware and Travelers also provided a $2.5 million short-term revolving line of credit to Checkers, of which the Company contributed $0.5 million. As of January 31, 1997, the Company's note receivable from Checkers, including the revolving line of credit advance and related discount, was $10.1 million and is included in related party receivables. Subsequent to the fiscal year end, on February 19, 1997, the Company purchased 6,162,299 shares of Checkers common stock at $1.14 per share and 61,636 shares of Checkers Series A preferred stock at $114.00 per share for an aggregate purchase price of $14.1 million in connection with a private placement of Checkers' securities to the Company and other investors, including certain related parties. Registration rights with respect to the common stock will commence one year from the date of purchase. The shares of Checkers common stock acquired by the Company represent approximately 10% of Checkers' outstanding shares. The shares of Series A preferred stock acquired by the Company are convertible into an aggregate of 6,162,299 additional shares of common stock; provided, however, that such conversion is subject to the approval of Checkers' stockholders at its next annual meeting. If Checkers stockholders fail to approve the common stock provisions of the Series A preferred stock, cash dividends will accrue at a rate of 14.5% six months from the date of issuance and quarterly thereafter. Assuming full exercise of the Checkers Warrants and the conversion of all of the Series A preferred stock into Checkers common stock, the Company would beneficially own approximately 22% of Checkers' outstanding shares. In connection with the private placement of securities, Checkers repaid $8.0 million of the senior secured debt and paid in full the $2.5 million revolving line of credit. As a result, as of February 20, 1997, the Company's note receivable from Checkers, net of the related discount, was $6.7 million. Rally's Hamburgers, Inc. On April 20, 1996, the Company purchased from Giant, in settlement of certain litigation, 2,350,432 shares of Rally's common stock for $4.1 million, representing approximately 15% of Rally's outstanding shares. In connection with this settlement, the Company also received options to purchase Rally's common stock from Giant over the next two years. Effective August 31, 1996, the Company participated in Rally's rights offering, pursuant to which the Company received one right for each of the 2,350,432 shares of Rally's common stock the Company already owned. In accordance with the terms of the rights offering, holders of rights were entitled to purchase one unit for each 3.25 rights surrendered for a cash payment of $2.25 per unit. Each unit consists of one share of Rally's common stock and one F-12 39 warrant to purchase an additional share of Rally's common stock upon payment of a $2.25 exercise price. The Company contributed approximately $1.7 million in cash and acquired 775,488 shares of Rally's common stock in connection with the rights offering, with warrants to acquire another 775,488 shares. Additionally, on November 29, 1996, the Company elected to exercise 626,607 options to purchase common stock of Rally's from Giant for a total of approximately $1.9 million. On December 20, 1996, Rally's issued the Company warrants to purchase 750,000 restricted shares of Rally's common stock at an exercise price of $4.375 per share. The warrants have a three year term and are not exercisable until December 20, 1997. As of January 31, 1997, the Company's investment in Rally's was $7.9 million, representing an approximate 18% ownership interest of Rally's. In addition, the Company has the right to acquire an additional 2% ownership interest upon exercise of all the warrants. On March 25, 1997, Checkers and Rally's agreed in principle to a merger transaction, pursuant to which Rally's would be acquired by Checkers. The agreement contemplates that each share of Rally's common stock will be converted into three shares of Checkers common stock. Consummation of the Rally's - Checkers merger is subject to negotiation of definitive agreements, the receipt of fairness opinions and stockholder and other required approvals, as well as other customary conditions. Boston Market In January 1994, the Company acquired from Boston Chicken, Inc. ("BCI") the rights to develop, own and operate up to 300 Boston Market stores throughout designated markets in California. Boston Pacific was formed during fiscal 1995 to conduct the Company's Boston Market franchise operations. In April 1995, the Company's overall strategic plans were revised and the Company determined that its available cash should be used to fund the expansion and image enhancement of its Carl's Jr. restaurants. As such, management determined it would opt for a more passive investment role and eliminate its control and significant influence in the Boston Market concept. The Company formed a new privately owned company, Boston West, LLC ("Boston West") which assumed the operations of all of the Company's 25 existing Boston Market stores and agreed to fulfill the Company's remaining obligation to develop an additional 175 Boston Market stores under its January 1994 area development agreement with BCI. In connection with this transaction, the Company received preferred units and all the outstanding common equity units in Boston West, for a cost of approximately $19.7 million and $620,000, respectively, in exchange for a majority of its existing Boston Market restaurant assets. On May 30, 1995, Boston West issued an additional $2.5 million of common equity units to an independent investor group in return for cash and certain notes receivable, which are secured by $1.2 million of Boston West common equity units. As of this date, the Company ceased consolidating the operations of Boston West into its financial statements and commenced realizing a pro-rata share of the losses of Boston West. On September 12, 1995, Boston West formally agreed to repurchase one half of the Company's outstanding common equity units in Boston West, at a purchase price of $10.00 per unit, or $310,000. As of this date, the Company began accounting for its interest in Boston West under the cost method of accounting for investments. The Company is entitled to receive dividends on its preferred units at rates ranging from 8.6% to 9.0%. The dividends earned through June 1997 will be paid in cash upon conversion of the Company's preferred units into common equity units. In addition, this transaction provided for the leasing of approximately $12.0 million of equipment and real property retained by the Company to Boston West at current market rates. An affiliate of BCI has an option to purchase all the equipment and real property leased by the Company to Boston West. In fiscal 1997, the Company received $2.5 million in cash and $2.5 million in additional preferred units in exchange for real property that the Company was F-13 40 leasing to Boston West. In addition, pursuant to this agreement, the Company has an option to co-fund, along with BCI loan proceeds, the capital requirements of Boston West up to a maximum of $15.0 million, of which the Company funded approximately $1.7 million in fiscal 1996 through the purchase of additional preferred units. In March 1996, the Company's Board of Directors elected to cease participation in the option to co-fund the capital requirements of Boston West. With the amounts co-funded to date, the Company's interest in Boston West may be increased to up to approximately 32% upon conversion of the preferred units. As of January 31, 1997 and 1996, the Company's total long-term investment in Boston West was $22.3 million and $19.8 million, respectively, which approximates fair value. The Company's estimate of fair value of its long-term investment was based on a number of factors including the discounted future cash flows of Boston West and the present value of expected future preferred dividend distributions. A total of 84 Boston Market stores were opened under the area development agreement with BCI as of fiscal 1997. NOTE 7 -- OTHER ASSETS Other assets are comprised of the following:
(Dollars in thousands) 1997 1996 ---- ---- Costs in excess of net assets acquired, net . . . . . . . . . . . . . . . . . . . . . $ 24,363 $ 8,215 Leases receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,735 4,515 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,589 1,863 -------- -------- $ 36,687 $ 14,593 ======== ========
NOTE 8 -- OTHER CURRENT LIABILITIES Other current liabilities are comprised of the following:
(Dollars in thousands) 1997 1996 ---- ---- Salaries, wages and other benefits . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,849 $ 8,564 State sales taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,685 5,881 Self-insured workers' compensation reserve . . . . . . . . . . . . . . . . . . . . . . 6,781 6,854 Deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,403 4,351 Other self-insurance reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,103 1,328 Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,642 4,778 -------- -------- $ 44,463 $ 31,756 ======== ========
F-14 41 NOTE 9 -- LONG-TERM DEBT Long-term debt is comprised of the following:
(Dollars in thousands) 1997 1996 ---- ---- Secured notes payable, principal payments in varying amounts monthly beginning September 1997 through July 2017, interest based on LIBOR plus 2.0% through July 31, 1997 and 2.75% thereafter . . . . . . . $20,000 $ -- Secured note payable, principal payments in specified amounts monthly through 2001, interest at 8.17% . . . . . . . . . . . . . . . . . . . . . 5,111 5,398 Industrial Revenue Bonds, payable in 1999, variable interest rate averaging 3.4% in fiscal 1997 . . . . . . . . . . . . . . . . . . . . . . . . 3,600 3,600 Unsecured note payable to bank, principal payments in specified amounts quarterly through 1998, interest based on the bank prime rate plus 0.25% . . . . . -- 22,750 Secured note payable, principal payments in specified amounts annually through 2000, interest at 13.5% . . . . . . . . . . . . . . . . . . . . . . . . . -- 3,993 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,794 3,155 -------- -------- 34,505 38,896 Less: Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 735 8,575 -------- -------- $ 33,770 $ 30,321 ======== ========
Effective August 12, 1996, the Company entered into a new credit agreement with a group of financial institutions. Under the terms of the credit agreement, the Company borrowed the principal amount of $20.0 million under a five-year, fully amortizing term loan, the proceeds of which were used to repay existing indebtedness. The credit agreement also provides the Company with (i) a revolving credit facility for working capital and other general corporate purposes, under the terms of which the Company may borrow from time to time up to $30.0 million (including a letter of credit subfacility of up to $20.0 million), and (ii) a revolving credit facility for the purpose of financing investments in and acquisitions of other companies, under the terms of which the Company may borrow from time to time up to $25.0 million. The Company borrowed $25.0 million under this revolving credit facility in connection with the acquisition of Casa Bonita on October 1, 1996 (see Note 2), the total of which, together with the outstanding principal amount of the term loan was paid in full with the net proceeds of the Company's common stock offering (see Note 11). The amounts advanced, if any, to the Company and remaining outstanding under the revolving acquisition facility will convert after two years into a three-year, fully amortizing loan. Both of the foregoing revolving credit facilities mature on July 31, 2001. As of January 31, 1997, no borrowings were outstanding under its credit facility. The credit agreement also includes customary affirmative and negative covenants which, among other things, restrict the Company's ability to (i) incur or create indebtedness on or with respect to its properties, (ii) incur additional indebtedness, (iii) merge or consolidate with other entities, (iv) sell assets and (v) declare or pay dividends or repurchase shares of capital stock, subject in each of the foregoing cases to certain exceptions. In addition, the credit agreement requires the Company to maintain certain specified financial ratios and operating results. As of fiscal year end, the Company was in compliance with all of its covenants governing its credit facility. Secured notes payable are collateralized by certain restaurant property deeds of trust, with a carrying value of $36.1 million as of January 31, 1997. F-15 42 Long-term debt matures in fiscal years ending after January 31, 1997 as follows: (Dollars in thousands)
Fiscal Year: 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 735 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,073 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,769 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,130 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 848 Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,950 -------- $34,505 ========
NOTE 10 -- OTHER LONG-TERM LIABILITIES Other long-term liabilities consists of the following:
(Dollars in thousands) 1997 1996 ---- ---- Self-insured workers' compensation reserve . . . . . . . . . . . . . . . . . . . . . $ 7,283 $ 6,784 Exit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,263 5,274 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,062 3,058 -------- -------- $ 20,608 $ 15,116 ======== ========
The Company presently self-insures for group insurance, workers' compensation and fire and comprehensive protection on most equipment and certain other assets. A total of $14.1 million and $13.6 million was accrued as of January 31, 1997 and 1996, respectively, representing the current and long-term portions of the net present value of an independent actuarial valuation of the Company's workers' compensation claims. These amounts are net of a discount of $2.0 million in both fiscal 1997 and 1996. In prior years, the Company initiated programs to dispose of or franchise its Arizona and Texas operations. As of January 31, 1997 and 1996, $6.0 million and $6.7 million, respectively, were accrued for these reserves, including the current portion. These balances were mainly comprised of estimated lease subsidies, $2.7 million of which were reduced in connection with the reacquisition of several Carl's Jr. franchised restaurants from a related party during fiscal 1995 (see Note 13). These lease subsidies represent the net present value of the excess of future lease payments over estimated sublease income. The remaining unamortized discount to present value these lease subsidies at January 31, 1997 was $4.5 million and will be amortized to operations over the remaining sublease terms, which range up to 18 years. NOTE 11 -- STOCKHOLDERS' EQUITY Upon consummation of the Merger, stockholders of Enterprises received one share of the Company's common stock for each share of Enterprises' common stock owned by them just prior to the Merger. In connection with this transaction, the Certificate of Incorporation was adopted for CKE which authorizes 50,000,000 shares of common stock and 5,000,000 shares of preferred stock, both of which have a par value of $.01 per share. In July 1994, the Board of Directors authorized the repurchase of up to three million shares of the Company's common stock. A total of 1,005,450 shares of stock were repurchased to date, which includes the purchase of 93,750 shares in F-16 43 fiscal 1995 from the Chairman Emeritus at the then market price of $6.09 per share. The balance of these shares were purchased in a series of open market transactions, at an average price of approximately $4.99 per share, for an aggregate purchase price of approximately $4.5 million. On October 28, 1996, the Board of Directors of the Company retired 1,005,450 shares of the Company's common stock which were previously held as treasury stock. During the fourth quarter of fiscal 1997, the Company issued 4,312,500 shares of its common stock at a public offering price of $19.08 per share. Proceeds from the offering, net of underwriting discounts and commissions and other related expenses, were $77.6 million. The net proceeds were used to reduce the Company's existing indebtedness and for working capital and other general corporate purposes, including the Company's investments in Checkers and additional investments in Rally's (see Note 6). NOTE 12 -- FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents information on the Company's financial instruments:
(Dollars in thousands) 1997 1996 ----------------------- --------------------- ESTIMATED Estimated CARRYING FAIR Carrying Fair AMOUNT VALUE Amount Value ------- ----- ------- ----- Financial assets: Cash and cash equivalents . . . . . . . . . . . . . . . $39,782 $39,782 $23,429 $23,429 Marketable securities . . . . . . . . . . . . . . . . . -- -- 2,510 2,510 Notes receivable . . . . . . . . . . . . . . . . . . . 17,761 17,864 9,051 9,097 Financial liabilities: Long-term debt, including current portion . . . . . . . 34,505 34,310 38,896 37,009
The fair value of cash and cash equivalents approximates their carrying amount due to their short maturity. The estimated fair values of marketable securities were based on quoted market prices. The estimated fair values of notes receivable were determined by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings. The estimated fair value of long- term debt was determined by discounting future cash flows using rates currently available to the Company for debt with similar terms and remaining maturities. NOTE 13 -- RELATED PARTY TRANSACTIONS Certain members of management and the Karcher family are franchisees of the Company. A total of 41 restaurants have been sold to these individuals, three of which occurred during fiscal 1997. As part of these transactions, the Company received cash and accepted $10.4 million of interest-bearing notes at rates ranging from 7.0% to 12.5%, of which $47,000 and $626,000 remained outstanding as of January 31, 1997 and 1996, respectively. Additionally, these franchisees regularly purchase food and other products from the Company on the same terms and conditions as other franchisees. During fiscal 1995, the Company made a salary advance to the Chairman Emeritus totaling $715,000, a majority of which is non-interest bearing and is to be repaid through payroll deductions. As of January 31, 1997 and 1996 $220,000 and $595,000, respectively, remained outstanding. The entire amount will be repaid by December 1998. F-17 44 In fiscal 1994, the Chairman Emeritus was granted future retirement benefits for past services consisting principally of payments of $200,000 per year for life and supplemental health benefits, which had a net present value of $1.7 million as of that date. This amount was computed using certain actuarial assumptions, including a discount rate of 7%. A total of $1.3 million remained accrued in other long-term liabilities as of January 31, 1997. The Company anticipates funding these obligations as they become due. In June 1994, the Company reacquired 12 Arizona restaurants from a Karcher family member who was formerly an officer of the Company. As part of this transaction, the Company took possession of certain restaurant assets in exchange for the forgiveness of two notes receivable totaling $1.4 million, and a cash payment of $650,000. In addition, as described in Note 10, certain previously established lease subsidy reserves totaling $2.7 million were reversed in fiscal 1995 as a result of this transaction. The Company leases various properties, including its corporate headquarters, one of its distribution facilities and three of its restaurants, from the Chairman Emeritus. Included in capital lease obligations were $4.0 million and $4.5 million, representing the present value of lease obligations related to these various properties at January 31, 1997 and 1996, respectively. Lease payments under these leases for fiscal 1997, 1996 and 1995 amounted to $1.3, $1.4, and $1.4 million, respectively. This was net of sublease rentals of $148,000 in both fiscal 1997 and 1996 and $154,000 in fiscal 1995. In September 1996, the Company purchased a restaurant from the Chairman Emeritus for a purchase price of $1.1 million. NOTE 14 -- FRANCHISE AND LICENSE OPERATIONS Franchise arrangements, with franchisees who operate in Arizona, California, Hawaii, Nevada, Oregon and Utah, generally provide for initial fees and continuing royalty payments to the Company based upon a percent of sales. The Company generally charges an initial franchise fee for each new franchised restaurant that is added to its system, and in some cases, an area development fee, which grants exclusive rights to develop a specified number of Carl's Jr. restaurants in a designated geographic area within a specified time period. Similar fees are charged in connection with the Company's international licensing operations. These fees are recognized ratably when substantially all the services required of the Company are complete and the restaurants covered by these agreements commence operations. Franchisees may also purchase food, paper and other supplies from the Company. Additionally, franchisees may be obligated to remit lease payments for the use of restaurant facilities owned or leased by the Company, generally for a period of 20 years. Under the terms of these leases, they are required to pay related occupancy costs which include maintenance, insurance and property taxes. The Company receives notes from franchisees in connection with the sales of Company-operated restaurants. During fiscal 1996, the Company sold certain of its franchise notes receivable, with partial recourse, to an independent third party for cash proceeds of approximately $8.4 million. The remaining notes bear interest from 7.0% to 12.5%, mature in five to 15 years and are secured by an interest in the restaurant equipment sold. Revenues from franchised and licensed restaurants consist of the following:
(Dollars in thousands) 1997 1996 1995 ---- ---- ---- Food service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,035 $ 56,015 $ 57,070 Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,932 10,116 10,257 Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 5,704 6,284 Initial fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305 116 91 -------- -------- -------- $ 77,272 $ 71,951 $ 73,702 ======== ======== ========
F-18 45 Operating costs and expenses for franchised and licensed restaurants consist of the following:
(Dollars in thousands) 1997 1996 1995 ---- ---- ---- Food service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 59,606 $ 56,590 $ 57,334 Occupancy and other operating expenses . . . . . . . . . . . . . . . . . . 12,380 12,249 12,537 -------- -------- -------- $ 71,986 $ 68,839 $ 69,871 ======== ======== ========
NOTE 15 -- INTEREST EXPENSE Interest expense consists of the following:
(Dollars in thousands) 1997 1996 1995 ---- ---- ---- Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . $ (6,083) $ (5,898) $ (6,194) Notes payable and revolving credit facility . . . . . . . . . . . . . . . . (3,059) (3,585) (2,484) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (735) (521) (524) -------- -------- -------- $ (9,877) $(10,004) $ (9,202) ======== ======== ========
NOTE 16 -- OTHER INCOME, NET Other income, net is comprised of the following:
(Dollars in thousands) 1997 1996 1995 ---- ---- ---- Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,402 $ 2,494 $3,261 Lease income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,081 981 -- Net gain (loss) on sale of investments . . . . . . . . . . . . . . . . . . 728 (145) (157) Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720 854 357 Net gain (loss) on sale of restaurants . . . . . . . . . . . . . . . . . . 516 (338) (463) Income (loss) from long-term investments . . . . . . . . . . . . . . . . . 140 (1,624) -- -------- -------- -------- $4,587 $ 2,222 $2,998 ======== ======== ========
NOTE 17 -- INCOME TAXES Income tax expense is comprised of the following:
(Dollars in thousands) 1997 1996 1995 ---- ---- ---- Current: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,963 $ 2,018 $ (1,996) State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,065 772 (304) -------- -------- -------- 8,028 2,790 (2,300) -------- -------- -------- Deferred: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,529 3,878 2,517 State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 851 333 917 -------- -------- -------- 6,380 4,211 3,434 -------- -------- -------- $ 14,408 $ 7,001 $ 1,134 ======== ======== ========
F-19 46 A reconciliation of income tax expense at the federal statutory rate to the Company's provision for taxes on income is as follows:
(Dollars in thousands) 1997 1996 1995 ---- ---- ---- Income taxes at statutory rate . . . . . . . . . . . . . . . . . . . . . . $ 12,849 $ 6,104 $ 815 State income taxes, net of federal income tax benefit . . . . . . . . . . . 2,822 738 800 Targeted jobs tax credits . . . . . . . . . . . . . . . . . . . . . . . . . (1,528) (243) (338) Alternative minimum tax credit . . . . . . . . . . . . . . . . . . . . . . (19) -- (551) Increase (decrease) in valuation allowance . . . . . . . . . . . . . . . . (76) 152 298 Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360 250 110 -------- -------- -------- $ 14,408 $ 7,001 $ 1,134 ======== ======== ========
Temporary differences and carryforwards gave rise to a significant amount of deferred tax assets and liabilities as follows:
(Dollars in thousands) 1997 1996 ---- ---- Deferred tax assets: Capitalized leases . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,801 $ 8,641 Workers' compensation reserve . . . . . . . . . . . . . . . . . . . . . . 5,908 5,905 Targeted jobs tax credit carryforward . . . . . . . . . . . . . . . . . . 3,654 3,055 Exit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,522 2,905 Alternative minimum tax credits . . . . . . . . . . . . . . . . . . . . . 1,647 700 Store closure reserve . . . . . . . . . . . . . . . . . . . . . . . . . . 1,613 136 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,799 4,601 -------- -------- 29,944 25,943 Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . 4,917 1,945 -------- -------- Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . 25,027 23,998 -------- -------- Deferred tax liabilities: Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . 8,271 2,017 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,088 9,896 Safe harbor leases . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 586 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,406 1,443 -------- -------- Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . 17,813 13,942 -------- -------- Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,214 $ 10,056 ======== ========
While there can be no assurance that the Company will generate any earnings or any specific level of earnings in future years, management believes it is more likely than not that the Company will realize the majority of the benefit of the existing net deferred tax assets at January 31, 1997, based on the Company's current, historical and future pre-tax earnings. The Company had targeted jobs tax credit carryforwards of $3.7 million, which expire in the years 2005 through 2011, available at January 31, 1997. The Company also had an alternative minimum tax credit carryforward of $1.6 million with no expiration date. NOTE 18 -- EMPLOYEE BENEFIT AND RETIREMENT PLANS Profit Sharing and Savings Plan The Company maintains a voluntary contributory profit sharing and savings investment plan for all eligible employees other than operations hourly employees. Annual contributions under the profit sharing portion of the plan are F-20 47 determined at the discretion of the Company's Board of Directors. Under the savings investment portion of the plan, participants may elect to contribute up to 15% of their annual salary to the plan. Through December 31, 1994, up to 4% of employee contributions were matched by the Company. Total Company contributions to this plan for fiscal 1995 were $344,000. Pension Plan On January 1, 1996, the Company's pension plan, covering substantially all operations employees qualified as to age and service, was amended to limit participation in the plan only to those employees who had become participants in the plan on or before December 31, 1995. Future contributions of plan benefits discontinued after this date. During fiscal year 1997, the plan was terminated and approximately $2.6 million of the accumulated benefit obligation was settled. As a result of the termination, the Company recorded approximately $1.3 million in pension plan expense which was based upon an independent actuarial valuation study. During fiscal 1996 and 1995, pension contributions were $512,000 and $438,000, respectively. Stock Purchase Plan In fiscal 1995, the Board of Directors adopted, and stockholders subsequently approved in fiscal 1996, an Employee Stock Purchase Plan ("ESPP"). Under the terms of the ESPP and subsequent amendments, eligible employees may voluntarily purchase, at current market prices, up to 750,000 shares of the Company's common stock through payroll deductions. Pursuant to the ESPP, employees may contribute an amount between 3% and 15% of their base salary. The Company contributes varying amounts as specified in the ESPP. During fiscal 1997 and 1996, 42,435 and 38,673 shares, respectively, were purchased and allocated to employees, based upon their contributions, at an average price of $17.58 and $8.47 per share, respectively. The Company contributed $116,000 or an equivalent of 6,168 shares for the year ended January 31, 1997 and $8,000 or an equivalent of 690 shares for the year ended January 31, 1996. Stock Incentive Plans The Company's 1994 stock incentive plan was approved by stockholders in June 1994. The 1994 plan is substantially similar to the 1993 plan under which, as a result of the Merger, no further options may be granted. Awards granted to eligible employees under the 1994 plan are not restricted as to any specified form or structure, with such form, vesting and pricing provisions determined by the Compensation Committee of the Board of Directors. The 1994 plan also provides for the automatic annual award of stock options to nonemployee directors and nonemployee director members of the Executive Committee. Options generally have a term of five years from the date of grant for the nonemployee directors and ten years from the date of grant for employees, become exercisable at a rate of 33-1/3% per year following the grant date and are priced at the fair market value of the shares on the date of grant. A total of 5,250,000 shares are available for grants of options or other awards under this plan, of which 2,383,849 stock options were outstanding as of January 31, 1997, with exercise prices ranging from $4.50 per share to $23.33 per share. The Company's 1993 stock incentive plan was superseded by the 1994 plan, as discussed above. As of January 31, 1997, 552,565 stock options, with exercise prices ranging from $4.83 per share to $8.92 per share, were outstanding under the plan. No further awards may be granted under this plan. The Company's 1982 stock option plan expired in September 1992. Under this plan, stock options were granted to key employees to purchase up to 4,500,000 shares of its common stock at a price equal to or greater than the fair market value at the date of grant. The options generally had a term of 10 years from the grant date and became exercisable at a rate of 25%, 35% and 40% per year following the grant date. The exercise prices of the 250,139 stock options outstanding as of January 31, 1997 under this plan range from $4.00 per share to $8.92 per share. In connection with the acquisition of Summit, the Company assumed the options outstanding under Summit's existing option plans: the 1984 Incentive Stock Option Plan, the 1987 Nonqualified Stock Option Plan, the 1987 Employee Incentive Stock Option Plan and the 1992 Stock Option Plan. Pursuant to the terms of the acquisition, options under these plans became fully vested on July 15, 1996. The options granted in accordance with these four plans generally had a term of five to ten years. Under these plans, there were 57,694 stock options outstanding at January 31, 1997 with exercise prices ranging from $12.90 to $26.21 per share. No further shares may be granted under these plans. F-21 48 Transactions under all plans are as follows:
Number of Shares 1997 1996 1995 - ---------------- ---- ---- ---- Outstanding at beginning of year . . . . . . . . . . . . . . . . . . . . 2,417,695 1,782,053 2,058,954 Options assumed in Summit acquisition . . . . . . . . . . . . . . . . . . 77,131 -- -- Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,130,876 1,344,609 655,809 Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,801) (176,463) (681,444) Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (359,654) (532,504) (251,266) ---------- ---------- ---------- Outstanding at end of year . . . . . . . . . . . . . . . . . . . . . . . 3,244,247 2,417,695 1,782,053 ========== ========== ========== Exercisable at end of year . . . . . . . . . . . . . . . . . . . . . . . 1,235,492 932,612 972,486 ========= ========== ==========
For purposes of the following pro forma disclosures required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") the fair value of each option granted after fiscal 1995 has been estimated on the date of grant using the Black-Scholes option-pricing model, with the following assumptions used for grants in fiscal 1997 and 1996: annual dividends consistent with the Company's current dividend policy, which resulted in payments of $0.05 per share in fiscal 1997 and 1996; expected volatility of 25% in fiscal 1997 and 29% in fiscal 1996; risk free interest rates of 6.25% in fiscal 1997 and 5.25% in fiscal 1996; and an expected life of 5.45 years. The weighted average fair value of each option granted during fiscal 1997 and 1996 was $6.80 and $2.51, respectively. Had compensation expense been recognized for fiscal 1997 and 1996 grants for stock-based compensation plans in accordance with provisions of SFAS 123, the Company would have recorded net income and earnings per share of $20.5 million, or $0.67 per share in fiscal 1997 and $10.7 million, or $0.38 per share in fiscal 1996. Since the pro forma compensation expense for stock-based compensation plans is recognized over a three year vesting period, the foregoing pro forma reductions in the Company's net income are not representative of anticipated amounts in future years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that do not have vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the value of an estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. NOTE 19 -- SUPPLEMENTAL CASH FLOW INFORMATION
(Dollars in thousands) 1997 1996 1995 ---- ---- ---- Cash paid for interest and income taxes are as follows: Interest (net of amount capitalized) . . . . . . . . . . . . . . . . . $ 9,549 $ 10,198 $ 9,208 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,778 2,156 645 Noncash investing and financing activities are as follows: Sale of property and equipment . . . . . . . . . . . . . . . . . . . . $ 2,469 $ -- $ -- Increase in long-term investments . . . . . . . . . . . . . . . . . . . (2,469) -- -- Transfers of marketable securities to (from) other current assets . . . -- -- (6,776) Transfer of inventory, current assets and property and equipment to long-term investments . . . . . . . . . . . . . . . . . -- 20,352 -- Stock issued in exchange for Summit's assets . . . . . . . . . . . . . 11,411 -- --
F-22 49 NOTE 20 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following table presents summarized quarterly results. (Dollars in thousands, except per share amounts)
Quarter 1ST 2ND 3RD 4TH ------- ------- ------- ------- FISCAL 1997 Total revenues . . . . . . . . . . . . . . . . . . . . . $ 152,934 $ 128,123 $ 162,291 $ 170,732 Operating income . . . . . . . . . . . . . . . . . . . . 10,324 9,982 10,909 10,785 Net income . . . . . . . . . . . . . . . . . . . . . . 5,333 5,192 5,588 6,189 Net income per common and common equivalent share . . . . . . . . . . . . . . . $ 0.19 $ 0.18 $ 0.19 $ 0.18 ========== ========== ========== ========== FISCAL 1996 Total revenues . . . . . . . . . . . . . . . . . . . . . $ 137,625 $ 108,040 $ 113,074 $ 106,698 Operating income . . . . . . . . . . . . . . . . . . . . 5,264 6,554 7,373 6,544 Net income . . . . . . . . . . . . . . . . . . . . . . 1,915 2,808 3,021 3,208 Net income per common and common equivalent share . . . . . . . . . . . . . . . $ 0.07 $ 0.10 $ 0.11 $ 0.11 ========== ========== ========== ==========
Quarterly operating results are not necessarily representative of operations for a full year for various reasons, including the seasonal nature of the quick-service restaurant industry and unpredictable adverse weather conditions which may affect sales volume and food costs. In addition, all quarters have 12-week accounting periods, except the first quarters of fiscal 1997 and 1996, which have 16-week accounting periods. NOTE 21 -- COMMITMENTS AND CONTINGENT LIABILITIES In conjunction with the new credit facility established during fiscal 1997, a letter of credit subfacility in the amount of $20.0 million was established (see Note 9). Several letters of credit are outstanding under this facility which secure the Company's potential workers' compensation claims. The State of California requires that the Company provide a letter of credit each year based on its existing workers' compensation claims experience, or set aside a comparable amount of cash or investment securities in a trust account. The upcoming annual security agreement, which begins May 1, 1997, was raised to $9.2 million due to increased labor hours. A new letter of credit will be issued for this amount on or before May 1, 1997. Additionally there is a $3.9 million letter of credit outstanding under the subfacility which secures the Industrial Revenue Bonds issued in connection with the construction of the Company's Northern California distribution facility. The Company's standby letter of credit agreements with various banks expire as follows:
(Dollars in thousands) April 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55 July 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,947 September 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 October 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,355 January 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,852 April 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275 --------- $ 14,608 =========
In fiscal 1996, the Company sold certain of its franchise notes receivable, with recourse, to an independent third party (see Note 14). In addition, the Company entered into two limited term guarantees with an independent third party during fiscal 1997 on behalf of certain of its franchisees. The Company is contingently liable for an aggregate of approximately $6.6 million under these guarantees as of January 31, 1997. In September 1992, Summit sold certain of its restaurants. In connection with this sale, Summit assigned its rights and obligations under real property leases to the buyer. As such, Summit remains contingently liable for these obligations. Future minimum payments under these leases amounts to $1.3 million in fiscal 1998, $1.2 million in both fiscal 1999 and fiscal 2000, $1.0 million in fiscal 2001, $800,000 in fiscal 2002 and $2.1 million thereafter. F-23 50 EXHIBIT INDEX EXHIBITS 3-1 Certificate of Incorporation of the Registrant, incorporated herein by reference to exhibit 3-1 to the Registrant's Form S-4 Registration Statement Number 333-05305. 3-2 Bylaws of Registrants, incorporated herein by reference to exhibit 3-2 to the Registrants Form S-4 Registration Statement Number 333- 05305. 10-1 Franchise Development Agreement dated May 17, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, filed as exhibit 10-53 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-2 Form of Franchise Agreement by and between Carl Karcher Enterprises, Inc., and Carl Leo Karcher or CLK, Inc. filed as exhibit 10-54 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is herein incorporated by reference, relating to the following units: Date Unit Address ---- ---- ------- May 17, 1985 724 68980 Highway 111 May 17, 1985 725 102 N. Sunrise Way May 17, 1985 726 72840 Highway 111 May 17, 1985 727 81-770 Highway 111 May 17, 1985 728 73-125 Highway 111 May 17, 1985 729 57222 29 Palms Highway May 17, 1985 730 13010 Palm Drive May 17, 1985 731 2520 Palm Canyon Drive December 31, 1985 768 2601 W. Broadway January 25, 1986 769 160 S. Lovekin January 25, 1986 770 1750 4th Avenue January 25, 1986 771 2215 S. Fourth October 27, 1987 772 115 Main Street March 3, 1987 786 1489 Adams Avenue July 6, 1987 793 72305 Vaimer Road October 27, 1987 794 2195 Highway 95 June 14, 1988 811 40050 Washington June 26, 1989 820 I-8 Business Loop November 12, 1990 873 32-250 Date Palm Drive April 1, 1991 895 50-087 Harrison Street December 16, 1991 7013 41717 Big Bear Blvd. January 20, 1992 7038 275 N. Lake Havasu Blvd. April 7, 1993 7085 78-672 Highway 111 10-3 Form of Sublease between Carl Karcher Enterprises, Inc., and Carl Leo Karcher or CLK, Inc., filed as exhibit 10-62 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is herein incorporated by reference, relating to the following units: Date Unit Address ---- ---- ------- May 16, 1985 724 68980 Highway 111 May 16, 1985 725 102 N. Sunrise Way May 16, 1985 728 73-125 Highway 111 May 16, 1985 729 57222 29 Palms Highway May 15, 1985 730 13010 Palm Drive May 16, 1985 731 2520 Palm Canyon Drive September 25, 1987 794 2195 Highway 95 December 16, 1991 7013 41717 Big Bear Blvd. E-1 51 10-4 Land and Building Sublease Agreement dated December 31, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, filed as exhibit 10-71 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-5 Lease Agreement dated September 25, 1987 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, as amended by the Amendment to Lease dated October 19, 1990 (Unit 772), filed as exhibit 10-81 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-6 Form of Assignment of Franchise Agreement, Release and Continuing Guaranty between Carl Karcher Enterprises, Inc., and Carl Leo Karcher or CLK, Inc., filed as exhibit 10-51 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is herein incorporated by reference, relating to the following units: Date Unit Address ---- ---- ------- June 9, 1992 724 68980 Highway 111 June 9, 1992 725 102 N. Sunrise Way June 9, 1992 727 81-770 Highway 111 June 9, 1992 728 73-125 Highway 111 June 9, 1992 729 57222 29 Palms Highway June 9, 1992 731 2520 Palm Canyon Drive June 9, 1992 768 2601 W. Broadway June 9, 1992 769 160 S. Lovekin June 9, 1992 770 1750 4th Avenue June 9, 1992 771 2215 S. Fourth October 27, 1987 772 115 Main Street January 27, 1987 786 1498 Adams Avenue October 5, 1987 793 72305 Vaimer Road August 1, 1988 811 40050 Washington January 1, 1990 820 388 West 32nd Street November 13, 1990 873 32-250 Date Palm Drive March 29, 1991 895 50-087 Harrison Street December 16, 1991 7013 41717 Big Bear Boulevard January 20, 1992 7038 275 N. Lake Havasu Boulevard April 7, 1993 7085 78-672 Highway 111 10-7 Assignment of Franchise Agreement and Sublease Agreement by Carl Leo Karcher to CLK, Inc. and Continuing Guaranty each dated August 17, 1989 (Unit 730), filed as exhibit 10-39 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-8 Assignment of Franchise Agreement and Lease Agreement by Carl Leo Karcher to CLK, Inc. and Continuing Guaranty each dated August 17, 1989 (Unit 726) filed as exhibit 10-94 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-9 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK, Inc. dated November 28, 1989 (Unit 794), filed as exhibit 10-95 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-10 License Agreement dated January 27, 1987 by and between Carl Karcher Enterprises, Inc. and CLK, Inc., as amended by the Amendment to License Agreement dated October 10, 1990, filed as exhibit 10-76 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-11 Agreement to Purchase dated October 27, 1987 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 772), filed as exhibit 10-83 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. E-2 52 10-12 Agreement to Purchase dated October 27, 1987 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 794), filed as exhibit 10-84 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-13 Conditional Assignment of Lease dated November 7, 1990 between CLK, Inc. and Carl Karcher Enterprises, Inc. (Unit 770), filed as exhibit 10-97 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-14 Conditional Assignment of Lease dated November 7, 1990 between CLK, Inc. and Carl Karcher Enterprises, Inc. (Unit 771), filed as exhibit 10-98 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-15 Conditional Assignment of Lease dated December 18, 1990 by and between CLK, Inc. and Carl Karcher Enterprises, Inc. (Unit 726), filed as exhibit 10-101 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-16 Development Agreement dated March 22, 1991 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, filed as exhibit 10-102 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-17 Security Agreement dated December 16, 1991 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 7013/433), filed as exhibit 10-111 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-18 Carl Karcher Enterprises, Inc. Profit Sharing Plan, as amended, filed as exhibit 10-21 to the Company's Registration Statement on Form S-1, file No. 2-73695, and is hereby incorporated by reference.(2) 10-19 Carl Karcher Enterprises, Inc. Key Employee Stock Option Plan, filed as exhibit 10-24 to the Company's Registration Statement on Form S-1, file No. 2-80283, and is hereby incorporated by reference.(2) 10-20 Carl Karcher Enterprises, Inc. 1993 Employee Stock Incentive Plan, filed as exhibit 10-123 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1993, and is hereby incorporated by reference.(2) 10-21 CKE Restaurants, Inc. 1994 Stock Incentive Plan, as amended, incorporated herein by reference to exhibit 4-1 to the Registrant's Form S-8 Registration Statement Number 333-12399.(2) 10-22 CKE Restaurants, Inc. 1994 Employee Stock Purchase Plan, as amended.(1)(2) 10-23 Summit Family Restaurants Inc. 1992 Stock Option Plan; 1987 Employee Incentive Stock Option Plan; 1987 Non Qualified Stock Option Plan; and the 1984 Incentive Stock Option Plan, incorporated herein by reference to exhibits 4-1, 4-2, 4-3 and 4-4 to CKE Restaurants, Inc. Form S-8 Registration Statement Number 333-12404.(2) 10-24 Employment Agreement dated January 1, 1994, by and between Carl Karcher Enterprises, Inc. and Carl N. Karcher, filed as exhibit 10- 89 to the Company's Form 10-K Annual Report for fiscal year ended January 31, 1994, and is hereby incorporated by reference.(2) 10-25 Employment Agreement dated November 8, 1994, by and between Carl Karcher Enterprises, Inc. and C. Thomas Thompson, filed as exhibit 10-83 to the Company's Form 10-K Annual Report for fiscal year ended January 30, 1995, and is hereby incorporated by reference.(2) 10-26 First Amendment to Employment Agreement dated March 31, 1996, by and between Carl Karcher Enterprises, Inc. and C. Thomas Thompson, filed as exhibit 10-44 to the Company's Form 10-Q Quarterly Report for the quarterly period ended May 20, 1996, and is hereby incorporated by reference.(2) 10-27 Employment Agreement dated January 24, 1996, by and between CKE Restaurants, Inc. and Robert E. Wheaton, filed as exhibit 10-45 to the Company's Form 10-Q Quarterly Report for the quarterly period ended May 20, 1996, and is hereby incorporated by reference.(2) E-3 53 10-28 Settlement Agreement and Release dated as of April 26, 1996, by and between Giant Group, Ltd; William P. Foley II; CKE Restaurants, Inc.; Fidelity National Financial, Inc.; and other parties, filed as exhibit 10-42 to the Company's Form 10-Q Quarterly Report for the quarterly period ended May 20, 1996, and is hereby incorporated by reference. 10-29 Operating Agreement by and between Rally's Hamburgers, Inc. and Carl Karcher Enterprises, Inc. dated May 26, 1996, filed as exhibit 10-43 to the Company's Form 10-Q Quarterly Report for the quarterly period ended May 20, 1996, and is hereby incorporated by reference.* 10-30 Settlement and Development Agreement by and between Carl Karcher Enterprises, Inc., CKE Restaurants, Inc. and GB Foods Corporation dated as of May 1995, filed as exhibit 10-31 to the Company's Form 10-K Annual Report for the fiscal year ended January 29, 1996, and is hereby incorporated by reference. 10-31 First Amendment to Settlement and Development Agreement by and between Carl Karcher Enterprises, Inc., CKE Restaurants, Inc. and GB Foods Corporation dated as of February 20, 1997.(1) 10-32 Agreement to Contribute Assets dated April 17, 1995 by and between Boston West, L.L.C. and Boston Pacific, Inc., filed as exhibit 10-84 to the Company's Form 10-K Annual Report for fiscal year ended January 30, 1995, and is hereby incorporated by reference. 10-33 Amended and Restated Limited Liability Company Agreement of Boston West, L.L.C. (a Delaware Limited Liability Company) dated April 16, 1995, filed as exhibit 10-85 to the Company's Form 10-K Annual Report for fiscal year ended January 30, 1995, and is hereby incorporated by reference. 10-34 First Amendment to the Amended and Restated Limited Liability Company Agreement of Boston West, L.L.C. dated May 15, 1995, filed as exhibit 10-34 to the Company's Form 10-K Annual Report for the fiscal year ended January 29, 1996, and is hereby incorporated by reference. 10-35 Second Amendment to the Amended and Restated Limited Liability Company Agreement of Boston West, L.L.C. dated May 30, 1995, filed as exhibit 10-35 to the Company's Form 10-K Annual Report for the fiscal year ended January 29, 1996, and is hereby incorporated by reference. 10-36 Third Amendment to the Amended and Restated Limited Liability Company Agreement of Boston West, L.L.C. dated September 12, 1995, filed as exhibit 10-36 to the Company's Form 10-K Annual Report for the fiscal year ended January 29, 1996, and is hereby incorporated by reference. 10-37 Fourth Amendment to the Amended and Restated Limited Liability Company Agreement of Boston West, L.L.C. dated January 31, 1996, filed as exhibit 10-37 to the Company's Form 10-K Annual Report for the fiscal year ended January 29, 1996, and is hereby incorporated by reference. 10-38 Unit Option Agreement by and between Boston West, L.L.C. and Boston Pacific, Inc., dated as of September 12, 1995, filed as exhibit 10-38 to the Company's Form 10-K Annual Report for the fiscal year ended January 29, 1996, and is hereby incorporated by reference. 10-39 Unit Repurchase Agreement by and between Boston West, L.L.C. and Boston Pacific, Inc. dated as of September 12, 1995, filed as exhibit 10-39 to the Company's Form 10-K Annual Report for the fiscal year ended January 29, 1996, and is hereby incorporated by reference. 10-40 Term Loan and Security Agreement between Carl Karcher Enterprises, Inc. and Heller Financial, Inc., dated December 19, 1995, filed as exhibit 10-40 to the Company's Form 10-K Annual Report for the fiscal year ended January 29, 1996, and is hereby incorporated by reference. 10-41 Amendment No. One to Term Loan and Security Agreement dated as of January 22, 1996, by and between Carl Karcher Enterprises, Inc. and Heller Financial, Inc. filed as exhibit 10-41 to the Company's Form 10-K Annual Report for the fiscal year ended January 29, 1996, and is hereby incorporated by reference. E-4 54 10-42 Amendment No. Two to Term Loan and Security Agreement dated as of January 14, 1997, by and between Carl Karcher Enterprises, Inc. and Heller Financial, Inc.(1) 10-43 Credit Agreement dated August 1, 1996, by and between CKE Restaurants, Inc.; NationsBank of Texas, N.A.; and other parties, filed as exhibit 10-1 to the Company's Current Report on Form 8-K, dated August 20, 1996, and is hereby incorporated by reference.* 10-44 First Amendment to Credit Agreement dated September 30, 1996, by and between CKE Restaurants, Inc.; NationsBank of Texas, N.A.; and other parties, filed as exhibit 10-42 to the Company's Form 10-Q Quarterly Report for the quarterly period ended November 4, 1996, and is hereby incorporated by reference. 10-45 Second Amendment to Credit Agreement dated November 25, 1996, by and between CKE Restaurants, Inc., NationsBank of Texas, N.A.; and other parties.(1) 10-46 Third Amendment to Credit Agreement dated February 14, 1997, by and between CKE Restaurants, Inc., NationsBank of Texas, N.A.; and other parties.(1) 10-47 Stock Purchase Agreement, dated as of August 27, 1996, by and between CKE Restaurants, Inc. and Casa Bonita Holdings, Inc., filed as exhibit 10-1 to the Company's Current Report on Form 8-K dated August 27, 1996, and is hereby incorporated by reference.* 10-48 Loan Agreement as of December 18, 1996, by and between FFCA Mortgage Corporation, CBI Restaurants, Inc., and Casa Bonita Texas, L.P.(1)* 10-49 Loan Agreement as of December 18, 1996, by and between FFCA Mortgage Corporation, CBI Restaurants, Inc., and Casa Bonita Incorporated.(1)* 11-1 Computation of Earnings Per Share.(1) 12-1 Computation of Ratios. (1) 21-1 Subsidiaries of Registrant.(1) 23-1 Consent of KPMG Peat Marwick LLP.(1) 27-1 Financial Data Schedule (included only with electronic filing). _________________________ * Schedules omitted. The Registrant shall furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule upon request. (1) Filed herewith. (2) A management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 14(c) of Form 10-K. E-5 EX-10.22 2 1994 EMPLOYEE STOCK PURCHASE PLAN 1 EXHIBIT 10.22 CKE RESTAURANTS, INC. 1994 EMPLOYEE STOCK PURCHASE PLAN 1. Purpose of Plan. The purpose of this 1994 Employee Stock Purchase Plan (the "Plan") is to encourage a sense of proprietorship on the part of employees of CKE Restaurants, Inc., a Delaware corporation (the "Company"), and its subsidiary corporations (as defined below) by assisting them in making regular purchases of shares of the Company, and thus to benefit the Company by increasing such employees' interest in the growth of the Company and subsidiary corporations and in such entities' financial success. Participation in the Plan is entirely voluntary, and the Company makes no recommendations to its employees as to whether they should participate. 2. Definitions. 2.1 "Base Earnings" shall mean the Employee's regular salary rate before deductions required by law and deductions authorized by the Employee. Base Earnings do not include: pay for overtime, extended workweek schedules, or any other form of extra compensation; payments by the Company or subsidiary corporations, as applicable, of social security, worker's compensation, unemployment compensation, any disability payments or other payments required by statute; or contributions by the Company or subsidiary corporations, as applicable, for insurance, annuity, or other employee benefit plans. 2.2 "Board" shall mean the Board of Directors of the Company. 2.3 "Broker" shall mean the financial institution designated to act as Broker under the Plan pursuant to Paragraph 17 hereof. 2.4 "Brokerage Account" shall mean an account established on behalf of each Participant pursuant to Paragraph 9.1 hereof. 2.5 "Committee" shall mean a Stock Purchase Committee appointed by the Board. 2.6 "Common Stock" shall mean the Common Stock of the Company. 2.7 "Company" shall mean the Company Restaurants, Inc., a Delaware corporation, or any successor. 2.8 "Company Account" shall mean the account established in the name of the Company pursuant to Paragraph 7.2 hereof. 2.9 "Employee" shall mean any person who has reached the age of majority and who is currently employed by the Company or one of its subsidiary corporations (i) on an hourly basis as a restaurant employee for at least 30 hours per week and has been so employed continuously during the preceding one (1) year (provided that the Board or the Committee may in its discretion waive such one (1) year requirement), excluding non-employees and persons on leave of absence; (ii) on an hourly basis as a non-restaurant employee for at least 30 hours per week and has been so employed continuously during the preceding 90 days (provided that the Board or the Committee may in its discretion waive such 90-day requirement), excluding non-employees and persons on leave of absence or (iii) is exempt from the overtime and minimum wage requirements under federal and state laws and has been so employed continuously during the preceding 90 days (provided that the Board or the Committee may in its discretion waive such 90-day requirement), excluding non-employees and persons on leave of absence. An Employee may also be referred to herein as a Participant. 2.10 "Enrollment Form" shall mean the Employee Stock Purchase Plan Enrollment Form. A-1 2 2.11 "Incentive Compensation" shall mean compensation received by any Employee of the Company, or its subsidiaries, as a bonus or performance-based award, which is in addition to such Employee's regular salary. 2.12 "Interested Party" shall mean the persons described in Paragraph 16 hereof. 2.13 "Plan" shall mean this 1994 Employee Stock Purchase Plan. 2.14 "Subsidiary" shall mean a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or a subsidiary corporation, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a subsidiary corporation. 3. Administration. The Plan shall be administered by the Board or, in the discretion of the Board, by the Committee which shall consist of not less than two persons to be appointed by, and to serve at the pleasure of, the Board. No member of the Board or Committee who is not an Employee shall be eligible to participate in the Plan. An aggregate of 500,000 shares of Common Stock shall be subject to the Plan, provided that such number shall be automatically adjusted to reflect any stock split, reverse stock split, stock dividend, recapitalization, merger, consolidation, combination, reclassification or similar corporate change. The Board or the Committee shall have full authority to construe, interpret, apply and administer the Plan and to establish and amend such rules and procedures as it deems necessary or appropriate from time to time for the proper administration of the Plan. In addition, the Board or the Committee may engage or hire such persons, including without limitation, the Broker, to provide administrative, recordkeeping and other similar services in connection with its administration of the Plan, as it may deem necessary or appropriate from time to time. The members of the Board and the Committee and the officers of the Company shall be entitled to rely upon all certificates and reports made by such persons, including the Broker, and upon all opinions given by any legal counsel or investment adviser selected or approved by the Board or the Committee. The members of the Board and the Committee and the officers of the Company shall be fully protected in respect of any action taken or suffered to be taken by them in good faith in reliance upon any such certificates, reports, opinions or other advice of any such person, and all action so taken or suffered shall be conclusive upon each of them and upon all Participants. The Company shall indemnify each member of the Board and the Committee and any other officer or employee of the Company who is designated to carry out any responsibilities under the Plan for any liability arising out of or connected with his or her duties hereunder, except such liability as may arise from such person's gross negligence or willful misconduct. 4. Eligibility. Any Employee as defined in Paragraph 2.9 shall be eligible to participate in the Plan. Any Employee participating in the Plan who, after the commencement of a particular Offering Period, as defined in Paragraph 5, shall for any reason fail to meet the standards of eligibility shall be considered to have withdrawn from the Plan, effective as of the date upon which the Participant shall have become ineligible. Any reference in this Plan to withdrawal by a Participant from the Plan shall include ineligibility as described in this Paragraph. 5. Offering Periods. Shares shall be offered pursuant to this Plan in periods which coincide with the Company's fiscal quarters ("Offering Periods"), commencing on the effective date of the Plan pursuant to Paragraph 22 and continuing thereafter until terminated in accordance with Paragraph 15. The Board shall have the power to change the duration of Offering Periods if such change is announced at least 10 days prior to the scheduled beginning of the first Offering Period to be affected. 6. Participation. Participation in the Plan is voluntary. An eligible Employee may apply to participate in the Plan by submitting to the Company's Benefits Department an Enrollment Form authorizing a payroll deduction and purchase of shares. The Enrollment Form shall be on a form provided by the Company and may be submitted to the Company at any time. Participation shall not be effective until the Enrollment Form is reviewed and accepted by the Company by written notice to the Employee. Once the Enrollment Form has been reviewed and accepted by the Company, participation in the Plan shall commence immediately. A-2 3 7. Payroll Deductions. 7.1 Election. At the time a Participant submits an Enrollment Form, the Participant shall elect to have payroll deductions made on each payday during the Offering Period at a whole percentage from 3% to 15% of the Base Earnings which the Participant is to receive on such payday. In addition to the deduction from Base Earnings, or in lieu of the deduction from Base Earnings, a Participant may elect, upon submission of an Enrollment Form, to have payroll deductions made at a whole percentage from 3% to 15% of the Incentive Compensation which the Participant is to receive. 7.2 Holding of Funds. All payroll deductions authorized by each Participant shall be held in a non-interest account in the name of the Company Restaurants, Inc. Employee Stock Purchase Plan (the "Company Account") until used to purchase Common Stock and shall not be used for any other purpose. The Company shall maintain records reflecting the amount in the Company Account of each Participant. All withholding taxes in connection with a Participant's payroll deduction shall be deducted from the remainder of the Base Earnings and/or Incentive Compensation paid to the Participant and not from the amount to be placed in the Company Account. A Participant may not make any additional payments into the Company Account except as provided in Paragraph 18. All amounts in the Company Account derived from payroll deductions shall be referred to as the "Participant Contribution." 7.3 Changes in Election. Participation in the Plan will continue until the Participant withdraws from the Plan, is no longer eligible to participate or the Plan is terminated. Such participation shall be on the basis of the payroll deduction election submitted by such Employee to the Company and then currently in effect. Each such election shall remain in effect until the effective date of any change in the amount of payroll deduction as requested by the Participant and accepted by the Company. To be effective in any Offering Period, a change in the amount of payroll deduction must be requested in writing and submitted to the Company. A Participant may change his withholding percentage at any time during an Offering Period, but only one time during any Offering Period. If a Participant's Base Earnings change during an Offering Period, the amount of the payroll deduction will be changed to the figure reflecting the Participant's previously elected deduction percentage applied to his or her new Base Earnings (but will not in any event be in excess of 15% of the Participant's Base Earnings). 8. Contribution by the Company or a Subsidiary. The Company or a Subsidiary shall make matching contributions (the "Matching Contribution") as follows: 8.1 Officers and Directors as Participants. For each officer or director of the Company or a Subsidiary who participates in the Plan and remains an Employee of the Company or a Subsidiary for at least one year after the termination of a particular Offering Period, the Company or Subsidiary shall make upon the one year anniversary date after such Offering Period a Matching Contribution equal to either one-half of the number of shares purchased on behalf of such Participant or equal to one-half of the dollar amount contributed by such Participant during such one year earlier Offering Period subject to Paragraph 8.3, at the sole discretion of the Company, less all withholding taxes in connection with such Matching Contribution. "Officer" shall mean those individuals elected as Officers by the Board of Directors of the Company and its Subsidiaries, and shall be determined as of the end of an Offering Period. "Director" shall mean an employee and a member of the Board of Directors of the Company and its subsidiaries. "Director" shall also mean employees of the Company and its subsidiaries who hold the title Director. Withholding taxes as and when required in connection with such Matching Contribution shall be withheld based upon the person's existing withholding percentages or as otherwise required by law from the Participant's base earnings. 8.2 Other Participants. For each Participant in the Plan (other than an officer or director) who remains an Employee of the Company or a Subsidiary for at least one year after the termination of a particular Offering Period, the Company or Subsidiary shall make upon the one year anniversary date after such Offering Period a Matching Contribution equal to either one-third of the number of shares purchased on behalf of such Participant or equal to one-third of the dollar amount contributed by such Participant during such one year earlier Offering Period subject to Paragraph 8.3, at the sole discretion of the Company. Withholding taxes as and when required in connection with such Matching Contribution shall be withheld based upon the person's existing withholding percentages or as otherwise required by law from the Participant's base earnings. 8.3 Intentionally Omitted. A-3 4 8.4 Timing of Withholding. The Company shall withhold taxes in two subsequent pay periods or as otherwise required by law. 9. Purchase of Shares Regarding Participant's Contribution. 9.1 Brokerage Account. Following the acceptance by the Company of a Participant's Enrollment Form, the Company shall direct the Broker to open and maintain an account (the "Brokerage Account") in the name of such Participant and to purchase shares of Common Stock on behalf of such Participant as permitted under this Plan. 9.2 Delivery of Funds to Broker from Company. The Company, from time to time during an Offering Period, shall deliver to the Broker an amount equal to the total of all Participant Contributions together with a list of the amount of such Contributions from each Participant. 9.3 Broker's Purchase of Shares. From time to time, the Broker, as agent for the Participants, shall purchase as many full shares or fractional shares of Common Stock as such Contributions will permit. The shares to be purchased shall be purchased at the then current fair market value and may, at the election of the Company, be either treasury shares, shares authorized but unissued, or shares purchased on the open market. The amount of Common Stock purchased by the Broker pursuant to this Paragraph 9.3 shall be allocated to the respective Brokerage Account of each Participant on the basis of the average cost of the Common Stock so purchased, in proportion to the amount allocable to each Participant. At the end of each Offering Period under the Plan, each Participant shall acquire full ownership of all full shares and fractional shares of Common Stock purchased for his Brokerage Account. Unless otherwise requested by the Participant, all such full shares and fractional shares so purchased shall be registered in the name of the Broker and will remain so registered until delivery is requested in accordance with Paragraph 9.5. 9.4 Fees and Commissions. The Company shall pay the Broker's administrative charges for opening and maintaining the Brokerage Accounts for active Participants and the brokerage commissions on purchases made for such Brokerage Accounts which are attributable to Participant Contributions and Matching Contributions under the Plan. Such Brokerage Accounts may be utilized for other transactions as described in Paragraph 9.5 below, but any fees, commissions or other charges by the Broker in connection with such other transactions shall, in certain circumstances described in Paragraph 9.5, be payable directly to the Broker by the Participant. 9.5 Participant Accounts with Broker. Each Participant's Brokerage Account shall be credited with all cash dividends paid with respect to full shares and fractional shares of Common Stock purchased pursuant to Paragraphs 9.3 and 10 unless such shares are registered in the Participant's name. Unless otherwise instructed by the Participant, dividends on such Common Stock shall automatically be reinvested in Common Stock as soon as practicable following receipt of such dividends by the Broker. Applicable fees and brokerage commissions on the reinvestment of such dividends will be payable by the Participant. Any stock dividends or stock splits which are made with respect to shares of Common Stock purchased pursuant to Paragraphs 9.3 and 10 shall be credited to the Participant's Brokerage Account without charge. Any Participant may request that a certificate for any or all of the full shares of Common Stock credited to his or her Brokerage Account be delivered to him at any time; provided, however, the Participant shall be charged by the Broker for any fees applicable to such requests. A Participant may request the Broker at any time to sell any or all of the full shares or fractional shares of Common Stock credited to his Brokerage Account. Unless otherwise instructed by the Participant, upon such sale the Broker will mail to the Participant a check for the proceeds, less any applicable fees and brokerage commissions and any transfer taxes, registration fees or other normal charges which shall be payable by the Participant. Except as provided in Paragraph 13, a request by the Participant to the Broker to sell shares of Common Stock or for delivery of certificates shall not affect an Employee's status as a Participant. A Participant who has a Brokerage Account with the Broker may purchase additional shares of Common Stock of the Company for his Brokerage Account at any time by separate purchases arranged through the Broker. When any such purchases are made, the Participant will be charged by the Broker for any and all fees and brokerage commissions applicable to such transactions. In addition, any subsequent transactions with respect to such shares acquired including, but not limited to, purchases, sales, reinvestment of dividends, requests for certificates, and crediting of stock dividends or stock splits, shall be at A-4 5 the expense of the Participant and the Broker shall charge the Participant directly for any and all fees and brokerage commissions applicable to such transactions. 10. Issuance of Shares Regarding Matching Contribution. Subject to Paragraph 20, on the 10th day after the first anniversary of an Offering Period, each Participant's direct employer shall make the Matching Contribution for each qualified Participant in an amount described in Paragraph 8 by delivering to the Broker an amount equal to the total funds necessary to make the Matching Contributions described in Paragraph 8 together with a list of the number of shares allocable to the Brokerage Account of each Participant. As soon as practicable thereafter, the Broker shall purchase the number of shares of Common Stock required in order to make the Matching Contributions. The shares to be purchased shall be purchased at the then current fair market value and allocated to participant accounts on the settlement date. The shares may, at the election of the Company, be either treasury shares, shares authorized but unissued, or shares purchased on the open market. At the time of such allocation, each Participant shall immediately acquire full ownership of all full and fractional shares of Common Stock purchased. Unless otherwise requested by the Participant, all such shares so purchased shall be registered in the name of the Broker and will remain so registered until delivery is requested in accordance with Paragraph 9.5. 11. Voting and Shares. All voting rights with respect to the full and fractional shares of Common Stock held in the Brokerage Account of each Participant may be exercised by each Participant and the Broker shall exercise such voting rights in accordance with the Participant's signed proxy instruction duly delivered to the Broker. 12. Statement of Account. As soon as practicable after the end of each Offering Period, the Broker shall deliver to each Participant a statement regarding all activity in his or her Brokerage Account, including his or her participation in the Plan for such Offering Period. Such statement will show the number of shares acquired or sold, the price per share, the transaction date, stock splits, dividends paid, dividends reinvested and the total number of shares held in the Brokerage Account. The Broker shall also deliver to each Participant as promptly as practicable, by mail or otherwise, all notices of meetings, proxy statements and other material distributed by the Company to its stockholders, including the Company's annual report to its stockholders containing audited financial statements. 13. Withdrawal from the Plan. A Participant may withdraw from the Plan, effective as of the end of any Offering Period, by giving written notice to the Company not later than the 15th day prior to the end of such Offering Period. Upon any such withdrawal, the Participant shall be entitled to receive as promptly as possible from the Company all of the Participant's payroll deductions credited to the Company Account in his or her name during the applicable Offering period, but shall not be entitled to the benefit of any Matching Contributions. In the event a Participant withdraws from the Plan pursuant to this Paragraph 13, the Company shall notify the Broker as soon as practicable and the broker shall maintain or close the Participant's Brokerage Account in accordance with the procedures set forth in Paragraph 16. A Participant who withdraws from the Plan may not reenter the Plan except by execution and delivery of a new Enrollment Form and payroll deduction election, and his or her participation shall be effective upon acceptance of the Enrollment Form by the Company by written notice to the Employee not sooner than 30 days after receipt of the Enrollment Form, provided that the Company may in its discretion accept an Enrollment Form prior to the expiration of such 30 days. 14. Termination of Employment. In the event of the termination of a Participant's employment with the Company or a Subsidiary for any reason during an Offering Period, including, but not limited to, the death of a Participant, participation in the Plan shall terminate as well as any rights to future Matching Contributions. The Participant or the personal representative of the Participant shall be entitled to receive an amount of cash determined in the same manner and payable at the same time as if the Participant had withdrawn from the Plan by giving notice of withdrawal effective as of the date such termination occurs. Notwithstanding the foregoing, termination of employment by one employer for the purpose of being re-employed immediately by the Company or one of its Subsidiaries shall not be considered termination under this Paragraph 14. Any reference in this Plan to withdrawal by a Participant from the Plan shall include termination as described in this Paragraph 14. In the event of the termination of a Participant's employment A-5 6 pursuant to this Paragraph 14, the Company shall notify the broker as soon as practicable and the Broker shall maintain or close the Participant's Brokerage Account in accordance with the procedures set forth in Paragraph 16. 15. Amendment, Suspension and Termination of Plan. This Plan may be amended or terminated by the Board at any time and such amendment or termination shall be communicated in writing to all Participants as soon as practicable after the date of such Board action. If the Plan is terminated, each Participant shall be entitled to receive as promptly as possible from the Company all payroll deductions attributable to him or her which have not been used for purchase of Common Stock pursuant to Paragraph 9, ("Account Balance"), but he or she shall not be entitled to the benefit of any future Matching Contributions with respect to such deductions or interest or otherwise for any past Offering Periods. In any event, this Plan shall terminate 20 years from the date the Plan is adopted or the date the Plan is approved by the stockholders, whichever is earlier. In the event that the Company terminates the Plan pursuant to this Paragraph 15, the Broker shall maintain or close the Participant's Brokerage Accounts in accordance with the procedures set forth in Paragraph 16. Notwithstanding any other provision to the contrary, any provision of this Plan may be amended by the Board or the Committee as required to obtain necessary approvals of governmental agencies if such change does not materially alter the rights and interests of stockholders of the Company. If there are any changes in the capitalization of the Company, such as through mergers, consolidations, reorganizations, recapitalizations, stock splits or stock dividends, appropriate adjustments will be made by the Company in the number of shares of its Common stock subject to purchase under the Plan. 16. Disposition of Brokerage Account Following Withdrawal, Death, Termination of Employment or Termination of Plan. As soon as practicable following the notification of the withdrawal of a Participant from the Plan, the notification of the termination of a Participant's employment with the Company or a Subsidiary (which includes the death of the Participant) or of the notification that the Plan is terminated pursuant to Paragraph 15 hereof, the Broker shall notify the former Participant, or in the event of his death, his designated beneficiary, if any, or if no designated beneficiary the estate of the deceased Participant (collectively, an "Interested Party), regarding the disposition of the former Participant's or deceased Participant's Brokerage Account. As soon as practicable following receipt of the notification set forth in the preceding sentence, the Interested Party may request the Broker to dispose of the former Participant's or deceased Participant's Brokerage Account, at the Interested Party's expense, by any one of the following means: (a) The Interested Party may request the Broker to maintain the former Participant's or deceased Participant's Brokerage Account for the benefit of the Interested Party or any other person. The Interested Person shall be charged by the Broker for all maintenance fees and any and all other fees in connection with the Brokerage Account. (b) The Interested Party may request the Broker to sell all of the full shares and fractional shares of Common Stock, if any, held in the former Participant's or deceased Participant's Brokerage Account. Upon such sale, the Broker will mail to the Interested Party a check for the proceeds, less any applicable fees and brokerage commissions and any transfer taxes, registration fees or other charges which shall be payable by the Interested Party. (c) The Interested Party may request the Broker to provide a certificate for all of the full shares of Common Stock, if any, together with a check in an amount equal to the proceeds of the sale any fractional shares of Common Stock held in the former Participant's or deceased Participant's Brokerage Account, less any applicable fees and brokerage commissions and any transfer taxes, registration fees or other charges which are payable by the Participant. 17. Broker. The Broker shall be Merrill Lynch, Pierce, Fenner & Smith Incorporated which has agreed to act as Broker for such period as is determined by the Company. Either the Company or the Broker may terminate such designation at any time upon 30 days' written notice. In the event of such termination of the Broker, the Company may administer the Plan without the use of a Broker or may appoint a successor Broker. Any successor Broker shall be vested with all the powers, rights, duties and immunities of the Broker hereunder to the same extent as if originally named as the Broker hereunder. The relationship between the A-6 7 Broker and the Participant will be the normal relationship of a broker and its client, and the Company assumes no responsibility in this respect. 18. Initial Contribution. Any Participant who files a Enrollment Form prior to the first Offering Period may elect to make an initial contribution ("Initial Contribution") to be allocated to him or her in the Company Account, by check payable to the Company, in any amount up to 10% of his or her Base Earnings for the period between August 16, 1994, and the commencement of the first Offering Period. The amount of the Initial Contribution shall be matched as provided in Paragraph 8, and withholding taxes in connection with such Matching Contributions shall be deducted in the same manner as provided in Paragraph 8. 18.1 Lump Sum Contribution. The Board and/or Committee may from time to time in its discretion allow any Participant in the Plan to make a lump sum contribution ("Lump Sum Contribution") to be credited to him or her in the Company Account, by check payable to the Company, in any amount up to 15% of his or her Base Earnings, for a period prescribed by the Board and/or Committee. The amount of the Lump Sum Contribution shall be matched as provided in Paragraph 8, and withholding taxes in connection with such Matching Contributions shall be deducted in the same manner as provided in Paragraph 8. 19. Conditions to Issuance of Shares. Shares shall not be issued under the Plan unless issuance and delivery of such shares pursuant to the Plan shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended; the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, the securities laws of the state in which any Employee resides, NASD requirements and the requirements of any stock exchange upon which the Common Stock may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. By execution of the Enrollment Form, the Participant covenants and agrees that all shares are being purchased only for investment and without any present intention to sell or distribute such shares. 20. Notices. 20.1 To Company or Subsidiaries. Any notice hereunder to the Company or to its Subsidiaries shall be in writing and such notice shall be deemed made only when delivered or three days after being mailed by certified mail, return receipt requested, to the Company's principal office at 1200 North Harbor Boulevard, Anaheim, California 92801 or to such other address as the Company may designate by notice to the Participants. 20.2 To Participant. Any notice to a Participant hereunder shall be in writing and any such communication and any delivery to a Participant shall be deemed made if mailed or delivered to the Participant at such address as the Participant may have on file with the Company and with the Broker. 21. Miscellaneous. 21.1 No Limitation on Termination of Employment. Nothing in the Plan shall in any manner be construed to limit in any way the right of the Company or any of its Subsidiaries to terminate an Employee's employment at any time, without regard to the effect of such termination on any right such Employee would otherwise have under the Plan, or give any right to an Employee to remain employed by the Company in any particular position or at any particular rate of remuneration. 21.2 Liability. The Company, its Subsidiaries, any member of the Board or Committee and any other person participating in any determination of any question under the Plan, or in the interpretation, administration or application of the Plan, shall have no liability to any party for any action taken or not taken in good faith under the Plan, or based on or arising out of a determination of any question under the Plan or an interpretation, administration or application of the Plan made in good faith. 21.3 Captions. The captions of the paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 21.4 Assignment. Any rights of Employees hereunder shall be nonforfeitable, and no Account Balance or contribution made by any employer may revert or inure to the benefit of the Company or any A-7 8 Subsidiary, provided that no Participant shall be entitled to sell, assign, pledge or hypothecate any right or interest in his or her Account Balance. 21.5 Governing Law. Delaware law governs this Plan. 21.6 Severability. In case any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein. 21.7 Successors. The provisions of this Plan shall bind and inure to the benefit of the Company and its successors and assigns. The term "successors" as used herein shall include any corporate or other business entity which shall by merger, consolidation, purchase or otherwise acquire all or substantially all of the business and assets of the Company, and successors of any such corporation or other business entity. 22. Effective Date of Plan. The Plan shall become effective upon the first day of the next fiscal quarter after which the Board approves the Plan, subject to ratification by the stockholders of the Company, and all necessary approvals of governmental agencies have been received. A-8 EX-10.31 3 FIRST AMENDMENT TO SETTLEMENT AND DEVELOPMENT 1 EXHIBIT 10.31 Tom Thompson President Chief Operating Officer February 20, 1997 Mr. William M. Thiesen Chairman and Chief Executive Officer GB Foods Corporation 23 Corporate Plaza, #246 Newport Beach, CA 92660 Dear Willy: As of May 30, 1995, Carl Karcher Enterprises, Inc. ("Carl"), CKE Restaurants, Inc. ("CKE") and GB Foods Corporation ("GBFC") entered into a Carl's Jr./Green Burrito Settlement and Development Agreement (the "Agreement"). There subsequently have arisen certain questions about store conversions under Section 1 of the Agreement. In addition, there has arisen a difference of opinion on the interpretation of Section 9 of the Agreement with respect to certain proposed actions by CKE. As we have discussed, we both believe that it is in our mutual best interest to resolve these matters and "reset" the conversion obligations of Carl and CKE under the Agreement as hereinafter provided. Accordingly, Carl, CKE and GBFC agree as follows: 1. Notwithstanding our dispute with respect to Section 9 of the Agreement and without prejudice to either side's position, the parties hereby modify and amend the Agreement to the extent necessary, if any, to permit Carl or CKE (or any of its franchisees or affiliates) to feature Carl's Jr. products in any Taco Bueno restaurant now owned by Carl or CKE in Texas, or hereafter established by Carl or CKE (or any of its franchisees or affiliates) in Texas. Accordingly, the combination of Carl's Jr. with Taco Bueno restaurants in Texas shall not be deemed by GBFC to be a violation of Section 9 of the Agreement. 2. Notwithstanding Section 1 of the Agreement, the parties hereby modify and amend the Agreement to the extent necessary to provide that for each of the four fiscal years in the period March 1, 1997 through February 28, 2001, Carl will convert a minimum of sixty (60) Carl's Jr. locations, all without regard to subparts (i) through (v) of Section 1A of the Agreement, which subparts are hereby deleted. At least fifty (50) of the conversions shall be company-owned Carl's Jr. locations, and Carl may fill the remaining ten (10) with either company-owned or franchisee Carl's Jr. locations. GBFC hereby acknowledges and agrees that all of Carl's and CKE's obligations under Section 1 of the Agreement have been fully satisfied through February 28, 1997. Except as otherwise amended hereby, the provisions of the Agreement will remain in full force and effect. If you agree to the above, please so indicate in the space provided below and return one copy to me. Carl Karcher Enterprises, Inc. CKE Restaurants, Inc. By: /s/ C. Thomas Thompson By: /s/ C. Thomas Thompson -------------------------- ----------------------------- Accepted and Agreed: GB Foods Corporation By: /s/ William M. Thiesen, President ------------------------------------- EX-10.42 4 AMENDMENT NO. TWO TO TERM LOAN AND SECURITY 1 EXHIBIT 10.42 AMENDMENT NO. 2 TO TERM ----------------------- LOAN AND SECURITY AGREEMENT ("AGREEMENT") ----------------------------------------- JANUARY 14, 1997 Carl Karcher Enterprises, Inc. 1200 North Harbor Boulevard Anaheim, California 92803 Attn: Loren Pannier Senior Vice President Ladies and Gentlemen: PREAMBLE. We refer to our Term Loan and Security Agreement with you dated as of December 19, 1995 (the "Loan Agreement"), as amended by that certain Amendment No. 1 to the Loan Agreement dated January 22, 1996. Capitalized terms used herein and not defined herein have the meanings assigned to them in the Loan Agreement. Pursuant to the Loan Agreement, it was contemplated that the Fixed Charge Coverage Ratio set forth in Section 7.12 of the Loan Agreement would subtract capital expenditures, tax expense and dividends from EBITDA. Lender has determined, however, that Borrower's new consortium of banks lead by NationsBank has redefined "Fixed Charge Coverage Ratio" and "EBITDA". As a result of the foregoing, Borrower and Lender have agreed that it would be in the Borrower's and Heller's best interest to conform the definitions of "Fixed Charge Coverage Ratio" and "EBITDA" in the Loan Agreement to coincide with the redefined terms and ratios used by NationsBank. The purpose of this Amendment is to memorialize our mutual understanding and to amend to the Loan Agreement pertaining to the foregoing matter and certain related matters. Accordingly you and we hereby agree as follows: 1. AMENDMENTS TO SECTION 7.12 OF THE LOAN AGREEMENT. Section 7.12 of the Loan Agreement is hereby deleted in its entirety and the following revised Section 7.12 is substituted in lieu thereof: 7.12. FIXED CHARGE COVERAGE RATIO. If Guarantor's Fixed Charge Coverage Ratio, determined on a Consolidated basis, is less than the ratio indicated at the end of such fiscal period as specified below: FISCAL PERIOD ENDING RATIO -------------------- ----- at each quarter of 1997 and up to 1/26/98 1.10 : 1.00 at first quarter 1998 and thereafter 1.30 : 1.00 For purposes of this Agreement, "Fixed Charge Coverage Ratio" means the following calculation, expressed as a ratio for any fiscal period: (a) EBITDAR of Guarantor and its consolidated Subsidiaries divided by (b) the sum of (I) interest expense, (ii) the 2 current portion of long-term debt, (iii) the current portion of capital leases, (iv) rentals payable under leases of real or personal, or mixed, property, (v) cash taxes, and (vi) principal amounts due on funded debt. The current portion of long-term debt, the current portion of capital leases, rentals payable under leases, cash taxes and principal amounts due on funded debt will be the amount shown on the consolidated balance sheet of Guarantor as of the end of the applicable quarter. "EBITDAR" means earnings before interest and tax expense, depreciation, amortization and other non-cash charges, and rent expense. This ratio shall be calculated quarterly using a Four Quarter Rolling Basis. "Four Quarter Rolling Basis" shall mean the four quarters calculated using the results of the fiscal quarter then most recently ended and the immediately preceding fiscal three (3) quarters. 2. MISCELLANEOUS. (a) EFFECT OF AMENDMENT. Except as set forth expressly herein, all terms of the Loan Agreement and the other Loan Documents, as amended hereby, shall be and remain in full force and effect and shall constitute the legal, valid, binding and enforceable obligations of Borrower to Lender. To the extent any terms and conditions in any of the Loan Documents shall contradict or be in conflict with any terms or conditions of the Loan Agreement, after giving effect to this Amendment, such terms and conditions are hereby deemed modified and amended accordingly to reflect the terms and conditions of the Loan Agreement as modified and amended hereby. In connection herewith, Borrower shall execute such amendments to the other Loan Documents or re-execute such of the other Loan documents as Lender shall request. (b) RATIFICATION. Borrower hereby restates, ratifies and reaffirms each and every term and condition set forth in the Loan Agreement, as amended hereby, and the Loan documents effective as of the date hereof. (c) ESTOPPEL. To induce Lender to enter into this Amendment, Borrower hereby acknowledges and agrees that, as of the date hereof, no Default Condition or Event of Default has occurred and is continuing and, in addition, there exists no right of offset, defense, counterclaim or objection in favor of Borrower as against Lender with respect to the Obligations. (d) GOVERNING LAW. This Amendment shall be governed by, and construed in accordance with, the internal laws (and not the laws of conflicts) of the State of Illinois and all applicable federal laws of the United States of America. Please countersign in the space provided below to acknowledge your concurrence with the foregoing. Sincerely, HELLER FINANCIAL, INC. By: /s/Domminick J. Masciantonio ------------------------------- Name: Domminick J. Masciantonio Its: Senior Vice President ACKNOWLEDGED AND AGREED CARL KARCHER ENTERPRISES, INC. By: /s/Robert A. Wilson ---------------------- Name: Robert A. Wilson Title: Vice President General Counsel EX-10.45 5 SECOND AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.45 SECOND AMENDMENT TO CKE RESTAURANTS, INC. CREDIT AGREEMENT DATED AS OF NOVEMBER 25, 1996 This SECOND AMENDMENT (this "Amendment") is among CKE RESTAURANTS, INC., a Delaware corporation (the "Borrower"), the Financial Institutions party to the Credit Agreement referred to below (the "Lenders"), and NATIONSBANK OF TEXAS, N.A., as agent (the "Agent") for the Lenders thereunder. PRELIMINARY STATEMENTS: 1. The Borrower, the Lenders and the Agent are parties to a Credit Agreement dated as of August 1, 1996, as amended by the First Amendment dated as of September 30, 1996 (as so amended, the "Credit Agreement"; capitalized terms used and not otherwise defined herein have the meanings assigned to such terms in the Credit Agreement). 2. The Borrower has requested that the Agent and the Lenders amend the Credit Agreement to increase the amount of Designated Investments permitted thereunder. 3. The Agent and the Lenders are willing to grant the request of the Borrower on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is, effective concurrently with the satisfaction of the conditions precedent set forth in Section 2 hereof, hereby amended as follows: (a) Section 1.01 of the Credit Agreement is hereby amended by adding thereto the following defined term in the appropriate alphabetical order: "'SECOND AMENDMENT' means the Second Amendment to this Agreement, dated as of November 25, 1996." (b) Section 6.02(f)(iv) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(iv) other Designated Investments in an aggregate amount invested and not recovered not to exceed at any one time (A) $20,000,000 minus (B) the amount, if any, by which the aggregate consideration paid by the Borrower and its Subsidiaries in connection with all Permitted Acquisitions after the date hereof (excluding from the calculation of such aggregate consideration (I) consideration paid in the form of common stock of the Borrower, (II) consideration paid with the proceeds of Permitted Subordinated Debt and consideration paid or refinanced with the proceeds of the Permitted Acquisition Financing, and (III) in the case of a Permitted Acquisition 2 by a Subsidiary of the Borrower which is not a wholly-owned Subsidiary of the Borrower, the consideration paid by such Subsidiary with the proceeds of equity contributions to such Subsidiary by Persons other than the Borrower and its Subsidiaries) exceeds the sum of (1) $5,000,000 plus (2) the Additional Investment Amount;". SECTION 2. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective when: (a) the Agent has executed this Amendment and has received counterparts of this Amendment executed by the Borrower and the Required Lenders; and (b) the Agent has received counterparts of the Consent appended hereto (the "Consent") executed by each of the Guarantors (such Guarantors, together with the Borrower, each a "Loan Party" and, collectively, the "Loan Parties"). SECTION 3. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants as follows: (a) AUTHORITY. The Borrower and each other Loan Party has the requisite corporate power and authority to execute and deliver this Amendment or the Consent, as applicable, and to perform its obligations hereunder and under the Loan Documents (as amended or modified hereby) to which it is a party. The execution, delivery and performance by the Borrower of this Amendment and by each other Loan Party of the Consent, and the performance by each Loan Party of each Loan Document (as amended or modified hereby) to which it is a party have been duly approved by all necessary corporate action of such Loan Party and no other corporate proceedings on the part of such Loan Party are necessary to consummate such transactions. (b) ENFORCEABILITY. This Amendment has been duly executed and delivered by the Borrower. The Consent has been duly executed and delivered by each Guarantor. This Amendment and each Loan Document (as amended or modified hereby) is the legal, valid and binding obligation of each Loan Party party hereto or thereto, enforceable against such Loan Party in accordance with its terms, and is in full force and effect. (c) REPRESENTATIONS AND WARRANTIES. The representations and warranties contained in each Loan Document (other than any such representations or warranties that, by their terms, are specifically made as of a date other than the date hereof) are correct on and as of the date hereof as though made on and as of the date hereof. (d) NO DEFAULT. No event has occurred and is continuing that constitutes a Default. SECTION 4. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS. (a) Upon and after the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as modified and amended hereby. 2 3 (b) Except as specifically amended above, the Credit Agreement and all other Loan Documents, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. SECTION 5. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment or the Consent by telefacsimile shall be effective as delivery of a manually executed counterpart of this Amendment or such Consent. SECTION 6. GOVERNING LAW. This Amendment shall be governed by, and construed in accordance with, the laws of the State of California. [Signature Pages Follow] 3 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. CKE RESTAURANTS, INC. By: /s/ Robert A. Wilson ------------------------------------- Title: Vice President NATIONSBANK OF TEXAS, N.A., as Agent By: /s/ Tom F. Sharfenberg ------------------------------------- Title: Senior Vice President LENDERS: NATIONSBANK OF TEXAS, N.A. By: /s/ Tom F. Sharfenberg ------------------------------------- Title: Senior Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/ S. Devaney ------------------------------------- Title: Commercial Banking Manager MELLON BANK, N.A. By: /s/ Abdi Rais ------------------------------------- Title: Vice President 5 SUMITOMO BANK OF CALIFORNIA, N.A. By: /s/ Matt R. Van Steenhuyse ------------------------------------- Title: Vice President U. S. NATIONAL BANK OF OREGON By: /s/ Janet Jordan ------------------------------------- Title: Vice President WELLS FARGO BANK, N.A. By: /s/ Sandra D. Martin ------------------------------------- Title: EX-10.46 6 THIRD AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.46 THIRD AMENDMENT TO CKE RESTAURANTS, INC. CREDIT AGREEMENT DATED AS OF FEBRUARY 14, 1997 This THIRD AMENDMENT (this "Amendment") is among CKE RESTAURANTS, INC., a Delaware corporation (the "Borrower"), the Financial Institutions party to the Credit Agreement referred to below (the "Lenders"), and NATIONSBANK OF TEXAS, N.A., as agent (the "Agent") for the Lenders thereunder. PRELIMINARY STATEMENTS: 1. The Borrower, the Lenders and the Agent are parties to a Credit Agreement dated as of August 1, 1996, as amended by the First Amendment dated as of September 30, 1996 and the Second Amendment dated as of November 25, 1996 (as so amended, the "Credit Agreement"; capitalized terms used and not otherwise defined herein have the meanings assigned to such terms in the Credit Agreement). 2. The Borrower has requested that the Agent and the Lenders amend the Credit Agreement to modify the amount of Designated Investments permitted thereunder. 3. The Agent and the Lenders are willing to grant the request of the Borrower on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is, effective concurrently with the satisfaction of the conditions precedent set forth in Section 2 hereof, hereby amended as follows: (a) Section 1.01 of the Credit Agreement is hereby amended by adding thereto the following defined terms in the appropriate alphabetical order: "`DESIGNATED INVESTMENT ADVANCE' means Revolving B Advances made on a day on which the Borrower makes a Designated Investment in an amount equal to the lesser of (a) the sum of all such Revolving B Advances or (b) the amount of the Designated Investment. `DESIGNATED INVESTMENT AMOUNT' means, at any time, the aggregate amount of all outstanding Designated Investment Advances at such time. `TOTAL CONSOLIDATED ASSETS' means, as of any time of determination, the total assets of the Borrower and its Subsidiaries at such time determined on a Consolidated basis and in accordance with GAAP." (b) Section 2.05(a) of the Credit Agreement is hereby amended by (i) deleting the word "and" in the second to the last line thereof and (ii) deleting the period at the end thereof and inserting the following in lieu thereof: 2 ", and (iii) in the case of any prepayment of Revolving B Advances, shall first be applied to reduce the Revolving B Advances that are not Designated Investment Advances and then to reduce the Designated Investment Advances." (c) Section 6.02(f)(iv) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(iv) other Designated Investments in an aggregate amount invested and not recovered not to exceed, immediately after any Designated Investment is made, 20% of the Total Consolidated Assets of the Borrower as shown on the 10-K or 10-Q most recently filed by the Borrower with the Securities and Exchange Commission as of the date on which such Designated Investment is made, provided that immediately after any Designated Investment is made, (A) there are no outstanding Revolving A Advances, (B) the Designated Investment Amount does not exceed $15,000,000 and (C) the Borrower has timely made all filings required of it by the Securities and Exchange Commission;". (d) Section 6.02(f)(v)(G) of the Credit Agreement is amended and restated in its entirety as follows: "(G) the aggregate consideration paid by the Borrower and its Subsidiaries in connection with all Permitted Acquisitions after the date hereof (excluding from the calculation of such aggregate consideration (I) consideration paid in the form of common stock of the Borrower, (II) consideration paid with the proceeds of Permitted Subordinated Debt and consideration paid or refinanced with the proceeds of the Permitted Acquisition Financing and (III) in the case of a Permitted Acquisition by a Subsidiary of the Borrower which is not a wholly-owned Subsidiary of the Borrower, the consideration paid by such Subsidiary with the proceeds of equity contributions to such Subsidiary by Persons other than the Borrower and its Subsidiaries) shall not exceed the sum of (a) $25,000,000 plus (b) the Additional Investment Amount." (e) Section 6.03 of the Credit Agreement is amended by adding thereto a new Section 6.03(n) to read as follows: "(N) TOTAL CONSOLIDATED ASSETS. On the Business Day immediately prior to the date on which the Borrower makes any Designated Investment, a copy of the 10-K or 10-Q most recently filed by the Borrower with the Securities and Exchange Commission, and certified by the chief financial officer of the Borrower as to the truth and accuracy thereof.". SECTION 2. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective when: (a) the Agent has executed this Amendment and has received counterparts of this Amendment executed by the Borrower and the Required Lenders; (b) the Agent has received counterparts of the Consent appended hereto (the "Consent") executed by each of the Guarantors (such Guarantors, together with the Borrower, each a "Loan Party" and, collectively, the "Loan Parties"); and 2 3 (c) the Borrower has paid to the Agent in accordance with Section 2.09(a) of the Credit Agreement for the account of each Lender, a fee equal to 0.05% of the sum of the principal amount of all outstanding Advances owed to such Lender, the Unused Revolving A Commitment, if any, of such Lender, the Unused Revolving B Commitment, if any, of such Lender and such Lender's Pro Rata Share of the aggregate outstanding Letter of Credit Obligations as of such date. SECTION 3. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants as follows: (A) AUTHORITY. The Borrower and each other Loan Party has the requisite corporate power and authority to execute and deliver this Amendment or the Consent, as applicable, and to perform its obligations hereunder and under the Loan Documents (as amended or modified hereby) to which it is a party. The execution, delivery and performance by the Borrower of this Amendment and by each other Loan Party of the Consent, and the performance by each Loan Party of each Loan Document (as amended or modified hereby) to which it is a party have been duly approved by all necessary corporate action of such Loan Party and no other corporate proceedings on the part of such Loan Party are necessary to consummate such transactions. (B) ENFORCEABILITY. This Amendment has been duly executed and delivered by the Borrower. The Consent has been duly executed and delivered by each Guarantor. This Amendment and each Loan Document (as amended or modified hereby) is the legal, valid and binding obligation of each Loan Party hereto or thereto, enforceable against such Loan Party in accordance with its terms, and is in full force and effect. (C) REPRESENTATIONS AND WARRANTIES. The representations and warranties contained in each Loan Document (other than any such representations or warranties that, by their terms, are specifically made as of a date other than the date hereof) are correct on and as of the date hereof as though made on and as of the date hereof. (D) NO DEFAULT. No event has occurred and is continuing that constitutes a Default. SECTION 4. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS. (a) Upon and after the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as modified and amended hereby. (b) Except as specifically amended above, the Credit Agreement and all other Loan Documents, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. 3 4 SECTION 5. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment or the Consent by telefacsimile shall be effective as delivery of a manually executed counterpart of this Amendment or such Consent. SECTION 6. GOVERNING LAW. This Amendment shall be governed by, and construed in accordance with, the laws of the State of California. SECTION 7. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all out-of-pocket expenses of the Agent in connection with the preparation, execution, delivery, administration, modification and amendment of this Amendment and any other documents prepared or obtained in connection therewith, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Agent with respect thereto and with respect to advising the Agent as to its rights and responsibilities hereunder and thereunder. Borrower further agrees to pay on demand all costs and expenses, if any (including, without limitation, reasonable counsel fees and expenses), of the Agent, and the Lenders in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Amendment, including, without limitation, reasonable counsel fees and expenses in connection with the enforcement of rights under this Section 7. [Signature Pages Follow] 4 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. CKE RESTAURANTS, INC. By: /s/ Robert Wilson ------------------------------------ Title: Vice President NATIONSBANK OF TEXAS, N.A., as Agent By: /s/ Tom F. Scharfenberg ------------------------------------ Title: Senior Vice President LENDERS: NATIONSBANK OF TEXAS, N.A. By: /s/ Tom F. Scharfenberg ------------------------------------ Title: Senior Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By /s/ Deborah Miller ------------------------------------ Title: Vice President MELLON BANK, N.A. By /s/ Abdi Rais ------------------------------------ Title: Vice President S-1 6 SUMITOMO BANK OF CALIFORNIA, N.A. By: /s/ Matthew R. Van Steenhuyse ------------------------------------ Title: Vice President U. S. NATIONAL BANK OF OREGON By: /s/ Janet Jordan ------------------------------------ Title: Vice President WELLS FARGO BANK, N.A. By: /s/ Kevin M. Terry ------------------------------------ Title: Vice President S-2 EX-10.48 7 LOAN AGREEMENT AS OF DECEMBER 18, 1996 1 EXHIBIT 10.48 LOAN AGREEMENT THIS LOAN AGREEMENT (this "Agreement") is made as of December 18, 1996, by and among FFCA MORTGAGE CORPORATION, a Delaware corporation ("FFCA"), whose address is 17207 North Perimeter Drive, Scottsdale, Arizona 85255, CBI RESTAURANTS, INC., a Delaware corporation ("CBI"), whose address is 1200 North Harbor Boulevard, Anaheim, California 92803-4349 and CASA BONITA Texas, L.P., a Texas limited partnership ("Casa"), whose address is 1200 North Harbor Boulevard, Anaheim, California 92803-4349. PRELIMINARY STATEMENT: Unless otherwise expressly provided herein, all defined terms used in this Agreement shall have the meanings set forth in Section 1. Debtor has requested from FFCA, and applied for, the Loans to provide long-term financing for the Premises, and for no other purpose whatsoever. Each Loan will be evidenced by a Note and secured by a first priority security interest in the corresponding Premises pursuant to a Deed of Trust. FFCA has committed to make the Loans pursuant to the terms and conditions of the Commitment, this Agreement and the other Loan Documents. AGREEMENT: In consideration of the mutual covenants and provisions of this Agreement, the parties agree as follows: 1. DEFINITIONS. The following terms shall have the following meanings for all purposes of this Agreement: "Affiliate" means any Entity controlling, controlled by or under common control with any other Entity. "Casa Loan Agreement" means that certain Loan Agreement dated as of the date hereof among FFCA, CBI and Casa Bonita Incorporated, a Texas corporation. "Closing" shall have the meaning set forth in Section 4. "Closing Date" means the date specified as the closing date in Section 4. "Code" means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et seq., as amended. "Counsel" means legal counsel to Debtor and Guarantor, licensed in the state(s) in which (i) the Premises are located, (ii) Debtor and/or Guarantor are incorporated or formed and (iii) Debtor and/or Guarantor maintain principal places of business, as selected by Debtor and Guarantor, as the case may be, and approved by FFCA. 2 "Debtor" means, collectively, Casa and CBI. "Deed of Trust" means the deed of trust or mortgage, assignment of rents and leases, security agreement and fixture filing to be executed by Casa for the benefit of FFCA substantially in the form of Exhibit C attached to this Agreement. A Deed of Trust will be executed for each Premises. "De Minimis Amounts" means with respect to any given level of hazardous substance or solid waste, that level or quantity of hazardous substance or solid waste in any form or combination of forms which does not constitute a violation of any Environmental Laws and is customarily employed in, or associated with, similar businesses located in the applicable county in which the Premises is located. "Entity" shall mean any corporation, trust, limited liability company, unincorporated organization, governmental authority or any other form of entity. "Environmental Condition" means any condition with respect to soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata, ambient air and any environmental medium comprising or surrounding the Premises, whether or not yet discovered, which could reasonably be expected to result in any damage, loss, cost, expense, claim, demand, order or liability to or against Debtor or FFCA by any third party (including, without limitation, any government entity) arising under any Environmental Laws, including, without limitation, any condition resulting from the operation of Debtor's business and/or the operation of the business of any other property owner or operator in the vicinity of the Premises and/or any activity or operation formerly conducted by any person or entity on or off the Premises. "Environmental Indemnity Agreement" means the environmental indemnity agreement to be executed by Debtor for the benefit of FFCA substantially in the form of Exhibit F attached to this Agreement. An Environmental Indemnity Agreement will be executed for each Premises. "Environmental Laws" means any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law relating to Hazardous Materials, relating to liability for or costs of Remediation or prevention of Releases or relating to liability for or costs of other actual or threatened danger from any Environmental Condition. "Environmental Laws" includes, but is not limited to, the following statutes, as amended, any successor thereto, and any regulations promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like addressing similar issues: the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous Materials Transportation Act; the Resource Conservation and Recovery Act (including but not limited to Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the National 2 3 Environmental Policy Act; and the River and Harbors Appropriation Act. "Environmental Laws" also includes, but is not limited to, any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law: conditioning transfer of property upon a negative declaration or other approval of a governmental authority of the environmental condition of the property and requiring notification or disclosure of Releases or other environmental condition of the Premises to any governmental authority or other person or entity, whether or not in connection with transfer of title to or interest in property. "Environmental Reports" means the environmental reports provided to FFCA by Debtor with respect to each of the Premises pursuant to Section 9.E. "Event of Default" has the meaning set forth in Section 10. "Fee" means an underwriting, site assessment, valuation, processing and commitment fee equal to $99,367.50. "Guarantor" means CKE Restaurants, Inc., a Delaware corporation. "Guaranty" means a guaranty of payment and performance substantially in the form of Exhibit D attached to this Agreement to be executed by Guarantor for the benefit of FFCA. A Guaranty shall be executed for each Premises. "Hazardous Materials" means (a) any toxic substance or hazardous waste, substance or related material, or any pollutant or contaminant; (b) radon gas, asbestos in any form which is or could become friable, urea formaldehyde foam insulation, transformers or other equipment which contains dielectric fluid containing levels of polychlorinated biphenyls in excess of federal, state or local safety guidelines, whichever are more stringent, or any petroleum product; (c) any substance, gas, material or chemical which is or may be defined as or included in the definition of "hazardous substances," "toxic substances," "hazardous materials," hazardous wastes" or words of similar import under any Environmental Laws; and (d) any other chemical, material, gas or substance the exposure to or release of which is or may be prohibited, limited or regulated by any governmental or quasi-governmental entity or authority that asserts or may assert jurisdiction over the Premises or the operations or activity at the Premises, or any chemical, material, gas or substance that does or may pose a hazard to the health and/or safety of the occupants of the Premises or the owners and/or occupants of property adjacent to or surrounding the Premises. "Loan" means the loan for each Premises described in Section 2 and in the amount set forth in Exhibit A. Each Loan will be evidenced by a Note and secured by a Deed of Trust. "Loan Amount" means, with respect to each Premises, the amount set forth in Section 2. "Loan Documents" means, collectively, this Agreement, the Notes, the Deeds of Trust, the Environmental Indemnity Agreements, the UCC-1 Financing Statements, the Guaranties, the Title Matters Agreement and all other documents executed in connection therewith or contemplated 3 4 thereby. "Note" means the promissory note substantially in the form of Exhibit B attached to this Agreement to be executed by Debtor in favor of FFCA. A Note in the corresponding Loan Amount will be executed for each Premises. "Permitted Exceptions" means those exceptions to title approved in writing by FFCA pursuant to Section 9 of this Agreement. "Premises" means the parcels of real estate described in Exhibit A attached hereto, all rights, privileges and appurtenances associated therewith, and all buildings, fixtures and other improvements now or hereafter located thereon (whether or not affixed to such real estate). "Release" means any presence, release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Materials. "Remediation" means any response, remedial, removal, or corrective action, any activity to cleanup, detoxify, decontaminate, contain or otherwise remediate any Hazardous Material, any actions to prevent, cure or mitigate any Release, any action to comply with any Environmental Laws or with any permits issued pursuant thereto, any inspection, investigation, study, monitoring, assessment, audit, sampling and testing, laboratory or other analysis, or any evaluation relating to any Hazardous Materials. "Threatened Release" means a substantial likelihood of a Release which requires action to prevent or mitigate damage to the soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata, ambient air or any other environmental medium comprising or surrounding the Premises which may result from such Release. "Title Company" means the title insurance company described in Section 4. "Title Matters Agreement" means that certain agreement dated as of the date of this Agreement among Debtor, Guarantor and FFCA with respect to certain title matters described therein. "UCC-1 Financing Statements" means such UCC-1 Financing Statements as FFCA shall require to be executed and delivered by Debtor with respect to the Premises. 2. TRANSACTION. (a) On the terms and subject to the conditions set forth in the Loan Documents, FFCA shall make the Loans. The Loans will be evidenced by the Notes and secured by the Deeds of Trust. The Guarantor will provide further security for the Loans by executing and delivering a Guaranty with respect to each Loan. Debtor shall repay the outstanding principal amount of the Loans together with interest thereon in the manner and in accordance with the terms and conditions of the Notes and the other Loan Documents. The aggregate Loan Amount shall not 4 5 exceed $13,249,000.00, allocated among the Premises as set forth on the attached Exhibit A. The Loans shall be advanced at the Closing in cash or its equivalent subject to any prorations and adjustments required by this Agreement. (b) Debtor shall have the option (the "Conversion Option") from and after the Closing Date, subject to the conditions hereinafter set forth, to convert the interest rate accruing under any Note from the Adjustable Rate (as defined in the Note) to a fixed rate of interest (the "Base Interest Rate") by providing FFCA written notice of Debtor's election ("Debtor's Notice") to exercise the Conversion Option not less than thirty (30) days prior to such conversion becoming effective (the "Notice Period"). The conversion shall be effective on the first calendar day of the first month which follows the month in which the last day of the Notice Period occurs (the "Conversion Date"). Debtor shall have the right to exercise the Conversion Option upon satisfaction of the following conditions: (i) Debtor shall have provided FFCA with financial statements (either audited financial statements or, if Debtor does not have audited financial statements, certified financial statements) and such other information concerning itself which FFCA requires to assess Debtor's then financial condition, and, FFCA's investment committee shall have approved such financial condition in its sole discretion; (ii) There shall be no event of default under this Agreement, the Note, the Deed of Trust or any of the other Loan Documents or any other document further securing the Note; (iii) Debtor shall have delivered to FFCA an amendment and restatement of the Note in a form acceptable to FFCA to reflect Debtor's exercise of the Conversion Option; (iv) Debtor shall have delivered to FFCA a confirmation of the Deed of Trust in a form acceptable to FFCA; (v) Debtor shall have caused Title Company to deliver to FFCA an endorsement to the Title Policy, dated as of the Conversion Date, insuring title to the Premises in FFCA, free and clear of all defects and encumbrances except those approved in writing by FFCA and its counsel, with all standard exceptions deleted to the extent permitted by law and containing: (a) full coverage against liens of mechanics, materialmen, laborers and any other parties who might claim statutory or common law liens in the Loan Amount, as updated from time to time; (b) no survey exceptions other than those previously approved by FFCA and FFCA's counsel in writing; (c) such other endorsements or agreements which provide 5 6 equivalent protection in the event that the foregoing described endorsements are not available, as FFCA and its counsel may reasonably request; and (d) such other endorsements as FFCA deems appropriate or necessary. Debtor agrees to deliver or cause to be delivered such affidavits, indemnities, notices and/or other agreements as Title Company may require in order to provide the title insurance coverage required pursuant to this and all other agreements between FFCA and Title Company with respect to the subject matter of this Agreement. Title Company shall not agree to delete from the Title Policy any exceptions without FFCA's prior consent. The Base Interest Rate shall be determined as of the Conversion Date and shall be a rate of interest established by FFCA's investment committee in its sole discretion based on the then financial condition of Debtor and such investment committee's customary underwriting criteria then in effect. From and after the Conversion Date, fixed equal monthly payments, based on the amortization of the outstanding principal amount of the Note as of the Conversion Date (including any accrued interest at the Adjustable Rate) over the period from and after the Conversion Date until the Maturity Date (as such term is defined in the Note) at the Base Interest Rate shall be due and payable commencing on the first day of the calendar month following the month in which the Conversion Date occurs and continuing on the first day of each month thereafter until the Maturity Date, at which time the outstanding principal balance of the Note and unpaid interest accrued at the Base Interest Rate shall be due and payable. From and after the Conversion Date, Debtor shall have the right to pre-pay the Note, as amended and restated, in accordance with the terms thereof; provided, however, the foregoing is not intended to restrict Debtor's rights of prepayment pursuant to the terms and conditions of any Note at any time prior to the Conversion Date. Debtor shall be responsible for the payment of all reasonable costs and expenses incurred by Debtor and FFCA as a result of Debtor's exercise of the Conversion Option, including, without limitation, attorneys' fees and expenses, title insurance endorsements and charges, survey costs and the cost of assessments and inspections of the Premises, as applicable. 3. UNDERWRITING, SITE ASSESSMENT, VALUATION, PROCESSING AND COMMITMENT FEE. Debtor paid FFCA a portion of the Fee in the amount of $66,245.00 pursuant to the Commitment, and such portion was deemed nonrefundable and fully earned when received. The remainder of the Fee shall be paid at the Closing and shall be deemed nonrefundable and fully earned upon the Closing. The Fee constitutes FFCA's underwriting, site assessment, valuation, processing and commitment fee. If the Closing does not occur for any reason other than a breach or default by FFCA or the failure of FFCA to satisfy all conditions precedent imposed upon it prior to the consummation of the transactions described in the Commitment, FFCA shall retain the Fee (without affecting or limiting FFCA's remedies set forth in this Agreement or in the Commitment). 6 7 4. CLOSING. (a) The Loan shall be closed (the "Closing") within 30 days following the satisfaction of all of the terms and conditions contained in this Agreement, but in no event shall the date of the Closing be extended beyond December 31, 1996 (the "Closing Date"), unless such extension shall be approved by FFCA in its sole discretion. (b) FFCA has ordered a title insurance commitment for each Premises from Fidelity National Title Insurance Company ("Title Company"). Prior to the Closing Date, the parties hereto shall deposit with Title Company all documents and moneys necessary to comply with their obligations under this Agreement. Title Company shall not cause the transaction to close unless and until it has received written instructions from FFCA to do so. All costs of such transaction shall be borne by Debtor, including, without limitation, the cost of title insurance premiums and endorsements, the attorneys' fees and expenses of Debtor, the attorneys' fees and expenses of FFCA, the Phase I environmental reports to be delivered pursuant to 9.E of this Agreement, FFCA's in-house inspection costs and fees, the cost of the surveys, stamp taxes, transfer fees, escrow and recording fees and site inspection fees for the Premises. All real and personal property and other applicable taxes and assessments and other charges relating to the Premises which are due and payable on or prior to the Closing Date as well as taxes and assessments due and payable subsequent to the Closing Date but which Title Company requires to be paid at Closing as a condition to the issuance of the title insurance policies described in Section 9.C, shall be paid by Debtor at or prior to the Closing, and all other taxes and assessments shall be paid by Debtor. The closing documents shall be dated as of the Closing Date. Debtor and FFCA hereby employ Title Company to act as escrow agent in connection with this transaction. Debtor and FFCA will deliver to Title Company all documents, pay to Title Company all sums and do or cause to be done all other things necessary or required by this Agreement, in the reasonable judgment of Title Company, to enable Title Company to comply herewith and to enable any title insurance policies provided for herein to be issued. Title Company is authorized to pay, from any funds held by it for FFCA's or Debtor's respective credit all amounts necessary to procure the delivery of such documents and to pay, on behalf of FFCA and Debtor, all charges and obligations payable by them, respectively. Debtor will pay all charges payable by it to Title Company. Title Company is authorized, in the event any conflicting demand is made upon it concerning these instructions or the escrow, at its election, to hold any documents and/or funds deposited hereunder until an action shall be brought in a court of competent jurisdiction to determine the rights of Debtor and FFCA or to interplead such documents and/or funds in an action brought in any such court. Deposit by Title Company of such documents and funds, after deducting therefrom its charges and its expenses and attorneys' fees incurred in connection with any such court action, shall relieve Title Company of all further liability and responsibility for such documents and funds. Title Company's receipt of this Agreement and opening of an escrow pursuant to this Agreement shall be deemed to constitute conclusive evidence of Title Company's agreement to be bound by the terms and conditions of this Agreement pertaining to Title Company. Disbursement of any funds shall be made by, certified check or wire transfer, as directed by FFCA and Debtor. Title Company shall be under no obligation to disburse any funds represented by check or draft, and no check or draft shall be payment to Title Company in compliance with any of the requirements hereof, until it is advised by the bank in which such 7 8 check or draft is deposited that such check or draft has been honored. Title Company is authorized to act upon any statement furnished by the holder or payee, or a collection agent for the holder or payee, of any lien on or charge or assessment in connection with the Premises, concerning the amount of such charge or assessment or the amount secured by such lien, without liability or responsibility for the accuracy of such statement. The employment of Title Company as escrow agent shall not affect any rights of subrogation under the terms of any title insurance policy issued pursuant to the provisions thereof. 5. REPRESENTATIONS AND WARRANTIES OF FFCA. The representations and warranties of FFCA contained in this Section are being made to induce Debtor to enter into this Agreement and consummate the transactions contemplated herein, and Debtor has relied, and will continue to rely, upon such representations and warranties from and after the execution of this Agreement and the Closing. FFCA represents and warrants to Debtor as follows: A. Organization of FFCA. FFCA has been duly formed, is validly existing and has taken all necessary action to authorize the execution, delivery and performance by FFCA of this Agreement. B. Authority of FFCA. The person who has executed this Agreement on behalf of FFCA is duly authorized so to do. C. Enforceability. Upon execution by FFCA, this Agreement shall constitute the legal, valid and binding obligation of FFCA, enforceable against FFCA in accordance with its terms. All representations and warranties of FFCA made in this Agreement shall be and will remain true and complete as of the Closing Date as if made and restated in full as of such date, and shall survive the Closing. 6. REPRESENTATIONS AND WARRANTIES OF DEBTOR. The representations and warranties of Debtor contained in this Section are being made to induce FFCA to enter into this Agreement and consummate the transactions contemplated herein, and FFCA has relied, and will continue to rely, upon such representations and warranties from and after the execution of this Agreement and the Closing. Debtor represents and warrants to FFCA as follows: A. Information and Financial Statements. Debtor has delivered to FFCA financial statements (either audited financial statements or, if Debtor does not have audited financial statements, certified financial statements) and certain other information concerning themselves and Guarantor, which financial statements and other information are true, correct and complete in all material respects; and no material adverse change has occurred with respect to any such financial statements and other information provided to FFCA since the date such financial statements and other information were prepared or delivered to FFCA. Debtor understands that FFCA is relying upon such financial statements and information. All such financial statements were prepared in accordance with generally 8 9 accepted accounting principles consistently applied and accurately reflect as of the date of such financial statements the financial condition of each individual or entity to which they pertain. B. Organization and Authority of Debtor. (1) CBI and Casa are duly organized, validly existing and in good standing under the laws of Delaware and Texas, respectively, and qualified as foreign corporations to do business in any jurisdiction where such qualification is required, except where the failure to be qualified will not have a material adverse effect on Debtor or the Premises. All necessary corporate, partnership or limited liability company action has been taken to authorize the execution, delivery and performance of this Agreement and of the other documents, instruments and agreements provided for herein. (2) The persons who have executed this Agreement on behalf of CBI and Casa are duly authorized so to do. C. Enforceability of Documents. Upon execution and delivery by CBI and Casa or Guarantor, respectively, this Agreement and the other Loan Documents shall constitute the legal, valid and binding obligations of CBI, Casa and Guarantor, respectively, enforceable against the applicable parties in accordance with their respective terms. D. Litigation. There are no suits, actions, proceedings or investigations pending or threatened against or involving CBI, Casa, Guarantor or the Premises before any court, arbitrator, or administrative or governmental body which could reasonably result in any material adverse change in the contemplated business, condition, worth or operations of CBI, Casa, Guarantor or the Premises. E. Absence of Breaches or Defaults. CBI, Casa and Guarantor are not, and the authorization, execution, delivery and performance of this Agreement and the Loan Documents will not result, in any breach or default under any other material document, instrument or agreement to which CBI, Casa or Guarantor is a party or by which CBI, Casa, Guarantor, the Premises or any of the property of CBI, Casa or Guarantor is subject or bound. The authorization, execution, delivery and performance of this Agreement and the other Loan Documents will not violate any applicable law, statute, regulation, rule, ordinance, code, rule or order. F. Utilities. At the Closing Date, the Premises will be served by ample public utilities to permit full utilization of the Premises for their intended purpose and all utility connection fees and use charges which are then due and payable will have been paid in full. G. Intended Use and Zoning; Compliance With Laws. Debtor intends to use 9 10 the Premises solely for the operation of Taco Bueno and/or, upon prior written notice to FFCA, any other nationally or regionally recognized chain concept restaurants, and related ingress, egress and parking, and for no other purposes. Debtor is the owner of the trademark and the tradename for the Taco Bueno restaurant concept. Such intended use does not violate any zoning or other governmental requirement applicable to the Premises. Debtor has not received notice from any applicable governmental authority that the Premises do not comply nor does Debtor have any reason to believe that Premises do not comply in all material respects with all applicable statutes, regulations, rules, ordinances, codes, licenses, permits, orders and approvals of any governmental agencies, departments, commissions, bureaus, boards or instrumentalities of the United States, the states in which the Premises are located and all political subdivisions thereof, including, without limitation, all health, building, fire, safety and other codes, ordinances and requirements, all applicable standards of the National Board of Fire Underwriters and the Americans With Disabilities Act of 1990, except for violations or noncompliance which would not have a material adverse effect on Debtor or any of the Premises. H. Area Development; Wetlands. No condemnation or eminent domain proceedings affecting the Premises have been commenced or, to the best of Debtor's knowledge, are contemplated. To the best of Debtor's knowledge, the areas where the Premises are located have not been declared blighted by any governmental authority. The Premises and the real property bordering the Premises are not designated by any applicable federal, state and/or local governmental authority as wetlands. I. Licenses and Permits; Access. Prior to the Closing Date, Debtor shall have all required licenses and permits, both governmental and private, to use and operate the Premises in the intended manner, except for such licenses and permits which the failure to have would not have material adverse effect on the Debtor or any of the Premises. There are adequate rights of access to public roads and ways available to the Premises to permit full utilization of the Premises for their intended purposes and all such public roads and ways have been completed and dedicated to public use. J. Condition of Premises. As of the Closing Date, the Premises, including the equipment located thereon, will be of good workmanship and materials, fully equipped and operational, in good condition and repair and free from structural defects. K. Environmental. Debtor is fully familiar with the present use of the Premises, and, after due inquiry, Debtor has become generally familiar with the prior uses of the Premises. To the best of Debtor's knowledge, without independent investigation other than a review of the Environmental Reports, and except as described in the Environmental Reports, no Hazardous Materials have been used, handled, manufactured, generated, produced, stored, treated, processed, transferred or disposed of at or on the Premises, except in compliance with all applicable Environmental Laws, and no Release or Threatened Release has occurred at or on the Premises except in substantial compliance with all applicable Environmental Laws. To the best of Debtor's knowledge, without 10 11 independent investigation other than a review of the Environmental Reports, and except as described in the Environmental Reports, the activities, operations and business undertaken on, at or about the Premises, including, but not limited to, any past or ongoing alterations or improvements at the Premises, are and have been at all times, in compliance in all material respects with all Environmental Laws. No further action is required to remedy any Environmental Condition or violation of, or to be in full compliance in all material respects with, any Environmental Laws, and no lien has been imposed on the Premises in any federal, state or local governmental or quasi-governmental entity in connection with any Environmental Condition, the violation or threatened violation of any Environmental Laws or the presence of any Hazardous Materials on or off the Premises. There is no pending or threatened litigation or proceeding before any court, administrative agency or governmental body in which any person or entity alleges the violation or threatened violation of any Environmental Laws or the presence, Release, Threatened Release or placement on or at the Premises of any Hazardous Materials, or of any facts which would give rise to any such action, nor has Debtor (a) received any notice (and Debtor has no actual or constructive knowledge) that any governmental or quasi-governmental authority or any employee or agent thereof has determined, threatens to determine or requires an investigation to determine that there has been a violation of any Environmental Laws at, on or in connection with the Premises or that there exists a Release, Threatened Release or placement of any Hazardous Materials on or at the Premises, or the use, handling, manufacturing, generation, production, storage, treatment, processing, transportation or disposal of any Hazardous Materials at or on the Premises except in substantial compliance with all applicable Environmental Laws; (b) received any notice under the citizen suit provision of any Environmental Law in connection with the Premises or any facilities, operations or activities conducted thereon, or any business conducted in connection therewith; or (c) received any request for inspection, request for information, notice, demand, administrative inquiry or any formal or informal complaint or claim with respect to or in connection with the violation or threatened violation of any Environmental Laws or existence of Hazardous Materials relating to the Premises or any facilities, operations or activities conducted thereon or any business conducted in connection therewith. L. Title to Personal Property; First Priority Lien. Upon Closing, title to the Personal Property (as defined in the Deeds of Trust) will be vested in Casa, free and clear of all liens, encumbrances, charges and security interests of any nature whatsoever, except the Permitted Exceptions. Upon Closing, FFCA shall have a first priority lien on the Personal Property pursuant to the Deeds of Trust and the UCC-1 Financing Statements. M. No Other Agreements and Options. Neither CBI, Casa, Guarantor nor the Premises are subject to any commitment, obligation, or agreement, including, without limitation, any right of first refusal, option to purchase or lease granted to a third party, which could or would prevent or hinder FFCA in making the Loans or prevent or hinder Debtor or Guarantor, as the case may be from fulfilling their respective obligations under 11 12 this Agreement or the other Loan Documents. N. No Mechanics' Liens. There are no outstanding accounts payable, mechanics' liens, or rights to claim a mechanics' lien in favor of any materialman, laborer, or any other person or entity in connection with labor or materials furnished to or performed on any portion of the Premises; no work has been performed or is in progress nor have materials been supplied to the Premises or agreements entered into for work to be performed or materials to be supplied to the Premises prior to the date hereof, which will not have been fully paid for on or before the Closing Date or which might provide the basis for the filing of such liens against the Premises or any portion thereof. O. No Reliance. Debtor acknowledges that FFCA did not prepare or assist in the preparation of any of the projected financial information used by Debtor in analyzing the economic viability and feasibility of the transaction contemplated by this Agreement. Furthermore, CBI and Casa acknowledge that they have not relied upon, nor may they hereafter rely upon, the analysis undertaken by FFCA in determining the amount of the Loans, and such analysis will not be made available to CBI or Casa. All representations and warranties of Casa and CBI made in this Agreement shall be and will remain true and complete as of and subsequent to the Closing Date as if made and restated in full as of such time and shall survive the Closing. 7. COVENANTS. Debtor covenants to FFCA from and after the Closing Date as follows: A. Inspections. Debtor shall, at all reasonable times, (i) provide FFCA and FFCA's officers, employees, agents, advisors, attorneys, accountants, architects, and engineers with reasonable access to the Premises, all drawings, plans, and specifications for the Premises in possession of Debtor, all engineering reports relating to the Premises in the possession of Debtor, the files and correspondence relating to the Premises, and the financial books and records, including lists of delinquencies, relating to the ownership, operation, and maintenance of the Premises, and (ii) allow such persons to make such inspections, tests, copies, and verifications as FFCA considers necessary. B. Fixed Charge Coverage Ratio. Until such time as all of Debtor's obligations under the Notes and the other Loan Documents are paid, satisfied and discharged in full, Debtor shall maintain an aggregate Fixed Charge Coverage Ratio at all of the Premises of at least 1.50:1. For purposes of this Section, the term "Fixed Charge Coverage Ratio" shall mean with respect to the twelve month period of time immediately preceding the date of determination, the ratio calculated for such period of time of (a) the sum of Net Income, Depreciation and Amortization, Interest Expense and Operating Lease Expense, less a corporate overhead allocation in an amount equal to 5% of Gross Sales, to (b) the sum of the FFCA Payments and the Equipment Payment Amount. For purposes of this Section, the following terms shall be defined as set forth below: 12 13 "Capital Lease" shall mean any lease of any property (whether real, personal or mixed) by Debtor with respect to one or more of the Premises which lease would, in conformity with generally accepted accounting principles consistently applied, be required to be accounted for as a capital lease on the balance sheet of Debtor. The term "Capital Lease" shall not include any operating lease. "Debt" shall mean with respect to all of the Premises and the period of determination (i) indebtedness for borrowed money, (ii) obligations evidenced by bonds, indentures, notes or similar instruments, (iii) obligations to pay the deferred purchase price of property or services, (iv) obligations under leases which should be, in accordance with generally accepted accounting principles consistently applied, recorded as Capital Leases, and (v) obligations under direct or indirect guarantees in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above. "Depreciation and Amortization" shall mean with respect to all of the Premises the depreciation and amortization accruing during any period of determination with respect to Debtor as determined in accordance with generally accepted accounting principles consistently applied. "Equipment Payment Amount" shall mean for any period of determination the sum of all amounts payable during such period of determination under all (i) leases for equipment located at one or more of the Premises and (ii) all loans secured by equipment located at one or more of the Premises (other than the Loans). "FFCA Payments" shall mean with respect to period of determination, the sum of all amounts payable under the Notes. "Gross Sales" shall mean the sales or other income arising from all business conducted at all of the Premises by Debtor during the period of determination, less sales tax and any amounts received from not-for-profit sales of all non-food items approved for use in connection with promotional campaigns. "Interest Expense" shall mean for any period of determination, the sum of all interest accrued or which should be accrued in respect of all Debt of Debtor allocable to one or more of the Premises and all business operations thereon during such period (including interest attributable to Capital Leases), as determined in accordance with generally accepted accounting principles consistently applied. "Net Income" shall mean with respect to the period of determination, the net income or net loss of Debtor allocable to all of the Premises. In determining the amount of Net Income, (i) adjustments shall be made for nonrecurring gains 13 14 and losses allocable to the period of determination, (ii) deductions shall be made for, among other things, Depreciation and Amortization, Interest Expense and Operating Lease Expense allocable to the period of determination, and (iii) no deductions shall be made for (x) income taxes or charges equivalent to income taxes allocable to the period of determination, as determined in accordance with generally accepted accounting principles consistently applied, or (y) corporate overhead expense allocable to the period of determination. "Operating Lease Expense" shall mean the expenses incurred by Debtor under any operating leases with respect to one or more of the Premises and the business operations thereon during the period of determination, as determined in accordance with generally accepted accounting principles consistently applied. C. Net Worth. At all times while the Obligations (as defined in Section 7.D of this Agreement) of Debtor and Guarantor to FFCA pursuant to the Loan Documents are outstanding, Guarantor and Debtor, taken as a whole with their respective consolidated subsidiaries, shall maintain a consolidated net worth of at least $50,000,000, as determined in accordance with GAAP (as defined in Section 7.D of this Agreement). D. Consolidated Funded Debt to Consolidated Total Capitalization Ratio. At all times while the Obligations of Debtor to FFCA pursuant to the Loan Documents are outstanding, Debtor shall cause Guarantor to maintain a ratio of Consolidated Funded Debt to Consolidated Total Capitalization of not more than 1.0 to 1.0. For purposes of this Section and Section 7.C of this Agreement, the following terms shall be defined as set forth below: "Consolidated" refers to the consolidation of accounts in accordance with GAAP. "Consolidated Funded Debt" means, as of any time determination, all Funded Debt of Guarantor and its Consolidated subsidiaries at such time determined on a Consolidated basis. "Consolidated Tangible Net Worth" means the excess of (i) the total assets of Guarantor and its Consolidated subsidiaries determined on a Consolidated basis in accordance with GAAP MINUS good will and any other items that are classified as intangible in accordance with GAAP, over (ii) all liabilities of Guarantor and its Consolidated subsidiaries determined on a Consolidated basis in accordance with GAAP. "Consolidated Total Capitalization" means, at any time of determination, the sum of (i) Consolidated Funded Debt, and (ii) Consolidated Tangible Net Worth, in each case, as of such time. "Currency Hedging Agreements" means currency swap agreements, currency future or option contracts and other similar agreements. 14 15 "Debt" of any Person means, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all Obligations of such Person for the deferred purchase price of property or services (other than trade payables not overdue by more than 60 days incurred in the ordinary course of such Person's business), (c) all Obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all Obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Obligations of such Person as lessee under leases that have been or should be, in accordance with GAAP, recorded as capital leases, (f) all Obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, (g) all Obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any capital stock or other ownership or profit interest or any warrants, rights or options to acquire such capital stock, (h) all Obligations of such Person in respect of Hedge Agreements, (i) all Debt of others referred to in clauses (a) through (h) above guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss, (iii) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (iv) otherwise to assure a creditor against loss, and (j) all Debt referred to in clauses (a) through (h) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt (it being understood that for purposes for this clause (j) the principal amount of such Debt attributed to such Person shall be the fair market value of such property). "Funded Debt" of any Person means Debt in respect of all Advances (as defined in that certain Credit Agreement, dated as of August 1, 1996, by and among Guarantor, the financial institutions named therein as lenders, and NationsBank Texas, N.A., as agent), in the case of Guarantor, and all other Debt of such Person that by its terms matures more than one year after the date of determination or matures within one year from such date but is renewable or extendible, at the option of such Person, to a date more than one year after such date or arises under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year after such date, including, without limitation, all amounts of Funded Debt of such Person required to be paid or prepaid within one year after the date of determination. "GAAP" means generally accepted accounting principles consistently applied. 15 16 "Hedge Agreements" means Interest Rate Contracts and Currency Hedging Agreements. "Insolvency Proceeding" means any dissolution, winding up, liquidation, arrangement, reorganization, adjustment, protection, relief or composition of any Person or its debts, whether voluntary or involuntary, in any bankruptcy, insolvency, arrangement, reorganization, receivership, relief or similar case or proceeding under any Federal or State bankruptcy or similar law or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of any Person or otherwise. "Interest Rate Contracts" means interest rate swap, cap or collar agreements, interest rate future or option contracts and other similar agreements. "Obligations" means, with respect to any Person, any obligations of such Person of any kind, including, without limitation, any liability of such Person on any claim, whether or not the right of any creditor to payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any Insolvency Proceeding. Without limiting the generality of the foregoing, the Obligations of Debtor under the Loan Documents include (a) the obligation to pay principal, interest, charges, expenses, fees, attorneys' fees and disbursements, indemnities, taxes, insurance premiums, impounds, late charges, default interest, damages and all other amounts payable by Debtor under any Loan Document and (b) the obligation to reimburse any amount in respect of any of the foregoing that FFCA, in its sole discretion, may elect to pay or advance on behalf of Debtor. "Person" means an individual, partnership, limited liability company, limited liability partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. E. Mechanics' Liens. Debtor shall be responsible for any and all claims for mechanics' liens and accounts payable that have arisen or may subsequently arise due to agreements entered into for and/or any work performed on, or materials supplied to the Premises prior to the Closing Date; and Debtor shall and does hereby agree to defend, indemnify and forever hold FFCA and FFCA's designees harmless from and against any and all such mechanics' lien claims, accounts payable or other commitments relating to the Premises. F. Taco Bueno Intellectual Property. In the event that Casa transfers any intellectual property rights with respect to the Taco Bueno restaurant concept, including, without limitation, franchise rights, licenses, trademarks or tradenames, Debtor shall provide FFCA with a collateral assignment of such intellectual property rights associated 16 17 with the Premises, in form and substance reasonably requested by FFCA. 8. TRANSACTION CHARACTERIZATION. This Agreement is a contract to extend a financial accommodation (as such term is used in the Code) for the benefit of Debtor. It is the intent of the parties hereto that the business relationship created by this Agreement, the Notes, the Deeds of Trust and the other Loan Documents is solely that of creditor and debtor and has been entered into by both parties in reliance upon the economic and legal bargains contained in the Loan Documents. None of the agreements contained in the Loan Documents is intended, nor shall the same be deemed or construed, to create a partnership between Debtor and FFCA, to make them joint venturers, to make Debtor an agent, legal representative, partner, subsidiary or employee of FFCA, nor to make FFCA in any way responsible for the debts, obligations or losses of Debtor. 9. CONDITIONS OF CLOSING. The obligation of FFCA to consummate the transaction contemplated by this Agreement is subject to the fulfillment or waiver of each of the following conditions: A. Title. Title to the Premises shall be vested in Casa, free of all liens, encumbrances, restrictions, encroachments and easements, except as otherwise specifically provided herein or agreed to in writing by FFCA ("Permitted Exceptions"), and the liens created by the Deeds of Trust and the UCC-1 Financing Statements. Upon Closing, FFCA will obtain a valid and perfected first priority lien upon and security interest in the Premises. B. Condition of Premises. FFCA shall have inspected and approved the Premises, the Premises and the equipment located thereon shall be in good condition and repair and of good workmanship and materials, and the Premises shall be fully equipped and operational, clean, orderly, sanitary, safe, well-lit, landscaped, decorated, attractive and with a suitable layout, physical plant, traffic pattern and location, all as determined by FFCA in its sole discretion. C. Evidence of Title. FFCA shall have received for each of the Premises a preliminary title report and irrevocable commitment to insure title by means of a mortgagee's, ALTA extended coverage policy of title insurance (or its equivalent, in the event such form is not issued in the jurisdiction where the Premises is located) issued by Title Company showing good and indefeasible title in the Premises in Debtor, committing to insure FFCA's first priority lien upon and security interest in the Premises subject only to Permitted Exceptions and containing such endorsements as FFCA may require (to the extent available under applicable law). D. Survey. FFCA shall have received a current ALTA survey of each of the Premises, the form and substance of which shall be satisfactory to FFCA in its sole discretion. Debtor shall have provided FFCA with evidence satisfactory to FFCA that the location of the Premises is not within the 100-year flood plain or identified as a special flood hazard area as defined by the Federal Insurance Administration. 17 18 E. Environmental. FFCA shall have received a Phase I environmental report (and a Phase II environmental report, if necessary, as determined by FFCA in its sole discretion) for each of the Premises, the form, substance and conclusions of which shall be satisfactory to FFCA in its sole discretion. F. Compliance With Representations, Warranties and Covenants. All obligations of Debtor under this Agreement shall have been fully performed and complied with, and no event shall have occurred or condition shall exist which would, upon the Closing Date, or, upon the giving of notice and/or passage of time, constitute a breach or default hereunder or under the Loan Documents, or any other agreement between or among FFCA or Debtor pertaining to the subject matter hereof, and no event shall have occurred or condition shall exist or information shall have been disclosed by Debtor or discovered by FFCA which has had or would have a material adverse effect on the Premises, Debtor, Guarantor or FFCA's willingness to consummate the transaction contemplated by this Agreement, as determined by FFCA in its sole and absolute discretion. G. Proof of Insurance. Debtor shall have delivered to FFCA copies of insurance policies, showing that all insurance required by the Loan Documents and providing coverage and limits satisfactory to FFCA are in full force and effect. H. Opinion of Counsel to Debtor and Guarantor. Debtor and Guarantor shall have caused Counsel to prepare and deliver an opinion substantially in the form attached as Exhibit E. I. Guaranty. Debtor shall cause to be delivered to FFCA a Guaranty executed by the Guarantor for each of the Premises. J. Availability of Funds. FFCA presently has sufficient funds to discharge its obligations under this Agreement. In the event that the transaction contemplated by this Agreement does not close on or before the Closing Date, FFCA does not warrant that it will thereafter have sufficient funds to consummate the transaction contemplated by this Agreement. K. Title Matters Agreement. Debtor shall have executed and delivered to FFCA the Title Matters Agreement. L. Closing Documents. At or prior to the Closing Date, FFCA, Guarantor and/or Debtor, as may be appropriate, shall execute and deliver or cause to be executed and delivered to Title Company or FFCA, as may be appropriate, all documents required to be delivered by this Agreement, and such other documents, payments, instruments and certificates, as FFCA may reasonably require in form acceptable to FFCA. 10. DEFAULT AND REMEDIES. A. Each of the following shall be deemed an event of default by Debtor (an "Event of Default"): 18 19 (1) If any representation or warranty of Casa or CBI is false in any material respect when made or becomes false in any material respect prior to the Closing Date, or, in the event any such representation or warranty is continuing after the Closing, if any such representation or warranty becomes false in any material respect at any time, or if Casa, CBI or Guarantor renders any false statement of a material fact or account; (2) If any principal, interest or other monetary sum due under the Notes, the Deeds of Trust or any other Loan Document is not paid within five days after the date when due; (3) If Casa, CBI or Guarantor fails to observe or perform any of the other covenants, conditions, or obligations of this Agreement or any other Loan Document within the applicable grace or cure period; (4) If Casa, CBI or Guarantor becomes insolvent within the meaning of the Code, files or notifies FFCA that it intends to file a petition under the Code, initiates a proceeding under any similar law or statute relating to bankruptcy, insolvency, reorganization, winding up or adjustment of debts (collectively, an "Action"), becomes the subject of either a petition under the Code or an Action, or is not generally paying its debts as the same become due; (5) If there is an event of default under the Casa Loan Agreement or a material breach or default under any other agreement or instrument, including, without limitation, promissory notes and guaranties, between, among or by (a) Casa, CBI, Guarantor, or any Affiliate of CBI, Casa or Guarantor and, or for the benefit of, (b) FFCA or any Affiliate of FFCA; or (6) If any event occurs or condition exists which does or would upon the Closing Date constitute a material breach or default under any of the Loan Documents. B. If any Event of Default occurs pursuant to subsection A(2) above, FFCA shall not be entitled to exercise its remedies set forth in subsection E below unless and until FFCA shall have given Debtor notice thereof and a period of five days from the delivery of such notice shall have elapsed without such Event of Default being cured. C. FFCA shall not be entitled to exercise its remedies set forth in subsection E below due to a default under subsection A(3) as a result of a breach of the Fixed Charge Coverage Ratio set forth in Section 7.B, unless and until FFCA shall have given Debtor notice thereof and Debtor shall have failed within a period of 30 days from the delivery of such notice to either (i) pay to FFCA the FCCR Amount (without premium or penalty) with respect to each of those Premises for which the Fixed Charge Coverage Ratio (with the definitions in Section 7.B modified as applicable to provide for a calculation of the Fixed Charge Coverage Ratio for each of the Premises) is below 1.50:1 (each, a "Subject 19 20 Premises"), or (ii) prepay the Note or Notes corresponding to the Subject Premises in whole but not in part (without premium or penalty). For purposes of this subsection, "FCCR Amount" means that sum of money which, when subtracted from the outstanding principal amount of each Note corresponding to a Subject Premises, and assuming the resulting principal balance is reamortized over the remaining term of such Note, will result in an adjusted Fixed Charge Coverage Ratio for such Subject Premises of at least 1.50:1 based on the prior year's operations. Promptly after Debtor's payment of the FCCR Amount, Debtor and FFCA agree to execute an amendment to each such Note in form and substance reasonably acceptable to FFCA reducing the principal amount payable to FFCA under such Note and reamortizing the principal amount of such Note over the then remaining term of such Note. D. If any event occurs pursuant to subsection A(3) subsequent to the Closing and does not involve a breach of the Fixed Charge Coverage Ratio and does not involve the payment of any monetary sum, is not willful or intentional, does not place any rights or property of FFCA in immediate jeopardy, and is within the reasonable power of Debtor to promptly cure after receipt of notice thereof, all as determined by FFCA in its reasonable discretion, then such event shall not constitute an Event of Default hereunder, unless otherwise expressly provided herein, unless and until FFCA shall have given Debtor notice thereof and a period of 30 days shall have elapsed, during which period Debtor may correct or cure such event, upon failure of which an Event of Default shall be deemed to have occurred hereunder without further notice or demand of any kind. If such nonmonetary event cannot reasonably be cured within such 30-day period, as determined by FFCA in its reasonable discretion, and Debtor is diligently pursuing a cure of such event, then Debtor shall have a reasonable period to cure such event, which shall not exceed 90 days after receiving notice of the event from FFCA. If Debtor shall fail to correct or cure such event within such 90-day period, an Event of Default shall be deemed to have occurred hereunder without further notice or demand of any kind. E. Upon and during the continuance of an Event of Default, FFCA may declare all obligations of Debtor under the Notes, this Agreement and any other Loan Document to be due and payable, and the same shall thereupon become due and payable without any presentment, demand, protest, notice of intent to accelerate, notice of acceleration or any other type of notice except as otherwise provided herein, and Debtor hereby waives notice of intent to accelerate the obligations secured by the Deeds of Trust. Thereafter, FFCA may exercise, at its option, concurrently, successively or in any combination, all remedies available at law or in equity, including without limitation any one or more of the remedies available under the Notes, the Deeds of Trust or any other Loan Document. Upon and during the continuance of an Event of Default, FFCA shall be entitled to enforce payment and performance of any obligations under the Loan Documents and to exercise all rights and powers under the Notes, this Agreement or under any other Loan Documents or other agreement reasonably required by FFCA any applicable laws now or 20 21 hereafter in force, notwithstanding that some or all of such obligations may now or hereafter be otherwise secured, whether by mortgage, deed of trust, pledge, lien, assignment or otherwise. Neither the acceptance of this Agreement nor its enforcement shall prejudice or in any manner affect FFCA's right to realize upon or enforce any other security now or hereafter held by FFCA, it being agreed that FFCA shall be entitled to enforce this Agreement and any other security now or hereafter held by FFCA in such order and manner as it may in its absolute discretion determine. No remedy herein conferred upon or reserved to FFCA is intended to be exclusive of any other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by any of the Loan Documents to FFCA, or to which FFCA may be otherwise entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by FFCA. 11. ASSIGNMENTS. A. FFCA may assign in whole or in part its rights under this Agreement, including, without limitation, any Transfer, Participation and/or Securitization (all as defined in Section 13.P). In the event of any unconditional assignment of FFCA's entire right and interest hereunder, FFCA shall automatically be relieved, from and after the date of such assignment, of liability for the performance of any obligation of FFCA contained herein. B. Debtor shall not, without the prior written consent of FFCA sell, assign, transfer, mortgage, convey, encumber or grant any easements or other rights or interests of any kind in the Premises, any of Debtor's rights under this Agreement or any interest in Debtor, whether voluntarily, involuntarily or by operation of law or otherwise, including, without limitation, by merger, consolidation, dissolution or otherwise, except as expressly permitted by the Deeds of Trust. 12. INDEMNITY. Debtor agrees to indemnify, hold harmless and defend FFCA and its directors, officers, shareholders, employees, successors, assigns, agents, as applicable (collectively, the "Indemnified Parties"), from and against any and all losses, costs, claims, liabilities, damages and expenses, including, without limitation, reasonable attorneys' fees, and/or a breach of any of the representations, warranties, covenants, agreements or obligations of Debtor set forth in this Agreement. Without limiting the generality of the foregoing, such indemnity shall include, without limitation, any engineering, governmental inspection and reasonable attorneys' fees and expenses that the Indemnified Parties may incur by reason of any representation set forth in this Agreement being false in any material respect, or by reason of any investigation or claim of any governmental agency in connection therewith. 21 22 13. MISCELLANEOUS PROVISIONS. A. Notices. All notices, consents, approvals or other instruments required or permitted to be given by either party pursuant to this Agreement shall be in writing and given by (i) hand delivery, (ii) facsimile, (iii) express overnight delivery service or (iv) certified or registered mail, return receipt requested, and shall be deemed to have been delivered upon (a) receipt, if hand delivered, (b) transmission, if delivered by facsimile, (c) the next business day, if delivered by express overnight delivery service, or (d) the third business day following the day of deposit of such notice with the United States Postal Service, if sent by certified or registered mail, return receipt requested. Notices shall be provided to the parties and addresses (or facsimile numbers, as applicable) specified below: If to CBI: Joseph N. Stein Chief Financial Officer CBI Restaurants, Inc. 1200 North Harbor Boulevard Anaheim, California 92803-4349 Telephone: (714) 490-3631 Telecopy: (714) 490-3695 with a copy to: Robert A. Wilson, Esq. Vice President and General Counsel CBI Restaurants, Inc. 1200 North Harbor Boulevard Anaheim, California 92803-4349 Telephone: (714) 490-3661 Telecopy: (714) 520-4485 If to Casa: Joseph N. Stein Chief Financial Officer Casa Bonita Incorporated 1200 North Harbor Boulevard Anaheim, California 92803-4349 Telephone: (714) 490-3631 Telecopy: (714) 490-3695 with a copy to: Robert A. Wilson, Esq. Vice President and General Counsel Casa Bonita Incorporated 1200 North Harbor Boulevard Anaheim, California 92803-4349 Telephone: 490-3661 Telecopy: (714) 520-4485 22 23 If to FFCA: Dennis L. Ruben, Esq. Senior Vice President and General Counsel FFCA Mortgage Corporation 17207 North Perimeter Drive Scottsdale, AZ 85255 Telephone: (602) 585-4500 Telecopy: (602) 585-2226 B. Broker's Commission. FFCA and Debtor represent and warrant to each other that they have dealt with no real estate or mortgage broker, agent, finder or other intermediary in connection with the transactions contemplated by this Agreement. FFCA and Debtor shall indemnify and hold each other harmless from and against any costs, claims or expenses, including attorneys' fees, arising out of the breach of their respective representations and warranties contained within this Section. C. Waiver and Amendment. No provisions of this Agreement shall be deemed waived or amended except by a written instrument unambiguously setting forth the matter waived or amended and signed by the party against which enforcement of such waiver or amendment is sought. Waiver of any matter shall not be deemed a waiver of the same or any other matter on any future occasion. D. Captions. Captions are used throughout this Agreement for convenience of reference only and shall not be considered in any manner in the construction or interpretation hereof. E. FFCA's Liability. Notwithstanding anything to the contrary provided in this Agreement, it is specifically understood and agreed, such agreement being a primary consideration for the execution of this Agreement by FFCA, that (i) there shall be absolutely no personal liability on the part of any shareholder, director, officer or employee of FFCA, with respect to any of the terms, covenants and conditions of this Agreement or the other Loan Documents, (ii) Debtor waives all claims, demands and causes of action against FFCA's officers, directors, employees and agents in the event of any breach by FFCA of any of the terms, covenants and conditions of this Agreement or the other Loan Documents to be performed by FFCA and (iii) Debtor shall look solely to the assets of FFCA for the satisfaction of each and every remedy of Debtor in the event of any breach by FFCA of any of the terms, covenants and conditions of this Agreement or the other Loan Documents to be performed by FFCA, such exculpation of liability to be absolute and without any exception whatsoever. F. Severability. The provisions of this Agreement shall be deemed severable. If any part of this Agreement shall be held unenforceable, the remainder shall remain in full force and effect, and such unenforceable provision shall be reformed by such court so as to give maximum legal effect to the intention of the parties as expressed therein. 23 24 G. Construction Generally. This is an agreement between parties who are experienced in sophisticated and complex matters similar to the transaction contemplated by this Agreement and is entered into by both parties in reliance upon the economic and legal bargains contained herein and shall be interpreted and construed in a fair and impartial manner without regard to such factors as the party which prepared the instrument, the relative bargaining powers of the parties or the domicile of any party. Debtor and FFCA were each represented by legal counsel competent in advising them of their obligations and liabilities hereunder. H. Other Documents. Each of the parties agrees to sign such other and further documents as may be appropriate to carry out the intentions expressed in this Agreement. I. Attorneys' Fees. In the event of any judicial or other adversarial proceeding between the parties concerning this Agreement, the prevailing party shall be entitled to recover its attorneys' fees and other costs in addition to any other relief to which it may be entitled. References in this Agreement to the attorneys' fees and/or costs of FFCA shall mean both the fees and costs of independent outside counsel retained by FFCA with respect to this transaction. J. Entire Agreement. This Agreement and the other Loan Documents, together with any other certificates, instruments or agreements to be delivered in connection therewith, constitute the entire agreement between the parties with respect to the subject matter hereof, and there are no other representations, warranties or agreements, written or oral, between Debtor and FFCA with respect to the subject matter of this Agreement. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. K. Forum Selection; Jurisdiction; Venue; Choice of Law. Debtor acknowledges that this Agreement was substantially negotiated in the State of Arizona, the Agreement was signed by FFCA in the State of Arizona and delivered by Debtor in the State of Arizona, all payments under the Notes will be delivered in the State of Arizona and there are substantial contacts between the parties and the transactions contemplated herein and the State of Arizona. For purposes of any action or proceeding arising out of this Agreement, the parties hereto hereby expressly submit to the jurisdiction of all federal and state courts located in the State of Arizona and Debtor consents that it may be served with any process or paper by registered mail or by personal service within or without the State of Arizona in accordance with applicable law. Furthermore, Debtor waives and agrees not to assert in any such action, suit or proceeding that it is not personally subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum or that venue of the action, suit or proceeding is improper. It is the intent of the parties hereto that all 24 25 provisions of this Agreement shall be governed by and construed under the laws of the State of Arizona and applicable laws of the United States. To the extent that a court of competent jurisdiction finds Arizona law inapplicable with respect to any provisions hereof, then, as to those provisions only, the laws of the states where the Premises are located shall be deemed to apply. Nothing in this Section shall limit or restrict the right of FFCA to commence any proceeding in the federal or state courts located in the states in which the Premises are located to the extent FFCA deems such proceeding necessary or advisable to exercise remedies available under this Agreement or the other Loan Documents. L. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original. M. Binding Effect. This Agreement shall be binding upon and inure to the benefit of Debtor and FFCA and their respective successors and permitted assigns, including, without limitation, any United States trustee, any debtor in possession or any trustee appointed from a private panel. N. Survival. Except for the conditions of Closing set forth in Sections 2 and 9, which shall be satisfied or waived as of the Closing Date, all representations, warranties, agreements, obligations and indemnities of Debtor and FFCA set forth in this Agreement shall survive the Closing. O. Waiver of Jury Trial and Punitive, Consequential, Special and Indirect Damages. DEBTOR AND FFCA HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM FFCA WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY DEBTOR AGAINST FFCA OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY DEBTOR OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. 25 26 P. Transfers, Participations and Securitization. A material inducement to FFCA's willingness to complete the transactions contemplated by the Loan Documents is Debtor's agreement that FFCA may, at any time, sell, transfer or assign the Notes, Deeds of Trust and the other Loan Documents, and any or all servicing rights with respect thereto (each, a "Transfer"), or grant participations therein (each, a "Participation"), or complete asset securitization vehicles selected by FFCA prior to Debtor's exercise of the Conversion Option and, if applicable, subsequent to the Debtor's exercise of the Conversion Option, in accordance with all requirements which may be imposed by the investors or the rating agencies involved in such securitized financing transaction, as selected by FFCA, or which may be imposed by applicable securities, tax or other laws or regulations, including, without limitation, laws relating to FFCA's status as a real estate investment trust (each, a "Securitization"). Debtor agrees to cooperate in good faith with FFCA in connection with any Transfer, Participation and/or Securitization, including, without limitation, (i) providing such documents, financial and other data, other information and materials, and the results of third-party inspections and analysis of the Premises (the "Disclosures") which would typically be required with respect to Debtor and Guarantor by a purchaser, transferee, assignee, servicer, participant, investor or rating agency involved with respect to such Transfer, Participation and/or the Securitization, as applicable; provided, however, Debtor shall not be required to make Disclosures of any confidential information or any information which has not previously been made public unless required by applicable federal or state securities laws; and (ii) amending the terms of the transactions evidenced by the Loan Documents to the extent necessary so as to satisfy the requirements of purchasers, transferees, assignees, servicers, participants, investors or selected rating agencies involved in any such Transfers, Participations or Securitization, so long as such amendments would not have a material adverse effect upon Debtor or the transactions contemplated hereunder. Debtor consents to FFCA providing the Disclosures, as well as any other information which FFCA may now have or hereafter acquire with respect to the Premises or the financial condition of Debtor and Guarantor, to each purchaser, transferee, assignee, servicer, participant, investor or rating agency involved with respect to each Transfer, Participation and/or Securitization, as applicable. FFCA and Debtor shall each pay their own attorneys fees and other out-of-pocket expenses incurred in connection with the performance of their respective obligations under this Section. Notwithstanding the foregoing, the parties acknowledge and agree that FFCA shall have the right to divide the Notes (and the corresponding Loan Documents) into no more than three groups or pools in connection with one or more Securitizations. If and to the extent that the Notes are divided into more than one such group or pool, Debtor shall maintain an aggregate Fixed Charge Coverage Ratio of at least 1.50:1 for all of the Premises corresponding to the Notes in each such group or pool in addition to maintaining an aggregate Fixed Charge Coverage Ratio for all of the Premises as required by Section 26 27 7.B. 27 28 IN WITNESS WHEREOF, Debtor and FFCA have entered into this Agreement as of the date first above written. FFCA: FFCA MORTGAGE CORPORATION, a Delaware corporation By /s/ Dennis L. Ruben ----------------------------------------------- Printed Name ------------------------------------- Its Senior Vice President - General Counsel ---------------------------------------------- DEBTOR: CBI RESTAURANTS, INC., a Delaware corporation By /s/ Joseph N. Stein ----------------------------------------------- Printed Name ------------------------------------- Its Chief Financial Officer ---------------------------------------------- CASA BONITA TEXAS, L.P., a Texas limited partnership By CASA BONITA INCORPORATED, a Texas corporation, ---------------------------------------------- Its General Partner ---------------------------------------------- By /s/ Joseph N. Stein ----------------------------------------------- Printed Name ------------------------------------- Its Chief Financial Officer ---------------------------------------------- EX-10.49 8 LOAN AGREEMENT AS OF DECEMBER 18, 1996 1 EXHIBIT 10.49 LOAN AGREEMENT THIS LOAN AGREEMENT (this "Agreement") is made as of December 18, 1996, by and among FFCA MORTGAGE CORPORATION, a Delaware corporation ("FFCA"), whose address is 17207 North Perimeter Drive, Scottsdale, Arizona 85255, CBI RESTAURANTS, INC., a Delaware corporation ("CBI"), whose address is 1200 North Harbor Boulevard, Anaheim, California 92803-4349 and CASA BONITA INCORPORATED, a Texas corporation ("Casa"), whose address is 1200 North Harbor Boulevard, Anaheim, California 92803-4349. PRELIMINARY STATEMENT: Unless otherwise expressly provided herein, all defined terms used in this Agreement shall have the meanings set forth in Section 1. Debtor has requested from FFCA, and applied for, the Loans to provide long-term financing for the Premises, and for no other purpose whatsoever. Each Loan will be evidenced by a Note and secured by a first priority security interest in the corresponding Premises pursuant to a Deed of Trust. FFCA has committed to make the Loans pursuant to the terms and conditions of the Commitment, this Agreement and the other Loan Documents. AGREEMENT: In consideration of the mutual covenants and provisions of this Agreement, the parties agree as follows: 1. DEFINITIONS. The following terms shall have the following meanings for all purposes of this Agreement: "Affiliate" means any Entity controlling, controlled by or under common control with any other Entity. "Casa Loan Agreement" means that certain Loan Agreement dated as of the date hereof among FFCA, CBI and Casa Bonita Texas, L.P., a Texas limited partnership "Closing" shall have the meaning set forth in Section 4. "Closing Date" means the date specified as the closing date in Section 4. "Code" means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et seq., as amended. "Counsel" means legal counsel to Debtor and Guarantor, licensed in the state(s) in which (i) the Premises are located, (ii) Debtor and/or Guarantor are incorporated or formed and (iii) Debtor and/or Guarantor maintain principal places of business, as selected by Debtor and Guarantor, as the case may be, and approved by FFCA. 2 "Debtor" means, collectively, Casa and CBI. "Deed of Trust" means the deed of trust or mortgage, assignment of rents and leases, security agreement and fixture filing to be executed by Casa for the benefit of FFCA substantially in the form of Exhibit C attached to this Agreement. A Deed of Trust will be executed for each Premises. "De Minimis Amounts" means with respect to any given level of hazardous substance or solid waste, that level or quantity of hazardous substance or solid waste in any form or combination of forms which does not constitute a violation of any Environmental Laws and is customarily employed in, or associated with, similar businesses located in the applicable county in which the Premises is located. "Entity" shall mean any corporation, trust, limited liability company, unincorporated organization, governmental authority or any other form of entity. "Environmental Condition" means any condition with respect to soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata, ambient air and any environmental medium comprising or surrounding the Premises, whether or not yet discovered, which could reasonably be expected to result in any damage, loss, cost, expense, claim, demand, order or liability to or against Debtor or FFCA by any third party (including, without limitation, any government entity) arising under any Environmental Laws, including, without limitation, any condition resulting from the operation of Debtor's business and/or the operation of the business of any other property owner or operator in the vicinity of the Premises and/or any activity or operation formerly conducted by any person or entity on or off the Premises. "Environmental Indemnity Agreement" means the environmental indemnity agreement to be executed by Debtor for the benefit of FFCA substantially in the form of Exhibit F attached to this Agreement. An Environmental Indemnity Agreement will be executed for each Premises. "Environmental Laws" means any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law relating to Hazardous Materials, relating to liability for or costs of Remediation or prevention of Releases or relating to liability for or costs of other actual or threatened danger from any Environmental Condition. "Environmental Laws" includes, but is not limited to, the following statutes, as amended, any successor thereto, and any regulations promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like addressing similar issues: the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous Materials Transportation Act; the Resource Conservation and Recovery Act (including but not limited to Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the National 2 3 Environmental Policy Act; and the River and Harbors Appropriation Act. "Environmental Laws" also includes, but is not limited to, any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law: conditioning transfer of property upon a negative declaration or other approval of a governmental authority of the environmental condition of the property and requiring notification or disclosure of Releases or other environmental condition of the Premises to any governmental authority or other person or entity, whether or not in connection with transfer of title to or interest in property. "Environmental Reports" means the environmental reports provided to FFCA by Debtor with respect to each of the Premises pursuant to Section 9.E. "Event of Default" has the meaning set forth in Section 10. "Fee" means an underwriting, site assessment, valuation, processing and commitment fee equal to $60,348.00. "Guarantor" means CKE Restaurants, Inc., a Delaware corporation. "Guaranty" means a guaranty of payment and performance substantially in the form of Exhibit D attached to this Agreement to be executed by Guarantor for the benefit of FFCA. A Guaranty shall be executed for each Premises. "Hazardous Materials" means (a) any toxic substance or hazardous waste, substance or related material, or any pollutant or contaminant; (b) radon gas, asbestos in any form which is or could become friable, urea formaldehyde foam insulation, transformers or other equipment which contains dielectric fluid containing levels of polychlorinated biphenyls in excess of federal, state or local safety guidelines, whichever are more stringent, or any petroleum product; (c) any substance, gas, material or chemical which is or may be defined as or included in the definition of "hazardous substances," "toxic substances," "hazardous materials," hazardous wastes" or words of similar import under any Environmental Laws; and (d) any other chemical, material, gas or substance the exposure to or release of which is or may be prohibited, limited or regulated by any governmental or quasi-governmental entity or authority that asserts or may assert jurisdiction over the Premises or the operations or activity at the Premises, or any chemical, material, gas or substance that does or may pose a hazard to the health and/or safety of the occupants of the Premises or the owners and/or occupants of property adjacent to or surrounding the Premises. "Loan" means the loan for each Premises described in Section 2 and in the amount set forth in Exhibit A. Each Loan will be evidenced by a Note and secured by a Deed of Trust. "Loan Amount" means, with respect to each Premises, the amount set forth in Section 2. "Loan Documents" means, collectively, this Agreement, the Notes, the Deeds of Trust, the Environmental Indemnity Agreements, the UCC-1 Financing Statements, the Guaranties, the Title Matters Agreement and all other documents executed in connection therewith or contemplated 3 4 thereby. "Note" means the promissory note substantially in the form of Exhibit B attached to this Agreement to be executed by Debtor in favor of FFCA. A Note in the corresponding Loan Amount will be executed for each Premises. "Permitted Exceptions" means those exceptions to title approved in writing by FFCA pursuant to Section 9 of this Agreement. "Premises" means the parcels of real estate described in Exhibit A attached hereto, all rights, privileges and appurtenances associated therewith, and all buildings, fixtures and other improvements now or hereafter located thereon (whether or not affixed to such real estate). "Release" means any presence, release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Materials. "Remediation" means any response, remedial, removal, or corrective action, any activity to cleanup, detoxify, decontaminate, contain or otherwise remediate any Hazardous Material, any actions to prevent, cure or mitigate any Release, any action to comply with any Environmental Laws or with any permits issued pursuant thereto, any inspection, investigation, study, monitoring, assessment, audit, sampling and testing, laboratory or other analysis, or any evaluation relating to any Hazardous Materials. "Threatened Release" means a substantial likelihood of a Release which requires action to prevent or mitigate damage to the soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata, ambient air or any other environmental medium comprising or surrounding the Premises which may result from such Release. "Title Company" means the title insurance company described in Section 4. "Title Matters Agreement" means that certain agreement dated as of the date of this Agreement among Debtor, Guarantor and FFCA with respect to certain title matters described therein. "UCC-1 Financing Statements" means such UCC-1 Financing Statements as FFCA shall require to be executed and delivered by Debtor with respect to the Premises. 2. TRANSACTION. (a) On the terms and subject to the conditions set forth in the Loan Documents, FFCA shall make the Loans. The Loans will be evidenced by the Notes and secured by the Deeds of Trust. The Guarantor will provide further security for the Loans by executing and delivering a Guaranty with respect to each Loan. Debtor shall repay the outstanding principal amount of the Loans together with interest thereon in the manner and in accordance with the terms and conditions of the Notes and the other Loan Documents. The aggregate Loan Amount shall not 4 5 exceed $6,751,000.00, allocated among the Premises as set forth on the attached Exhibit A. The Loans shall be advanced at the Closing in cash or its equivalent subject to any prorations and adjustments required by this Agreement. (b) Debtor shall have the option (the "Conversion Option") from and after the Closing Date, subject to the conditions hereinafter set forth, to convert the interest rate accruing under any Note from the Adjustable Rate (as defined in the Note) to a fixed rate of interest (the "Base Interest Rate") by providing FFCA written notice of Debtor's election ("Debtor's Notice") to exercise the Conversion Option not less than thirty (30) days prior to such conversion becoming effective (the "Notice Period"). The conversion shall be effective on the first calendar day of the first month which follows the month in which the last day of the Notice Period occurs (the "Conversion Date"). Debtor shall have the right to exercise the Conversion Option upon satisfaction of the following conditions: (i) Debtor shall have provided FFCA with financial statements (either audited financial statements or, if Debtor does not have audited financial statements, certified financial statements) and such other information concerning itself which FFCA requires to assess Debtor's then financial condition, and, FFCA's investment committee shall have approved such financial condition in its sole discretion; (ii) There shall be no event of default under this Agreement, the Note, the Deed of Trust or any of the other Loan Documents or any other document further securing the Note; (iii) Debtor shall have delivered to FFCA an amendment and restatement of the Note in a form acceptable to FFCA to reflect Debtor's exercise of the Conversion Option; (iv) Debtor shall have delivered to FFCA a confirmation of the Deed of Trust in a form acceptable to FFCA; (v) Debtor shall have caused Title Company to deliver to FFCA an endorsement to the Title Policy, dated as of the Conversion Date, insuring title to the Premises in FFCA, free and clear of all defects and encumbrances except those approved in writing by FFCA and its counsel, with all standard exceptions deleted to the extent permitted by law and containing: (a) full coverage against liens of mechanics, materialmen, laborers and any other parties who might claim statutory or common law liens in the Loan Amount, as updated from time to time; (b) no survey exceptions other than those previously approved by FFCA and FFCA's counsel in writing; (c) such other endorsements or agreements which provide 5 6 equivalent protection in the event that the foregoing described endorsements are not available, as FFCA and its counsel may reasonably request; and (d) such other endorsements as FFCA deems appropriate or necessary. Debtor agrees to deliver or cause to be delivered such affidavits, indemnities, notices and/or other agreements as Title Company may require in order to provide the title insurance coverage required pursuant to this and all other agreements between FFCA and Title Company with respect to the subject matter of this Agreement. Title Company shall not agree to delete from the Title Policy any exceptions without FFCA's prior consent. The Base Interest Rate shall be determined as of the Conversion Date and shall be a rate of interest established by FFCA's investment committee in its sole discretion based on the then financial condition of Debtor and such investment committee's customary underwriting criteria then in effect. From and after the Conversion Date, fixed equal monthly payments, based on the amortization of the outstanding principal amount of the Note as of the Conversion Date (including any accrued interest at the Adjustable Rate) over the period from and after the Conversion Date until the Maturity Date (as such term is defined in the Note) at the Base Interest Rate shall be due and payable commencing on the first day of the calendar month following the month in which the Conversion Date occurs and continuing on the first day of each month thereafter until the Maturity Date, at which time the outstanding principal balance of the Note and unpaid interest accrued at the Base Interest Rate shall be due and payable. From and after the Conversion Date, Debtor shall have the right to pre-pay the Note, as amended and restated, in accordance with the terms thereof; provided, however, the foregoing is not intended to restrict Debtor's rights of prepayment pursuant to the terms and conditions of any Note at any time prior to the Conversion Date. Debtor shall be responsible for the payment of all reasonable costs and expenses incurred by Debtor and FFCA as a result of Debtor's exercise of the Conversion Option, including, without limitation, attorneys' fees and expenses, title insurance endorsements and charges, survey costs and the cost of assessments and inspections of the Premises, as applicable. 3. UNDERWRITING, SITE ASSESSMENT, VALUATION, PROCESSING AND COMMITMENT FEE. Debtor paid FFCA a portion of the Fee in the amount of $33,755.00 pursuant to the Commitment, and such portion was deemed nonrefundable and fully earned when received. The remainder of the Fee shall be paid at the Closing and shall be deemed nonrefundable and fully earned upon the Closing. The Fee constitutes FFCA's underwriting, site assessment, valuation, processing and commitment fee. If the Closing does not occur for any reason other than a breach or default by FFCA or the failure of FFCA to satisfy all conditions precedent imposed upon it prior to the consummation of the transactions described in the Commitment, FFCA shall retain the Fee (without affecting or limiting FFCA's remedies set forth in this Agreement or in the Commitment). 6 7 4. CLOSING. (a) The Loan shall be closed (the "Closing") within 30 days following the satisfaction of all of the terms and conditions contained in this Agreement, but in no event shall the date of the Closing be extended beyond December 31, 1996 (the "Closing Date"), unless such extension shall be approved by FFCA in its sole discretion. (b) FFCA has ordered a title insurance commitment for each Premises from Fidelity National Title Insurance Company ("Title Company"). Prior to the Closing Date, the parties hereto shall deposit with Title Company all documents and moneys necessary to comply with their obligations under this Agreement. Title Company shall not cause the transaction to close unless and until it has received written instructions from FFCA to do so. All costs of such transaction shall be borne by Debtor, including, without limitation, the cost of title insurance premiums and endorsements, the attorneys' fees and expenses of Debtor, the attorneys' fees and expenses of FFCA, the Phase I environmental reports to be delivered pursuant to 9.E of this Agreement, FFCA's in-house inspection costs and fees, the cost of the surveys, stamp taxes, transfer fees, escrow and recording fees and site inspection fees for the Premises. All real and personal property and other applicable taxes and assessments and other charges relating to the Premises which are due and payable on or prior to the Closing Date as well as taxes and assessments due and payable subsequent to the Closing Date but which Title Company requires to be paid at Closing as a condition to the issuance of the title insurance policies described in Section 9.C, shall be paid by Debtor at or prior to the Closing, and all other taxes and assessments shall be paid by Debtor. The closing documents shall be dated as of the Closing Date. Debtor and FFCA hereby employ Title Company to act as escrow agent in connection with this transaction. Debtor and FFCA will deliver to Title Company all documents, pay to Title Company all sums and do or cause to be done all other things necessary or required by this Agreement, in the reasonable judgment of Title Company, to enable Title Company to comply herewith and to enable any title insurance policies provided for herein to be issued. Title Company is authorized to pay, from any funds held by it for FFCA's or Debtor's respective credit all amounts necessary to procure the delivery of such documents and to pay, on behalf of FFCA and Debtor, all charges and obligations payable by them, respectively. Debtor will pay all charges payable by it to Title Company. Title Company is authorized, in the event any conflicting demand is made upon it concerning these instructions or the escrow, at its election, to hold any documents and/or funds deposited hereunder until an action shall be brought in a court of competent jurisdiction to determine the rights of Debtor and FFCA or to interplead such documents and/or funds in an action brought in any such court. Deposit by Title Company of such documents and funds, after deducting therefrom its charges and its expenses and attorneys' fees incurred in connection with any such court action, shall relieve Title Company of all further liability and responsibility for such documents and funds. Title Company's receipt of this Agreement and opening of an escrow pursuant to this Agreement shall be deemed to constitute conclusive evidence of Title Company's agreement to be bound by the terms and conditions of this Agreement pertaining to Title Company. Disbursement of any funds shall be made by, certified check or wire transfer, as directed by FFCA and Debtor. Title Company shall be under no obligation to disburse any funds represented by check or draft, and no check or draft shall be payment to Title Company in compliance with any of the requirements hereof, until it is advised by the bank in which such 7 8 check or draft is deposited that such check or draft has been honored. Title Company is authorized to act upon any statement furnished by the holder or payee, or a collection agent for the holder or payee, of any lien on or charge or assessment in connection with the Premises, concerning the amount of such charge or assessment or the amount secured by such lien, without liability or responsibility for the accuracy of such statement. The employment of Title Company as escrow agent shall not affect any rights of subrogation under the terms of any title insurance policy issued pursuant to the provisions thereof. 5. REPRESENTATIONS AND WARRANTIES OF FFCA. The representations and warranties of FFCA contained in this Section are being made to induce Debtor to enter into this Agreement and consummate the transactions contemplated herein, and Debtor has relied, and will continue to rely, upon such representations and warranties from and after the execution of this Agreement and the Closing. FFCA represents and warrants to Debtor as follows: A. Organization of FFCA. FFCA has been duly formed, is validly existing and has taken all necessary action to authorize the execution, delivery and performance by FFCA of this Agreement. B. Authority of FFCA. The person who has executed this Agreement on behalf of FFCA is duly authorized so to do. C. Enforceability. Upon execution by FFCA, this Agreement shall constitute the legal, valid and binding obligation of FFCA, enforceable against FFCA in accordance with its terms. All representations and warranties of FFCA made in this Agreement shall be and will remain true and complete as of the Closing Date as if made and restated in full as of such date, and shall survive the Closing. 6. REPRESENTATIONS AND WARRANTIES OF DEBTOR. The representations and warranties of Debtor contained in this Section are being made to induce FFCA to enter into this Agreement and consummate the transactions contemplated herein, and FFCA has relied, and will continue to rely, upon such representations and warranties from and after the execution of this Agreement and the Closing. Debtor represents and warrants to FFCA as follows: A. Information and Financial Statements. Debtor has delivered to FFCA financial statements (either audited financial statements or, if Debtor does not have audited financial statements, certified financial statements) and certain other information concerning themselves and Guarantor, which financial statements and other information are true, correct and complete in all material respects; and no material adverse change has occurred with respect to any such financial statements and other information provided to FFCA since the date such financial statements and other information were prepared or delivered to FFCA. Debtor understands that FFCA is relying upon such financial statements and information. All such financial statements were prepared in accordance with generally 8 9 accepted accounting principles consistently applied and accurately reflect as of the date of such financial statements the financial condition of each individual or entity to which they pertain. B. Organization and Authority of Debtor. (1) CBI and Casa are duly organized, validly existing and in good standing under the laws of Delaware and Texas, respectively, and qualified as foreign corporations to do business in any jurisdiction where such qualification is required, except where the failure to be qualified will not have a material adverse effect on Debtor or the Premises. All necessary corporate, partnership or limited liability company action has been taken to authorize the execution, delivery and performance of this Agreement and of the other documents, instruments and agreements provided for herein. (2) The persons who have executed this Agreement on behalf of CBI and Casa are duly authorized so to do. C. Enforceability of Documents. Upon execution and delivery by CBI and Casa or Guarantor, respectively, this Agreement and the other Loan Documents shall constitute the legal, valid and binding obligations of CBI, Casa and Guarantor, respectively, enforceable against the applicable parties in accordance with their respective terms. D. Litigation. There are no suits, actions, proceedings or investigations pending or threatened against or involving CBI, Casa, Guarantor or the Premises before any court, arbitrator, or administrative or governmental body which could reasonably result in any material adverse change in the contemplated business, condition, worth or operations of CBI, Casa, Guarantor or the Premises. E. Absence of Breaches or Defaults. CBI, Casa and Guarantor are not, and the authorization, execution, delivery and performance of this Agreement and the Loan Documents will not result, in any breach or default under any other material document, instrument or agreement to which CBI, Casa or Guarantor is a party or by which CBI, Casa, Guarantor, the Premises or any of the property of CBI, Casa or Guarantor is subject or bound. The authorization, execution, delivery and performance of this Agreement and the other Loan Documents will not violate any applicable law, statute, regulation, rule, ordinance, code, rule or order. F. Utilities. At the Closing Date, the Premises will be served by ample public utilities to permit full utilization of the Premises for their intended purpose and all utility connection fees and use charges which are then due and payable will have been paid in full. G. Intended Use and Zoning; Compliance With Laws. Debtor intends to use the Premises solely for the operation of Taco Bueno and/or, upon prior written notice to FFCA, any other nationally or regionally recognized chain concept restaurants, and related ingress, egress and parking, and for no other purposes. Debtor is the owner of the 9 10 trademark and the tradename for the Taco Bueno restaurant concept. Such intended use does not violate any zoning or other governmental requirement applicable to the Premises. Debtor has not received notice from any applicable governmental authority that the Premises do not comply nor does Debtor have any reason to believe that Premises do not comply in all material respects with all applicable statutes, regulations, rules, ordinances, codes, licenses, permits, orders and approvals of any governmental agencies, departments, commissions, bureaus, boards or instrumentalities of the United States, the states in which the Premises are located and all political subdivisions thereof, including, without limitation, all health, building, fire, safety and other codes, ordinances and requirements, all applicable standards of the National Board of Fire Underwriters and the Americans With Disabilities Act of 1990, except for violations or noncompliance which would not have a material adverse effect on Debtor or any of the Premises. H. Area Development; Wetlands. No condemnation or eminent domain proceedings affecting the Premises have been commenced or, to the best of Debtor's knowledge, are contemplated. To the best of Debtor's knowledge, the areas where the Premises are located have not been declared blighted by any governmental authority. The Premises and the real property bordering the Premises are not designated by any applicable federal, state and/or local governmental authority as wetlands. I. Licenses and Permits; Access. Prior to the Closing Date, Debtor shall have all required licenses and permits, both governmental and private, to use and operate the Premises in the intended manner, except for such licenses and permits which the failure to have would not have material adverse effect on the Debtor or any of the Premises. There are adequate rights of access to public roads and ways available to the Premises to permit full utilization of the Premises for their intended purposes and all such public roads and ways have been completed and dedicated to public use. J. Condition of Premises. As of the Closing Date, the Premises, including the equipment located thereon, will be of good workmanship and materials, fully equipped and operational, in good condition and repair and free from structural defects. K. Environmental. Debtor is fully familiar with the present use of the Premises, and, after due inquiry, Debtor has become generally familiar with the prior uses of the Premises. To the best of Debtor's knowledge, without independent investigation other than a review of the Environmental Reports, and except as described in the Environmental Reports, no Hazardous Materials have been used, handled, manufactured, generated, produced, stored, treated, processed, transferred or disposed of at or on the Premises, except in compliance with all applicable Environmental Laws, and no Release or Threatened Release has occurred at or on the Premises except in substantial compliance with all applicable Environmental Laws. To the best of Debtor's knowledge, without independent investigation other than a review of the Environmental Reports, and except as described in the Environmental Reports, the activities, operations and business undertaken on, at or about the Premises, including, but not limited to, any past or ongoing alterations 10 11 or improvements at the Premises, are and have been at all times, in compliance in all material respects with all Environmental Laws. No further action is required to remedy any Environmental Condition or violation of, or to be in full compliance in all material respects with, any Environmental Laws, and no lien has been imposed on the Premises in any federal, state or local governmental or quasi-governmental entity in connection with any Environmental Condition, the violation or threatened violation of any Environmental Laws or the presence of any Hazardous Materials on or off the Premises. There is no pending or threatened litigation or proceeding before any court, administrative agency or governmental body in which any person or entity alleges the violation or threatened violation of any Environmental Laws or the presence, Release, Threatened Release or placement on or at the Premises of any Hazardous Materials, or of any facts which would give rise to any such action, nor has Debtor (a) received any notice (and Debtor has no actual or constructive knowledge) that any governmental or quasi-governmental authority or any employee or agent thereof has determined, threatens to determine or requires an investigation to determine that there has been a violation of any Environmental Laws at, on or in connection with the Premises or that there exists a Release, Threatened Release or placement of any Hazardous Materials on or at the Premises, or the use, handling, manufacturing, generation, production, storage, treatment, processing, transportation or disposal of any Hazardous Materials at or on the Premises except in substantial compliance with all applicable Environmental Laws; (b) received any notice under the citizen suit provision of any Environmental Law in connection with the Premises or any facilities, operations or activities conducted thereon, or any business conducted in connection therewith; or (c) received any request for inspection, request for information, notice, demand, administrative inquiry or any formal or informal complaint or claim with respect to or in connection with the violation or threatened violation of any Environmental Laws or existence of Hazardous Materials relating to the Premises or any facilities, operations or activities conducted thereon or any business conducted in connection therewith. L. Title to Personal Property; First Priority Lien. Upon Closing, title to the Personal Property (as defined in the Deeds of Trust) will be vested in Casa, free and clear of all liens, encumbrances, charges and security interests of any nature whatsoever, except the Permitted Exceptions. Upon Closing, FFCA shall have a first priority lien on the Personal Property pursuant to the Deeds of Trust and the UCC-1 Financing Statements. M. No Other Agreements and Options. Neither CBI, Casa, Guarantor nor the Premises are subject to any commitment, obligation, or agreement, including, without limitation, any right of first refusal, option to purchase or lease granted to a third party, which could or would prevent or hinder FFCA in making the Loans or prevent or hinder Debtor or Guarantor, as the case may be from fulfilling their respective obligations under this Agreement or the other Loan Documents. N. No Mechanics' Liens. There are no outstanding accounts payable, 11 12 mechanics' liens, or rights to claim a mechanics' lien in favor of any materialman, laborer, or any other person or entity in connection with labor or materials furnished to or performed on any portion of the Premises; no work has been performed or is in progress nor have materials been supplied to the Premises or agreements entered into for work to be performed or materials to be supplied to the Premises prior to the date hereof, which will not have been fully paid for on or before the Closing Date or which might provide the basis for the filing of such liens against the Premises or any portion thereof. O. No Reliance. Debtor acknowledges that FFCA did not prepare or assist in the preparation of any of the projected financial information used by Debtor in analyzing the economic viability and feasibility of the transaction contemplated by this Agreement. Furthermore, CBI and Casa acknowledge that they have not relied upon, nor may they hereafter rely upon, the analysis undertaken by FFCA in determining the amount of the Loans, and such analysis will not be made available to CBI or Casa. All representations and warranties of Casa and CBI made in this Agreement shall be and will remain true and complete as of and subsequent to the Closing Date as if made and restated in full as of such time and shall survive the Closing. 7. COVENANTS. Debtor covenants to FFCA from and after the Closing Date as follows: A. Inspections. Debtor shall, at all reasonable times, (i) provide FFCA and FFCA's officers, employees, agents, advisors, attorneys, accountants, architects, and engineers with reasonable access to the Premises, all drawings, plans, and specifications for the Premises in possession of Debtor, all engineering reports relating to the Premises in the possession of Debtor, the files and correspondence relating to the Premises, and the financial books and records, including lists of delinquencies, relating to the ownership, operation, and maintenance of the Premises, and (ii) allow such persons to make such inspections, tests, copies, and verifications as FFCA considers necessary. B. Fixed Charge Coverage Ratio. Until such time as all of Debtor's obligations under the Notes and the other Loan Documents are paid, satisfied and discharged in full, Debtor shall maintain an aggregate Fixed Charge Coverage Ratio at all of the Premises of at least 1.50:1. For purposes of this Section, the term "Fixed Charge Coverage Ratio" shall mean with respect to the twelve month period of time immediately preceding the date of determination, the ratio calculated for such period of time of (a) the sum of Net Income, Depreciation and Amortization, Interest Expense and Operating Lease Expense, less a corporate overhead allocation in an amount equal to 5% of Gross Sales, to (b) the sum of the FFCA Payments and the Equipment Payment Amount. For purposes of this Section, the following terms shall be defined as set forth below: "Capital Lease" shall mean any lease of any property (whether real, personal or mixed) by Debtor with respect to one or more of the Premises which 12 13 lease would, in conformity with generally accepted accounting principles consistently applied, be required to be accounted for as a capital lease on the balance sheet of Debtor. The term "Capital Lease" shall not include any operating lease. "Debt" shall mean with respect to all of the Premises and the period of determination (i) indebtedness for borrowed money, (ii) obligations evidenced by bonds, indentures, notes or similar instruments, (iii) obligations to pay the deferred purchase price of property or services, (iv) obligations under leases which should be, in accordance with generally accepted accounting principles consistently applied, recorded as Capital Leases, and (v) obligations under direct or indirect guarantees in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above. "Depreciation and Amortization" shall mean with respect to all of the Premises the depreciation and amortization accruing during any period of determination with respect to Debtor as determined in accordance with generally accepted accounting principles consistently applied. "Equipment Payment Amount" shall mean for any period of determination the sum of all amounts payable during such period of determination under all (i) leases for equipment located at one or more of the Premises and (ii) all loans secured by equipment located at one or more of the Premises (other than the Loans). "FFCA Payments" shall mean with respect to period of determination, the sum of all amounts payable under the Notes. "Gross Sales" shall mean the sales or other income arising from all business conducted at all of the Premises by Debtor during the period of determination, less sales tax and any amounts received from not-for-profit sales of all non-food items approved for use in connection with promotional campaigns. "Interest Expense" shall mean for any period of determination, the sum of all interest accrued or which should be accrued in respect of all Debt of Debtor allocable to one or more of the Premises and all business operations thereon during such period (including interest attributable to Capital Leases), as determined in accordance with generally accepted accounting principles consistently applied. "Net Income" shall mean with respect to the period of determination, the net income or net loss of Debtor allocable to all of the Premises. In determining the amount of Net Income, (i) adjustments shall be made for nonrecurring gains and losses allocable to the period of determination, (ii) deductions shall be made for, among other things, Depreciation and Amortization, Interest Expense and Operating Lease Expense allocable to the period of determination, and (iii) no deductions shall 13 14 be made for (x) income taxes or charges equivalent to income taxes allocable to the period of determination, as determined in accordance with generally accepted accounting principles consistently applied, or (y) corporate overhead expense allocable to the period of determination. "Operating Lease Expense" shall mean the expenses incurred by Debtor under any operating leases with respect to one or more of the Premises and the business operations thereon during the period of determination, as determined in accordance with generally accepted accounting principles consistently applied. C. Net Worth. At all times while the Obligations (as defined in Section 7.D of this Agreement) of Debtor and Guarantor to FFCA pursuant to the Loan Documents are outstanding, Guarantor and Debtor, taken as a whole with their respective consolidated subsidiaries, shall maintain a consolidated net worth of at least $50,000,000, as determined in accordance with GAAP (as defined in Section 7.D of this Agreement). D. Consolidated Funded Debt to Consolidated Total Capitalization Ratio. At all times while the Obligations of Debtor to FFCA pursuant to the Loan Documents are outstanding, Debtor shall cause Guarantor to maintain a ratio of Consolidated Funded Debt to Consolidated Total Capitalization of not more than 1.0 to 1.0. For purposes of this Section and Section 7.C of this Agreement, the following terms shall be defined as set forth below: "Consolidated" refers to the consolidation of accounts in accordance with GAAP. "Consolidated Funded Debt" means, as of any time determination, all Funded Debt of Guarantor and its Consolidated subsidiaries at such time determined on a Consolidated basis. "Consolidated Tangible Net Worth" means the excess of (i) the total assets of Guarantor and its Consolidated subsidiaries determined on a Consolidated basis in accordance with GAAP MINUS good will and any other items that are classified as intangible in accordance with GAAP, over (ii) all liabilities of Guarantor and its Consolidated subsidiaries determined on a Consolidated basis in accordance with GAAP. "Consolidated Total Capitalization" means, at any time of determination, the sum of (i) Consolidated Funded Debt, and (ii) Consolidated Tangible Net Worth, in each case, as of such time. "Currency Hedging Agreements" means currency swap agreements, currency future or option contracts and other similar agreements. "Debt" of any Person means, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all Obligations of such Person for the deferred purchase 14 15 price of property or services (other than trade payables not overdue by more than 60 days incurred in the ordinary course of such Person's business), (c) all Obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all Obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Obligations of such Person as lessee under leases that have been or should be, in accordance with GAAP, recorded as capital leases, (f) all Obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, (g) all Obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any capital stock or other ownership or profit interest or any warrants, rights or options to acquire such capital stock, (h) all Obligations of such Person in respect of Hedge Agreements, (i) all Debt of others referred to in clauses (a) through (h) above guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss, (iii) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (iv) otherwise to assure a creditor against loss, and (j) all Debt referred to in clauses (a) through (h) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt (it being understood that for purposes for this clause (j) the principal amount of such Debt attributed to such Person shall be the fair market value of such property). "Funded Debt" of any Person means Debt in respect of all Advances (as defined in that certain Credit Agreement, dated as of August 1, 1996, by and among Guarantor, the financial institutions named therein as lenders, and NationsBank Texas, N.A., as agent), in the case of Guarantor, and all other Debt of such Person that by its terms matures more than one year after the date of determination or matures within one year from such date but is renewable or extendible, at the option of such Person, to a date more than one year after such date or arises under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year after such date, including, without limitation, all amounts of Funded Debt of such Person required to be paid or prepaid within one year after the date of determination. "GAAP" means generally accepted accounting principles consistently applied. "Hedge Agreements" means Interest Rate Contracts and Currency Hedging Agreements. 15 16 "Insolvency Proceeding" means any dissolution, winding up, liquidation, arrangement, reorganization, adjustment, protection, relief or composition of any Person or its debts, whether voluntary or involuntary, in any bankruptcy, insolvency, arrangement, reorganization, receivership, relief or similar case or proceeding under any Federal or State bankruptcy or similar law or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of any Person or otherwise. "Interest Rate Contracts" means interest rate swap, cap or collar agreements, interest rate future or option contracts and other similar agreements. "Obligations" means, with respect to any Person, any obligations of such Person of any kind, including, without limitation, any liability of such Person on any claim, whether or not the right of any creditor to payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any Insolvency Proceeding. Without limiting the generality of the foregoing, the Obligations of Debtor under the Loan Documents include (a) the obligation to pay principal, interest, charges, expenses, fees, attorneys' fees and disbursements, indemnities, taxes, insurance premiums, impounds, late charges, default interest, damages and all other amounts payable by Debtor under any Loan Document and (b) the obligation to reimburse any amount in respect of any of the foregoing that FFCA, in its sole discretion, may elect to pay or advance on behalf of Debtor. "Person" means an individual, partnership, limited liability company, limited liability partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. E. Mechanics' Liens. Debtor shall be responsible for any and all claims for mechanics' liens and accounts payable that have arisen or may subsequently arise due to agreements entered into for and/or any work performed on, or materials supplied to the Premises prior to the Closing Date; and Debtor shall and does hereby agree to defend, indemnify and forever hold FFCA and FFCA's designees harmless from and against any and all such mechanics' lien claims, accounts payable or other commitments relating to the Premises. F. Taco Bueno Intellectual Property. In the event that Casa transfers any intellectual property rights with respect to the Taco Bueno restaurant concept, including, without limitation, franchise rights, licenses, trademarks or tradenames, Debtor shall provide FFCA with a collateral assignment of such intellectual property rights associated with the Premises, in form and substance reasonably requested by FFCA. 8. TRANSACTION CHARACTERIZATION. This Agreement is a contract to extend a financial 16 17 accommodation (as such term is used in the Code) for the benefit of Debtor. It is the intent of the parties hereto that the business relationship created by this Agreement, the Notes, the Deeds of Trust and the other Loan Documents is solely that of creditor and debtor and has been entered into by both parties in reliance upon the economic and legal bargains contained in the Loan Documents. None of the agreements contained in the Loan Documents is intended, nor shall the same be deemed or construed, to create a partnership between Debtor and FFCA, to make them joint venturers, to make Debtor an agent, legal representative, partner, subsidiary or employee of FFCA, nor to make FFCA in any way responsible for the debts, obligations or losses of Debtor. 9. CONDITIONS OF CLOSING. The obligation of FFCA to consummate the transaction contemplated by this Agreement is subject to the fulfillment or waiver of each of the following conditions: A. Title. Title to the Premises shall be vested in Casa, free of all liens, encumbrances, restrictions, encroachments and easements, except as otherwise specifically provided herein or agreed to in writing by FFCA ("Permitted Exceptions"), and the liens created by the Deeds of Trust and the UCC-1 Financing Statements. Upon Closing, FFCA will obtain a valid and perfected first priority lien upon and security interest in the Premises. B. Condition of Premises. FFCA shall have inspected and approved the Premises, the Premises and the equipment located thereon shall be in good condition and repair and of good workmanship and materials, and the Premises shall be fully equipped and operational, clean, orderly, sanitary, safe, well-lit, landscaped, decorated, attractive and with a suitable layout, physical plant, traffic pattern and location, all as determined by FFCA in its sole discretion. C. Evidence of Title. FFCA shall have received for each of the Premises a preliminary title report and irrevocable commitment to insure title by means of a mortgagee's, ALTA extended coverage policy of title insurance (or its equivalent, in the event such form is not issued in the jurisdiction where the Premises is located) issued by Title Company showing good and indefeasible title in the Premises in Debtor, committing to insure FFCA's first priority lien upon and security interest in the Premises subject only to Permitted Exceptions and containing such endorsements as FFCA may require (to the extent available under applicable law). D. Survey. FFCA shall have received a current ALTA survey of each of the Premises, the form and substance of which shall be satisfactory to FFCA in its sole discretion. Debtor shall have provided FFCA with evidence satisfactory to FFCA that the location of the Premises is not within the 100-year flood plain or identified as a special flood hazard area as defined by the Federal Insurance Administration. E. Environmental. FFCA shall have received a Phase I environmental report (and a Phase II environmental report, if necessary, as determined by FFCA in its sole discretion) for each of the Premises, the form, substance and conclusions of which shall be 17 18 satisfactory to FFCA in its sole discretion. F. Compliance With Representations, Warranties and Covenants. All obligations of Debtor under this Agreement shall have been fully performed and complied with, and no event shall have occurred or condition shall exist which would, upon the Closing Date, or, upon the giving of notice and/or passage of time, constitute a breach or default hereunder or under the Loan Documents, or any other agreement between or among FFCA or Debtor pertaining to the subject matter hereof, and no event shall have occurred or condition shall exist or information shall have been disclosed by Debtor or discovered by FFCA which has had or would have a material adverse effect on the Premises, Debtor, Guarantor or FFCA's willingness to consummate the transaction contemplated by this Agreement, as determined by FFCA in its sole and absolute discretion. G. Proof of Insurance. Debtor shall have delivered to FFCA copies of insurance policies, showing that all insurance required by the Loan Documents and providing coverage and limits satisfactory to FFCA are in full force and effect. H. Opinion of Counsel to Debtor and Guarantor. Debtor and Guarantor shall have caused Counsel to prepare and deliver an opinion substantially in the form attached as Exhibit E. I. Guaranty. Debtor shall cause to be delivered to FFCA a Guaranty executed by the Guarantor for each of the Premises. J. Availability of Funds. FFCA presently has sufficient funds to discharge its obligations under this Agreement. In the event that the transaction contemplated by this Agreement does not close on or before the Closing Date, FFCA does not warrant that it will thereafter have sufficient funds to consummate the transaction contemplated by this Agreement. K. Title Matters Agreement. Debtor shall have executed and delivered to FFCA the Title Matters Agreement. L. Closing Documents. At or prior to the Closing Date, FFCA, Guarantor and/or Debtor, as may be appropriate, shall execute and deliver or cause to be executed and delivered to Title Company or FFCA, as may be appropriate, all documents required to be delivered by this Agreement, and such other documents, payments, instruments and certificates, as FFCA may reasonably require in form acceptable to FFCA. 10. DEFAULT AND REMEDIES. A. Each of the following shall be deemed an event of default by Debtor (an "Event of Default"): (1) If any representation or warranty of Casa or CBI is false in any material respect when made or becomes false in any material respect prior to the Closing Date, or, 18 19 in the event any such representation or warranty is continuing after the Closing, if any such representation or warranty becomes false in any material respect at any time, or if Casa, CBI or Guarantor renders any false statement of a material fact or account; (2) If any principal, interest or other monetary sum due under the Notes, the Deeds of Trust or any other Loan Document is not paid within five days after the date when due; (3) If Casa, CBI or Guarantor fails to observe or perform any of the other covenants, conditions, or obligations of this Agreement or any other Loan Document within the applicable grace or cure period; (4) If Casa, CBI or Guarantor becomes insolvent within the meaning of the Code, files or notifies FFCA that it intends to file a petition under the Code, initiates a proceeding under any similar law or statute relating to bankruptcy, insolvency, reorganization, winding up or adjustment of debts (collectively, an "Action"), becomes the subject of either a petition under the Code or an Action, or is not generally paying its debts as the same become due; (5) If there is an event of default under the Casa Loan Agreement or a material breach or default under any other agreement or instrument, including, without limitation, promissory notes and guaranties, between, among or by (a) Casa, CBI, Guarantor, or any Affiliate of CBI, Casa or Guarantor and, or for the benefit of, (b) FFCA or any Affiliate of FFCA; or (6) If any event occurs or condition exists which does or would upon the Closing Date constitute a material breach or default under any of the Loan Documents. B. If any Event of Default occurs pursuant to subsection A(2) above, FFCA shall not be entitled to exercise its remedies set forth in subsection E below unless and until FFCA shall have given Debtor notice thereof and a period of five days from the delivery of such notice shall have elapsed without such Event of Default being cured. C. FFCA shall not be entitled to exercise its remedies set forth in subsection E below due to a default under subsection A(3) as a result of a breach of the Fixed Charge Coverage Ratio set forth in Section 7.B, unless and until FFCA shall have given Debtor notice thereof and Debtor shall have failed within a period of 30 days from the delivery of such notice to either (i) pay to FFCA the FCCR Amount (without premium or penalty) with respect to each of those Premises for which the Fixed Charge Coverage Ratio (with the definitions in Section 7.B modified as applicable to provide for a calculation of the Fixed Charge Coverage Ratio for each of the Premises) is below 1.50:1 (each, a "Subject Premises"), or (ii) prepay the Note or Notes corresponding to the Subject Premises in whole but not in part (without premium or penalty). For purposes of this subsection, "FCCR Amount" means that sum of money which, when subtracted from the outstanding principal 19 20 amount of each Note corresponding to a Subject Premises, and assuming the resulting principal balance is reamortized over the remaining term of such Note, will result in an adjusted Fixed Charge Coverage Ratio for such Subject Premises of at least 1.50:1 based on the prior year's operations. Promptly after Debtor's payment of the FCCR Amount, Debtor and FFCA agree to execute an amendment to each such Note in form and substance reasonably acceptable to FFCA reducing the principal amount payable to FFCA under such Note and reamortizing the principal amount of such Note over the then remaining term of such Note. D. If any event occurs pursuant to subsection A(3) subsequent to the Closing and does not involve a breach of the Fixed Charge Coverage Ratio and does not involve the payment of any monetary sum, is not willful or intentional, does not place any rights or property of FFCA in immediate jeopardy, and is within the reasonable power of Debtor to promptly cure after receipt of notice thereof, all as determined by FFCA in its reasonable discretion, then such event shall not constitute an Event of Default hereunder, unless otherwise expressly provided herein, unless and until FFCA shall have given Debtor notice thereof and a period of 30 days shall have elapsed, during which period Debtor may correct or cure such event, upon failure of which an Event of Default shall be deemed to have occurred hereunder without further notice or demand of any kind. If such nonmonetary event cannot reasonably be cured within such 30-day period, as determined by FFCA in its reasonable discretion, and Debtor is diligently pursuing a cure of such event, then Debtor shall have a reasonable period to cure such event, which shall not exceed 90 days after receiving notice of the event from FFCA. If Debtor shall fail to correct or cure such event within such 90-day period, an Event of Default shall be deemed to have occurred hereunder without further notice or demand of any kind. E. Upon and during the continuance of an Event of Default, FFCA may declare all obligations of Debtor under the Notes, this Agreement and any other Loan Document to be due and payable, and the same shall thereupon become due and payable without any presentment, demand, protest, notice of intent to accelerate, notice of acceleration or any other type of notice except as otherwise provided herein, and Debtor hereby waives notice of intent to accelerate the obligations secured by the Deeds of Trust. Thereafter, FFCA may exercise, at its option, concurrently, successively or in any combination, all remedies available at law or in equity, including without limitation any one or more of the remedies available under the Notes, the Deeds of Trust or any other Loan Document. Upon and during the continuance of an Event of Default, FFCA shall be entitled to enforce payment and performance of any obligations under the Loan Documents and to exercise all rights and powers under the Notes, this Agreement or under any other Loan Documents or other agreement reasonably required by FFCA any applicable laws now or hereafter in force, notwithstanding that some or all of such obligations may now or hereafter be otherwise secured, whether by mortgage, deed of trust, pledge, lien, assignment or otherwise. Neither the acceptance of this Agreement nor its enforcement 20 21 shall prejudice or in any manner affect FFCA's right to realize upon or enforce any other security now or hereafter held by FFCA, it being agreed that FFCA shall be entitled to enforce this Agreement and any other security now or hereafter held by FFCA in such order and manner as it may in its absolute discretion determine. No remedy herein conferred upon or reserved to FFCA is intended to be exclusive of any other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by any of the Loan Documents to FFCA, or to which FFCA may be otherwise entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by FFCA. 11. ASSIGNMENTS. A. FFCA may assign in whole or in part its rights under this Agreement, including, without limitation, any Transfer, Participation and/or Securitization (all as defined in Section 13.P). In the event of any unconditional assignment of FFCA's entire right and interest hereunder, FFCA shall automatically be relieved, from and after the date of such assignment, of liability for the performance of any obligation of FFCA contained herein. B. Debtor shall not, without the prior written consent of FFCA sell, assign, transfer, mortgage, convey, encumber or grant any easements or other rights or interests of any kind in the Premises, any of Debtor's rights under this Agreement or any interest in Debtor, whether voluntarily, involuntarily or by operation of law or otherwise, including, without limitation, by merger, consolidation, dissolution or otherwise, except as expressly permitted by the Deeds of Trust. 12. INDEMNITY. Debtor agrees to indemnify, hold harmless and defend FFCA and its directors, officers, shareholders, employees, successors, assigns, agents, as applicable (collectively, the "Indemnified Parties"), from and against any and all losses, costs, claims, liabilities, damages and expenses, including, without limitation, reasonable attorneys' fees, and/or a breach of any of the representations, warranties, covenants, agreements or obligations of Debtor set forth in this Agreement. Without limiting the generality of the foregoing, such indemnity shall include, without limitation, any engineering, governmental inspection and reasonable attorneys' fees and expenses that the Indemnified Parties may incur by reason of any representation set forth in this Agreement being false in any material respect, or by reason of any investigation or claim of any governmental agency in connection therewith. 13. MISCELLANEOUS PROVISIONS. A. Notices. All notices, consents, approvals or other instruments required or permitted to be given by either party pursuant to this Agreement shall be in writing and given by (i) hand delivery, (ii) facsimile, (iii) express overnight delivery service or (iv) certified or registered mail, return receipt requested, and shall be deemed to have been delivered upon (a) receipt, if hand delivered, (b) transmission, if delivered by facsimile, (c) the next business day, if delivered by express overnight delivery service, or (d) the third business day following the day of deposit of such notice with the United States Postal Service, if sent by certified or registered mail, return receipt requested. Notices shall be 21 22 provided to the parties and addresses (or facsimile numbers, as applicable) specified below: If to CBI: Joseph N. Stein Chief Financial Officer CBI Restaurants, Inc. 1200 North Harbor Boulevard Anaheim, California 92803-4349 Telephone: (714) 490-3631 Telecopy: (714) 490-3695 with a copy to: Robert A. Wilson, Esq. Vice President and General Counsel CBI Restaurants, Inc. 1200 North Harbor Boulevard Anaheim, California 92803-4349 Telephone: (714) 490-3661 Telecopy: (714) 520-4485 If to Casa: Joseph N. Stein Chief Financial Officer Casa Bonita Incorporated 1200 North Harbor Boulevard Anaheim, California 92803-4349 Telephone: (714) 490-3631 Telecopy: (714) 490-3695 with a copy to: Robert A. Wilson, Esq. Vice President and General Counsel Casa Bonita Incorporated 1200 North Harbor Boulevard Anaheim, California 92803-4349 Telephone: 490-3661 Telecopy: (714) 520-4485 If to FFCA: Dennis L. Ruben, Esq. Senior Vice President and General Counsel FFCA Mortgage Corporation 17207 North Perimeter Drive Scottsdale, AZ 85255 Telephone: (602) 585-4500 Telecopy: (602) 585-2226 B. Broker's Commission. FFCA and Debtor represent and warrant to each other that they have dealt with no real estate or mortgage broker, agent, finder or other 22 23 intermediary in connection with the transactions contemplated by this Agreement. FFCA and Debtor shall indemnify and hold each other harmless from and against any costs, claims or expenses, including attorneys' fees, arising out of the breach of their respective representations and warranties contained within this Section. C. Waiver and Amendment. No provisions of this Agreement shall be deemed waived or amended except by a written instrument unambiguously setting forth the matter waived or amended and signed by the party against which enforcement of such waiver or amendment is sought. Waiver of any matter shall not be deemed a waiver of the same or any other matter on any future occasion. D. Captions. Captions are used throughout this Agreement for convenience of reference only and shall not be considered in any manner in the construction or interpretation hereof. E. FFCA's Liability. Notwithstanding anything to the contrary provided in this Agreement, it is specifically understood and agreed, such agreement being a primary consideration for the execution of this Agreement by FFCA, that (i) there shall be absolutely no personal liability on the part of any shareholder, director, officer or employee of FFCA, with respect to any of the terms, covenants and conditions of this Agreement or the other Loan Documents, (ii) Debtor waives all claims, demands and causes of action against FFCA's officers, directors, employees and agents in the event of any breach by FFCA of any of the terms, covenants and conditions of this Agreement or the other Loan Documents to be performed by FFCA and (iii) Debtor shall look solely to the assets of FFCA for the satisfaction of each and every remedy of Debtor in the event of any breach by FFCA of any of the terms, covenants and conditions of this Agreement or the other Loan Documents to be performed by FFCA, such exculpation of liability to be absolute and without any exception whatsoever. F. Severability. The provisions of this Agreement shall be deemed severable. If any part of this Agreement shall be held unenforceable, the remainder shall remain in full force and effect, and such unenforceable provision shall be reformed by such court so as to give maximum legal effect to the intention of the parties as expressed therein. G. Construction Generally. This is an agreement between parties who are experienced in sophisticated and complex matters similar to the transaction contemplated by this Agreement and is entered into by both parties in reliance upon the economic and legal bargains contained herein and shall be interpreted and construed in a fair and impartial manner without regard to such factors as the party which prepared the instrument, the relative bargaining powers of the parties or the domicile of any party. Debtor and FFCA were each represented by legal counsel competent in advising them of their obligations and liabilities hereunder. H. Other Documents. Each of the parties agrees to sign such other and further 23 24 documents as may be appropriate to carry out the intentions expressed in this Agreement. I. Attorneys' Fees. In the event of any judicial or other adversarial proceeding between the parties concerning this Agreement, the prevailing party shall be entitled to recover its attorneys' fees and other costs in addition to any other relief to which it may be entitled. References in this Agreement to the attorneys' fees and/or costs of FFCA shall mean both the fees and costs of independent outside counsel retained by FFCA with respect to this transaction. J. Entire Agreement. This Agreement and the other Loan Documents, together with any other certificates, instruments or agreements to be delivered in connection therewith, constitute the entire agreement between the parties with respect to the subject matter hereof, and there are no other representations, warranties or agreements, written or oral, between Debtor and FFCA with respect to the subject matter of this Agreement. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. K. Forum Selection; Jurisdiction; Venue; Choice of Law. Debtor acknowledges that this Agreement was substantially negotiated in the State of Arizona, the Agreement was signed by FFCA in the State of Arizona and delivered by Debtor in the State of Arizona, all payments under the Notes will be delivered in the State of Arizona and there are substantial contacts between the parties and the transactions contemplated herein and the State of Arizona. For purposes of any action or proceeding arising out of this Agreement, the parties hereto hereby expressly submit to the jurisdiction of all federal and state courts located in the State of Arizona and Debtor consents that it may be served with any process or paper by registered mail or by personal service within or without the State of Arizona in accordance with applicable law. Furthermore, Debtor waives and agrees not to assert in any such action, suit or proceeding that it is not personally subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum or that venue of the action, suit or proceeding is improper. It is the intent of the parties hereto that all provisions of this Agreement shall be governed by and construed under the laws of the State of Arizona and applicable laws of the United States. To the extent that a court of competent jurisdiction finds Arizona law inapplicable with respect to any provisions hereof, then, as to those provisions only, the laws of the states where the Premises are located shall be deemed to apply. Nothing in this Section shall limit or restrict the right of FFCA to commence any proceeding in the federal or state courts located in the states in which the Premises are located to the extent FFCA deems such proceeding necessary or advisable to exercise remedies available under this Agreement or the other Loan Documents. L. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original. 24 25 M. Binding Effect. This Agreement shall be binding upon and inure to the benefit of Debtor and FFCA and their respective successors and permitted assigns, including, without limitation, any United States trustee, any debtor in possession or any trustee appointed from a private panel. N. Survival. Except for the conditions of Closing set forth in Sections 2 and 9, which shall be satisfied or waived as of the Closing Date, all representations, warranties, agreements, obligations and indemnities of Debtor and FFCA set forth in this Agreement shall survive the Closing. O. Waiver of Jury Trial and Punitive, Consequential, Special and Indirect Damages. DEBTOR AND FFCA HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, DEBTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM FFCA WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY DEBTOR AGAINST FFCA OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO. THE WAIVER BY DEBTOR OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. P. Transfers, Participations and Securitization. A material inducement to FFCA's willingness to complete the transactions contemplated by the Loan Documents is Debtor's agreement that FFCA may, at any time, sell, transfer or assign the Notes, Deeds of Trust and the other Loan Documents, and any or all servicing rights with respect thereto (each, a "Transfer"), or grant participations therein (each, a "Participation"), or complete asset securitization vehicles selected by FFCA prior to Debtor's exercise of the Conversion Option and, if applicable, subsequent to the Debtor's exercise of the Conversion Option, in accordance with all requirements which may be imposed by the investors or the rating agencies involved in such securitized financing transaction, as selected by FFCA, or which may be imposed by applicable 25 26 securities, tax or other laws or regulations, including, without limitation, laws relating to FFCA's status as a real estate investment trust (each, a "Securitization"). Debtor agrees to cooperate in good faith with FFCA in connection with any Transfer, Participation and/or Securitization, including, without limitation, (i) providing such documents, financial and other data, other information and materials, and the results of third-party inspections and analysis of the Premises (the "Disclosures") which would typically be required with respect to Debtor and Guarantor by a purchaser, transferee, assignee, servicer, participant, investor or rating agency involved with respect to such Transfer, Participation and/or the Securitization, as applicable; provided, however, Debtor shall not be required to make Disclosures of any confidential information or any information which has not previously been made public unless required by applicable federal or state securities laws; and (ii) amending the terms of the transactions evidenced by the Loan Documents to the extent necessary so as to satisfy the requirements of purchasers, transferees, assignees, servicers, participants, investors or selected rating agencies involved in any such Transfers, Participations or Securitization, so long as such amendments would not have a material adverse effect upon Debtor or the transactions contemplated hereunder. Debtor consents to FFCA providing the Disclosures, as well as any other information which FFCA may now have or hereafter acquire with respect to the Premises or the financial condition of Debtor and Guarantor, to each purchaser, transferee, assignee, servicer, participant, investor or rating agency involved with respect to each Transfer, Participation and/or Securitization, as applicable. FFCA and Debtor shall each pay their own attorneys fees and other out-of-pocket expenses incurred in connection with the performance of their respective obligations under this Section. Notwithstanding the foregoing, the parties acknowledge and agree that FFCA shall have the right to divide the Notes (and the corresponding Loan Documents) into no more than three groups or pools in connection with one or more Securitizations. If and to the extent that the Notes are divided into more than one such group or pool, Debtor shall maintain an aggregate Fixed Charge Coverage Ratio of at least 1.50:1 for all of the Premises corresponding to the Notes in each such group or pool in addition to maintaining an aggregate Fixed Charge Coverage Ratio for all of the Premises as required by Section 7.B. 26 27 IN WITNESS WHEREOF, Debtor and FFCA have entered into this Agreement as of the date first above written. FFCA: FFCA MORTGAGE CORPORATION, a Delaware corporation By /s/Dennis L. Ruben -------------------------------------------- Printed Name ---------------------------------- Its Senior Vice President - General Counsel ------------------------------------------- DEBTOR: CBI RESTAURANTS, INC., a Delaware corporation By /s/Joseph N. Stein -------------------------------------------- Printed Name ---------------------------------- Its Chief Financial Officer ------------------------------------------- CASA BONITA INCORPORATED, a Texas corporation By /s/ Joseph N. Stein -------------------------------------------- Printed Name ---------------------------------- Its Chief Financial Officer ------------------------------------------- EX-11.1 9 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11-1 CKE RESTAURANTS, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
FISCAL YEAR ENDED JANUARY 31 --------------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- (In thousands, except per share amounts) PRIMARY EARNINGS PER SHARE: Net income (loss) . . . . . . . . . . . . . . . . . . . . $22,302 $10,952 $ 1,264 $ 3,665 $ (5,507) ======== ======== ======== ======== ======== Weighted average number of common shares outstanding during the year . . . . . . . . . . . . . . 29,454 27,573 28,169 27,323 27,051 Incremental common shares attributable to exercise of stock options . . . . . . . . . . . . . 796 312 123 99 441 (1) Repurchase and retirement of shares . . . . . . . . . -- -- -- (42) -- Purchase of treasury shares . . . . . . . . . . . . . -- (108) (216) -- -- -------- -------- -------- -------- -------- 30,250 27,777 28,076 27,380 27,492 ======== ======== ======== ======== ======== Primary earnings (loss) per share . . . . . . . . . . . . $ .74 $ .39 $ .05 $ .13 $ (.20)(1) ======== ======== ======== ======== ========
FISCAL YEAR ENDED JANUARY 31 --------------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- (Amounts in thousands, except per share data ) FULLY DILUTED EARNINGS PER SHARE: Net income (loss) . . . . . . . . . . . . . . . . . . . . $ 22,302 $ 10,952 $ 1,264 $ 3,665 $ (5,507) ======== ======== ======== ======== ======== Weighted average number of common shares outstanding during the year . . . . . . . . . . . . . . 29,454 27,573 28,169 27,323 27,051 Incremental common shares attributable to exercise of stock options . . . . . . . . . . . . . 960 554 123 570 501 Repurchase and retirement of shares . . . . . . . . . -- -- -- (42) -- Purchase of treasury shares . . . . . . . . . . . . . -- (108) (216) -- -- -------- -------- -------- -------- -------- 30,414 28,019 28,076 27,851 27,552 ======== ======== ======== ======== ======== Fully diluted earnings (loss) per share . . . . . . . . . $ .73 $ .39 $ .05 $ .13 $ (.20)(1) ======== ======== ======== ======== ========
__________________ (1) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although it is contrary to paragraph 40 of Accounting Principles Board Opinion No. 15 because it produces an antidilutive effect. EX-12.1 10 COMPUTATION OF RATIOS 1 EXHIBIT 12-1 CKE RESTAURANTS, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF DEBT TO EQUITY
FISCAL YEAR ENDED JANUARY 31 --------------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- (Amounts in thousands) Debt: Current portion of long-term debt . . . . . . . . . . . . $ 735 $ 8,575 $ 8,168 $ 13,207 $ 28,467 Current portion of capital lease obligations . . . . . . 4,766 3,745 3,581 3,354 3,158 -------- -------- -------- -------- -------- 5,501 12,320 11,749 16,561 31,625 -------- -------- -------- -------- -------- Long-term debt . . . . . . . . . . . . . . . . . . . . . 33,770 30,321 27,178 17,414 31,742 Capital lease obligations . . . . . . . . . . . . . . . . 48,141 40,233 42,691 45,886 48,512 -------- -------- -------- -------- -------- 81,911 70,554 69,869 63,300 80,254 -------- -------- -------- -------- -------- $ 87,412 $ 82,874 $ 81,618 $ 79,861 $111,879 ======== ======== ======== ======== ======== Stockholders' equity: Common stock . . . . . . . . . . . . . . . . . . . . . . $ 332 $ 288 $ 283 $ 280 $ 272 Additional paid-in capital . . . . . . . . . . . . . . . 126,279 38,617 35,024 33,648 28,521 Retained earnings . . . . . . . . . . . . . . . . . . . . 88,193 67,393 57,725 58,148 55,939 Treasury stock . . . . . . . . . . . . . . . . . . . . . -- (5,109) (4,558) -- -- -------- -------- -------- -------- -------- $214,804 $101,189 $ 88,474 $ 92,076 $ 84,732 ======== ======== ======== ======== ======== Ratio of debt to equity . . . . . . . . . . . . . . . . . 0.4x 0.8x 0.9x 0.9x 1.3x ======== ======== ======== ======== ========
EX-21.1 11 SUBSIDIARIES OF REGISTRANT 1 EXHIBIT 21-1 CKE RESTAURANTS, INC. LIST OF SUBSIDIARIES Set forth below is a list of the Registrant's subsidiaries as of January 27, 1997:
Jurisdiction of Control by ---------------------------- Name of Subsidiary Organization Registrant Subsidiary - ---------------------------- ------------------ ------------- ------------- Carl Karcher Enterprises, Inc. California 100% Boston Pacific, Inc. California 100% Summit Family Restaurants Inc. Delaware 100% HTB Restaurants, Inc. Delaware 100% CBI Restaurants, Inc. Delaware 100% Casa Bonita Incorporated Texas 100% Casa Bonita Equipment Texas 100% Casa Bonita West Delaware 100% Casa Bonita Texas, L.P. Texas 100%
EX-23.1 12 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23-1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors CKE Restaurants, Inc. and Subsidiaries: We consent to incorporation by reference in the Registration Statements (Nos. 33-56313, 33-55337, 333-12399, 33-53089-01, 2-86142-01, 33-31190-01 and 333-12401) on Forms S-8 of CKE Restaurants, Inc. and Subsidiaries of our report dated March 17, 1997, relating to the consolidated balance sheets of CKE Restaurants, Inc. and Subsidiaries as of January 31, 1997 and 1996 and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended January 31, 1997, which report appears in the January 31, 1997 Annual Report on Form 10-K of CKE Restaurants, Inc. and Subsidiaries. KPMG Peat Marwick LLP Orange County, California April 10, 1997 EX-27.1 13 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CKE RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AS OF AND FOR THE YEAR ENDED JANUARY 27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K FOR THE YEAR ENDED JANUARY 27, 1997. 1,000 YEAR JAN-27-1997 JAN-30-1996 JAN-27-1997 39,782 0 25,565 0 9,223 72,857 451,576 245,771 401,217 83,894 0 0 0 332 214,472 401,217 536,808 614,080 430,160 572,080 (4,587) 0 9,877 36,710 14,408 22,302 0 0 0 22,302 .73 .73
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