-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, e9VlE7rlFJw4AEZaz6LV1lyvT3yTh52Tk6WE6W6gcJHG+arCmblME+gIvFrU2Z7J cGF07esWpEfZlTLTTVw7cQ== 0000892569-95-000167.txt : 19950502 0000892569-95-000167.hdr.sgml : 19950502 ACCESSION NUMBER: 0000892569-95-000167 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19950130 FILED AS OF DATE: 19950501 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CKE RESTAURANTS INC CENTRAL INDEX KEY: 0000919628 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 330602639 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-11313 FILM NUMBER: 95533248 BUSINESS ADDRESS: STREET 1: 1200 N HARBOR BLVD CITY: ANAHEIM STATE: CA ZIP: 92801 BUSINESS PHONE: 7147745796 10-K405 1 FORM 10-K 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ------------------------ (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: JANUARY 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM N/A TO N/A COMMISSION FILE NUMBER: 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: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: (TITLE OF CLASS) COMMON STOCK $.01 PAR VALUE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 31, 1995 was $84,965,205. The number of shares outstanding of the registrant's common stock, as of March 31, 1995 was 18,174,838. DOCUMENTS INCORPORATED BY REFERENCE
PARTS IN WHICH REFERENCED --------------- Portions of the Company's Proxy Statement to be filed with the Commission III within 120 days of January 30, 1995, prepared in connection with the Annual Meeting of Shareholders to be held in 1995 The Exhibit Index is located on Page E-1.
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 CKE RESTAURANTS, INC. AND SUBSIDIARIES INDEX TO ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 30, 1995 PART I
PAGE ---- Item 1. Business..................................................................... 1 Item 2. Properties................................................................... 7 Item 3. Legal Proceedings............................................................ 7 Item 4. Submission of Matters to a Vote of Security Holders.......................... 8 PART II Item 5. Market for the Company's Common Stock and Related Stockholder Matters........ 8 Item 6. Selected Financial Data...................................................... 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................ 9 Item 8. Financial Statements and Supplementary Data.................................. 16 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................................................... 16 PART III Item 10. Directors and Executive Officers of the Registrant........................... 16 Item 11. Executive Compensation....................................................... 16 Item 12. Security Ownership of Certain Beneficial Owners and Management............... 16 Item 13. Certain Relationships and Related Transactions............................... 16 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............. 17
3 PART I ITEM 1. BUSINESS DESCRIPTION OF THE COMPANY CKE Restaurants, Inc. ("CKE" and collectively with its subsidiaries, the "Company"), is a Delaware corporation formed in 1994 that is engaged primarily in the food service industry. The Company's restaurant operations are conducted through its two wholly owned subsidiaries, Carl Karcher Enterprises, Inc. ("Enterprises") and Boston Pacific, Inc. ("Boston Pacific"). Enterprises, the predecessor entity of CKE, was a publicly held company incorporated in California that began conducting its operations in the mid-1950's. It became a wholly owned subsidiary of CKE as a result of a reorganization and merger transaction (the "Merger") in June 1994. Enterprises continues to operate, franchise and license the Carl's Jr.(R) quick-service restaurant concept, principally in the Western United States and Mexico. As of January 30, 1995, there were a total of 660 Carl's Jr. restaurants in operation, of which 383 were operated by Enterprises, 246 were operated by its franchisees and 31 were operated by its international licensees. Boston Pacific is a California business that was incorporated in February 1994. It, too, became a wholly owned subsidiary of CKE as a result of the Merger in June 1994. Boston Pacific was formed to conduct the Company's Boston Chicken(R) franchise operations under the terms of an area development agreement with Boston Chicken, Inc. ("BCI"). BCI operates and franchises food service stores in the fast-growing home meal replacement category of the food service industry, a category that combines appealing meals associated with traditional home cooking, such as rotisserie-roasted chicken with fresh vegetables, with the convenience and value associated with quick-service restaurants. The area development agreement with BCI granted the Company the rights to develop, own and operate up to 300 such stores in Southern California and metropolitan Sacramento. A total of 22 Boston Chicken stores were opened by Boston Pacific as of January 30, 1995, the first of which commenced operations in July 1994. RECENT DEVELOPMENTS In February 1995, BCI announced plans to add rotisserie-roasted breast of turkey, baked ham and meat loaf to its menu and change the name of its stores to Boston Market(TM) to reflect better the variety of complete meals being offered by this new menu. Boston Pacific began opening only Boston Market stores in April 1995 and plans are underway to convert all of Boston Pacific's other stores to this new format in the coming months. In April 1995, the Company completed a transaction with BCI that resulted in the formation of a new privately owned company, Boston West, L.L.C. ("Boston West"), that assumed the operations of Boston Pacific and agreed to fulfill the Company's obligation under its area development agreement with BCI. This transaction will enable the Company's management to refocus its resources on the Carl's Jr. concept in the coming fiscal year. Expansion of the Carl's Jr. concept had been slowed in recent years while the Company sought to improve the restaurant-level cost structure of its restaurants. With the improvements in operating costs achieved during fiscal 1995 and 1994, management is ready to renew its expansion plans and begin remodeling its existing Carl's Jr. restaurants. These efforts require significant capital resources as does the development schedule contained in the Company's area development agreement with BCI. Boston Pacific contributed a majority of its existing Boston Chicken restaurant assets valued at approximately $22 million to Boston West and BCI agreed to lend this new entity, over time, up to $63.8 million. This loan is convertible to equity in Boston West, at BCI's option, at 115% of the original equity price. In addition, this transaction provides for the leasing of approximately $12 million of equipment and real property retained by Boston Pacific to Boston West at current market rates. These terms are subject to final adjustment within the next 60 days. An affiliate of BCI has an option to purchase all the equipment and real property leased to Boston West by Boston Pacific. In exchange for its assets, Boston Pacific received preferred and all of the common equity units in Boston West. During the first half of fiscal 1996, additional equity units in Boston West will be sold such that the 1 4 Company will own less than 20% of the common equity units of Boston West. Until the sale of these interests is complete, the Company will continue to include the results of Boston West's operations in the Company's consolidated financial statements. After the sale of its common equity units, the Company's ownership may be increased to up to 35% by an option to co-fund the capital requirements of Boston West up to a maximum of $15 million. This $15 million may be funded, in part, by proceeds of the purchase option in the equipment and real property leases when and if they are exercised. Total capitalization of Boston West is expected to reach more than $100 million. As a result of this Boston West transaction, the Company anticipates not only increased availability of capital resources required to improve and expand the Carl's Jr. concept, but the retention of the benefits of participating in a growing national concept, side by side with its originators, as well. CARL'S JR. RESTAURANTS COMPANY OPERATIONS The Company continues to refine the strategic measures it initiated in January 1993, the three main elements of which are to improve aggressively the cost structure of its Carl's Jr. restaurants, to increase Carl's Jr. retail sales by developing and implementing consumer-driven and research-based marketing programs and to realign and invest in the organization and efficiency of its human resources. These measures have yielded significant results to date. Gross margins, as a percentage of retail sales, improved slightly during fiscal 1995, following a sizable improvement in fiscal 1994, despite a small decline in sales and the start-up nature of the Company's Boston Chicken franchise operations in fiscal 1995. These measures allowed the Company to lower its prices, in an effort to achieve parity with the pricing of its competitors, while maintaining the Carl's Jr. reputation for superior food, service and cleanliness. The Carl's Jr. menu was also simplified, as part of this repositioning program, and new menu boards were installed that prominently display photographs of a variety of products, making the menu easier to read, and allowing for more effective promotion of combination meals. In the coming fiscal year, the Company will continue to focus on operating efficiencies. A new incentive program for Carl's Jr. restaurant managers was recently implemented that is designed to motivate and reward managers for their contributions to cost savings, particularly in the areas of food, labor and other controllable expenses. The Company's marketing programs have been strengthened by the addition of a new marketing executive and a new advertising agency. In its ongoing efforts to improve consumers' perceptions of value, the Company's advertising will be focused on the exceptional quality of Carl's Jr. food. In addition, the Company will begin an image enhancement program that will bring a fresh, contemporary look to its Carl's Jr. restaurants to complement these marketing efforts. The Company believes that it is one of the innovators in the quick-service restaurant industry. A variety of products that have a strong reputation for quality and taste are offered in its Carl's Jr. restaurants, along with comfortable dining rooms and partial table service. The Company was among the first to offer self-service salad bars, all-you-can-drink beverage bars and the convenience of an automated debit card for payment of a meal. The Carl's Jr. menu is relatively uniform throughout the chain and features several charbroiled hamburgers and chicken sandwiches, including the Famous Big Star, Western Bacon Cheeseburger(R) and Charbroiler Chicken Sandwiches(R). Other entrees include a fish sandwich, several baked potatoes and prepackaged salads. Side orders, such as french fries, onion rings and fried zucchini, are also offered. Most restaurants also have a breakfast menu including eggs, bacon, sausage, french toast dips, orange juice, the Sunrise Sandwich(R) and a breakfast burrito. In addition, the restaurants sell a variety of promotional products on a limited basis. The Company strives to maintain high standards in all materials used by its restaurants as well as the operations related to food preparation, service and cleanliness. Hamburgers and chicken sandwiches at Carl's Jr. restaurants are generally prepared or assembled after the customer has placed an order and served promptly. Hamburger patties and chicken breasts are charbroiled in a gas-fired double broiler that sears the 2 5 meat on both sides. The meat is conveyed through the broiler automatically to maintain uniform heating and cooking time. Each Company-operated restaurant is operated by a manager who has received 13 to 17 weeks of management training. This training program involves a combination of classroom instruction and on-the-job training in specially designated training restaurants. Other restaurant employees are trained by the restaurant manager in accordance with Company guidelines. Restaurant managers are supervised by district managers, each of whom are 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. FRANCHISED AND LICENSED OPERATIONS The Company's franchise strategy is designed to further the development of the Carl's Jr. chain and reduce the total capital required of the Company for development of new restaurants. Franchise arrangements with franchisees, who operate in Arizona, California, Nevada, Oregon and Utah, generally provide for initial fees and continuing royalty payments to the Company based upon a percentage of sales. Additionally, franchisees may purchase food, paper and other supplies from the Company. Franchisees may also be obligated to remit lease payments for the use of Company-owned or leased restaurant facilities. Under the terms of these leases, they are generally required to pay related occupancy costs, which include maintenance, insurance and property taxes. The Company also receives notes from franchisees in connection with the sales of Company-operated restaurants. Generally, these notes bear interest at 12.5%, mature in five to 15 years and are secured by an interest in the restaurant equipment sold. The Company's franchising philosophy is such that only candidates with appropriate experience are considered for the program. Specific net worth and liquidity requirements must also be satisfied. Absentee ownership is not permitted and franchise owners are encouraged to live within a one-hour drive of their restaurants. Area development agreements generally require franchisees to open a specified number of Carl's Jr. restaurants in a designated geographic area. In an effort to expand the Carl's Jr. presence internationally, Enterprises has entered into nine exclusive licensing agreements that allow licensees the use of the Carl's Jr. name and trademarks and provide for initial fees and continuing royalties based upon a percent of sales. As of January 30, 1995, there were 14 licensed restaurants in operation in Mexico, one licensed restaurant in operation in Japan, seven licensed restaurants in operation in Malaysia and nine sub-licensed restaurants in operation in the Philippines. None of the Company's licensing agreements generated material royalties in the year ended January 30, 1995. DISTRIBUTION CENTERS The Company operates a distribution center at its corporate headquarters in Anaheim, California and a smaller distribution facility in Manteca, California. Produce, frozen meat patties, dairy and other food and supply items, excluding bakery products, are distributed to Company-operated Carl's Jr. restaurants, generally twice a week. Many of these products are sold to franchisees, and in some cases, to certain licensees. These distribution centers are subject to periodic inspection by representatives of the United States Department of Agriculture. BOSTON CHICKEN FRANCHISE OPERATIONS The menu in all of the Company's Boston Chicken or Boston Market stores features rotisserie-roasted chicken, fresh-baked chicken pot pies, a variety of chicken sandwiches, chicken soup and fresh vegetables, salads and other side dishes, including mashed potatoes made from scratch, corn, stuffing and creamed spinach, as well as beverages and desserts. The signature menu item is chicken that is marinated and then slow-roasted in rotisserie ovens in full view of the customer. As noted above, plans are underway to add rotisserie-roasted breast of turkey, double-glazed baked ham and double-sauced meat loaf to all of Boston 3 6 West's remaining Boston Chicken stores and change the name of these stores to Boston Market. All of these stores offer meals in a bright, inviting retail setting and are staffed by friendly and knowledgeable salespeople. The Company believes that the Boston Chicken concept, which provides the freshness and flavor of home-style meals with a high level of convenience and value, combined with the resurgence of the traditional family meal and the need for convenience, has become very popular in many areas of the United States. The first Boston Chicken store was opened in Newton, Massachusetts in 1985. As of March 1, 1995, there were 570 Boston Chicken or Boston Market stores system-wide. By the end of 1995, BCI expects to have approximately 850 restaurants in operation system-wide. There can be no assurance that BCI or its area developers will be able to achieve this goal. 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 which the Company purchases from numerous independent suppliers. Alternate sources of these items are generally available. TRADEMARKS AND PATENTS The Company has registered trademarks and service marks which are of material importance to the Company's business, including Carl's Jr.(R), the Star(R) logo and proprietary names for a number of the Carl's Jr. menu items. Boston Chicken(R) and the Boston Chicken logo are registered trademarks of BCI and BCI has a trademark application pending for Boston Market(TM). These trademarks may be utilized by the Company in accordance with applicable provisions of the area development agreement with BCI. 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 Historically, current assets included marketable securities and restaurant property costs to be sold and leased back. Subsequent to January 25, 1993, as part of its strategic initiatives, the Company began liquidating a significant portion of its investment portfolio, using the proceeds to repay its borrowings under the Company's revolving credit line. The sale/leaseback program has not been emphasized during fiscal 1995 and 1994, and thus existing inventories of restaurant property costs to be sold and leased back were significantly reduced in fiscal 1994. The Company does not carry significant amounts of inventory, experience material returns of merchandise, or generally provide extended payment terms to its franchisees or licensees. Cash from operations, along with cash, cash equivalents and marketable securities on hand, should enable the Company to meet its financing requirements. CUSTOMERS No material part of the Company's business is dependent upon a single customer or a few customers. BACKLOG Backlog orders are not material to the Company's business. 4 7 GOVERNMENT CONTRACTS The Company has no material contracts with the United States government or any of its agencies. COMPETITION Major chains, which have substantially greater financial resources than the Company, dominate the quick-service restaurant industry. Certain of these major chains have increasingly offered selected food items and combination meals, temporarily or permanently at discounted prices. A change in the pricing or other marketing strategies of one or more of these competitors could have an adverse impact on the Company's Carl's Jr. sales and earnings in affected markets. The Company believes that its particular emphasis on higher quality foods that appeal to a broad consumer base, allows the Company to compete effectively with significantly larger quick-service restaurant chains. Careful attention to dining accommodations, including periodic upgrading of existing facilities, also plays an important role. RESEARCH AND DEVELOPMENT The Company maintains a test kitchen for its Carl's Jr. operations at its headquarters in which new products and production concepts are developed on an ongoing basis. In addition, the Company is currently testing a number of dual-concepts which include the sale of other branded products from within Carl's Jr. 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 1995. The Company cannot predict the effect on its operations from possible future legislation or regulation. NUMBER OF EMPLOYEES The Company employs approximately 12,000 persons, of whom approximately 11,000 are hourly restaurant, distribution or clerical employees, and approximately 1,000 are managerial, salaried employees engaged in administrative and supervisory capacities. A majority of the hourly employees are employed on a part-time basis to provide service necessary during peak periods of restaurant operations. None of the Company's employees are currently covered by a collective bargaining agreement. The Company has never experienced a work stoppage attributable to labor disputes and believes its employee relations to be good. The Company is subject to the Fair Labor Standards Act, which governs such matters as minimum wage requirements, overtime and other working conditions. A large portion of the Company's food service personnel are paid at a minimum wage level and, accordingly, increases in the federal or state minimum wage affect the Company's labor costs. The California minimum wage is currently $4.25 and is equal to the established federal minimum wage. 5 8 EXECUTIVE OFFICERS The executive officers of the Company as of January 30, 1995 are listed below.
NAME AGE POSITION(S) - --------------------- --- ------------------------------------------------------------------ William P. Foley II 49 Chief Executive Officer of the Company Kerry W. Coin 47 President and Chief Operating Officer of Boston Pacific C. Thomas Thompson 45 President and Chief Operating Officer of Enterprises Rory J. Murphy 47 Senior Vice President, Restaurant Operations of Enterprises Loren C. Pannier 53 Senior Vice President, Chief Financial Officer of the Company Robert W. Wisely 49 Senior Vice President, Marketing of Enterprises Laurie A. Ball 36 Vice President, Controller of the Company Richard C. Celio 44 Vice President, General Counsel of the Company William R. Espinosa 47 Vice President, Strategic Planning of the Company
William P. Foley II became Chief Executive Officer of the Company in October 1994, Chairman of the Board of Directors in March 1994, and has served as a director of the Company since December 1993. Since 1981, Mr. Foley has been Chairman of the Board and Chief Executive Officer of Fidelity National Financial, Inc., a holding company engaged in title insurance and related services. Kerry W. Coin became President and Chief Operating Officer of Boston Pacific in October 1994. Mr. Coin joined the Company as Vice President, Strategic Development in February 1993. Prior to joining the Company, he was a principal with A. T. Kearney Inc., a nationally recognized business consulting firm, for five years. While at A. T. Kearney, he was the project leader for two major consulting assignments at the Company. In connection with the formation of Boston West in April 1995, Mr. Coin is in the process of resigning as an officer of the Company in order to accept a position with Boston West. C. Thomas Thompson was appointed President and Chief Operating Officer of Enterprises in October 1994. Mr. Thompson has been a franchisee of Enterprises since 1984. Rory J. Murphy has been the Senior Vice President, Restaurant Operations of Enterprises for the past two years. He has been employed by Enterprises in various positions for 16 years. Loren C. Pannier has been the Senior Vice President and Chief Financial Officer of the Company for the past 13 years and has been employed by the Company for 23 years. Robert W. Wisely became Senior Vice President, Marketing of Enterprises in January 1995. Mr. Wisely has been a franchisee of Enterprises since 1990. Laurie A. Ball became Vice President, Controller in January 1993, and has been employed by the Company in various positions for more than the seven years. Richard C. Celio joined the Company as Vice President, General Counsel in January 1989. Prior to joining the Company, he was an attorney at law and partner of the law firm of Holden, Fergus & Celio for seven years, a firm which provided various legal services, and acted as General Counsel for the Company. William R. Espinosa became Vice President, Strategic Planning of the Company in June 1994. Prior to joining the Company, for more than three years, he was Vice President and General Manager of Commonwealth Life Insurance Company, headquartered in Louisville, Kentucky, which is a wholly owned subsidiary of Providian Corporation, a publicly traded financial services corporation. For two years prior, he was controller of Signetics Company, headquartered in Sunnyvale, California, which is a wholly owned subsidiary of Phillips Electronics, a consumer electronics company. For one year prior, he was President and Chief Executive Officer of Triangle Kentucky Fried Chicken, a 39-store quick-service restaurant franchisee, with restaurants located in Ohio and New York state. 6 9 ITEM 2. PROPERTIES. Most restaurants are freestanding, ranging in size from 2,500 to 4,000 square feet, with a seating capacity of 65 to 115 persons. Some restaurants are located in shopping malls and other in-line facilities. Currently, several building plan types are in use system-wide, depending upon operational needs. Most Carl's Jr. restaurants are constructed with drive-thru facilities. A majority of Company-operated sites are leased from others. The following table sets forth the type of real estate interest that the Company had in its sites in operation at January 30, 1995:
TYPE OF INTEREST ----------------------------------------------------------------------- Lease land and building................................................ 357 Lease land only (building owned)....................................... 3 Lease building only (land owned)....................................... 20 Own land and building.................................................. 25 --- 405 ===
The Company subleases certain sites to its franchisees and owns an additional 33 restaurant properties which are leased primarily to franchisees. The terms of the Company's leases or subleases generally range between three and 35 years and expire at various dates through fiscal 2026. The expiration of these leases is not expected to have a material impact on the Company's operations in any particular year as the expiration dates are staggered over a number of years and many of the leases contain renewal options. Once a potential restaurant site is identified, the Company's real estate personnel either seek to negotiate with the owner to construct a restaurant to the Company's specifications and enter into a long-term lease of the premises, or the site is purchased. Spaces for restaurants in shopping malls and in-line buildings are typically leased and developed to the Company's specifications with the Company owning the leasehold improvements. The Company generally performs the construction management function while utilizing outside general contractors to construct its buildings. The following table summarizes the California and Arizona regions in which the Company's Carl's Jr. restaurants and Boston Chicken stores are located: Los Angeles and Orange County......................................... 271 Sacramento............................................................ 43 San Diego............................................................. 43 Fresno................................................................ 25 Bakersfield........................................................... 10 San Francisco......................................................... 1 Tucson, Arizona....................................................... 12 --- 405 ===
The Company's corporate headquarters and distribution center, located in Anaheim, California, are leased and occupy approximately 78,000 and 102,000 square feet, respectively. The Manteca, California distribution facility has 42,000 square feet and is owned by the Company. ITEM 3. LEGAL PROCEEDINGS. The Company is involved in various lawsuits incidental to its business. Management does not believe that the outcome of such litigation will have a material adverse effect upon the consolidated operations or financial condition of the Company. 7 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. As of April 25, 1994, shares of the Company's Common Stock were traded on the New York Stock Exchange under the symbol "CKR." Prior to that date, the Company's Common Stock was regularly quoted on the NASDAQ National Market System under the symbol "CARL." At January 30, 1995, there were approximately 2,100 record holders of the Company's Common Stock. The high and low closing prices, during each quarter, for the last two fiscal years were as follows:
QUARTER 1ST 2ND 3RD 4TH ----------------------------------------------------------- ---- ---- --- ---- Fiscal 1995 High..................................................... $ 14 $10 1/2 $9 1/8 $ 8 3/8 Low...................................................... 10 1/8 7 5/8 7 3/4 6 5/8 Fiscal 1994 High..................................................... $ 8 7/8 $ 8 5/8 $9 5/8 $14 1/4 Low...................................................... 7 3/4 6 3/4 7 3/8 8 7/8
During fiscal 1994, the Company paid four consecutive quarterly dividends of $.02 per share of Common Stock, for a total of $.08 per share per year. During fiscal 1995 the Company changed its dividend policy to provide for semi-annual payments of dividends, and paid two consecutive dividends of $.04 per share of Common Stock, for a total of $.08 per share. 8 11 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. SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED JANUARY 31, ------------------------------------------------------------ 1995 1994(1) 1993 1992 1991 -------- -------- -------- -------- -------- System-wide sales: Company-operated(2)............... $370,045 $384,859 $417,268 $469,736 $473,379 Franchised........................ 178,428 190,434 184,658 138,664 105,297 Licensed.......................... 22,742 18,780 17,451 9,535 4,082 -------- -------- -------- -------- -------- Total system-wide sales........ $571,215 $594,073 $619,377 $617,935 $582,758 ======== ======== ======== ======== ======== Revenues(2)......................... $443,747 $463,494 $505,390 $543,908 $531,510 Income (loss) before cumulative effect of changes in accounting principles........................ 1,264 4,433 (3,057) 13,038 13,036 Net income (loss)................... 1,264 3,665 (5,507) 13,038 13,036 Income (loss) per share before cumulative effect of changes in accounting principles............. .07 .24 (.17) .72 .72 Net income (loss) per share......... .07 .20 (.31) .72 .72 Cash dividends paid per common share(3).......................... .08 .08 .08 .08 .08 Total assets........................ 244,343 242,135 268,924 294,375 305,965 Long-term debt, including capital lease obligations................. 69,869 63,300 80,254 102,074 117,137 Stockholders' equity................ $ 88,474 $ 92,076 $ 84,732 $ 89,679 $ 78,818 Ratio of debt to equity(4).......... 0.9x 0.9x 1.3x 1.5x 1.9x Number of restaurants and stores at year end: Company-operated.................. 405 376 379 414 424 Franchised........................ 246 255 244 196 149 Licensed.......................... 31 17 19 12 5 -------- -------- -------- -------- -------- Total system-wide restaurants and stores............................ 682 648 642 622 578 ======== ======== ======== ======== ========
- --------------- (1) Fiscal 1994 includes 53 weeks. (2) Prior year amounts have been reclassified to conform with the fiscal 1995 presentation. (3) Prior to fiscal 1995, the Company paid four consecutive quarterly dividends of $.02 per share of Common Stock, for a total of $.08 per share per year. During fiscal 1995, the Company paid two consecutive semi-annual dividends of $.04 per share, for a total of $.08 per share per year. (4) Debt, as defined in this computation, includes long-term debt, capital lease obligations and their related current portions. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the consolidated financial statements and related notes and "Selected Financial Data" included elsewhere in this Form 10-K. 9 12 OVERVIEW Fiscal 1995 marks the first year of operations for CKE, a Delaware corporation formed to provide overall strategic direction and administrative support to its two wholly owned subsidiaries, Enterprises and Boston Pacific. Enterprises, the predecessor entity of the Company that was a publicly held corporation, is the operator and franchisor of approximately 660 Carl's Jr. restaurants which began conducting its operations in the mid-1950's. Boston Pacific was formed during fiscal 1995 to develop, own and operate up to 300 Boston Chicken stores in designated markets in California under an area development agreement with BCI. Consolidated net income for the year, a 52-week reporting period, was $1.3 million, or $.07 per share. Consolidated net income for fiscal 1994, a 53-week reporting period comprised solely of the operations of Enterprises, was $3.7 million, or $.20 per share. Fiscal 1995 operating income on a comparable basis (exclusive of the Boston Pacific operations), amounted to $11.7 million, an increase of $1.2 million, or 11.3%, over fiscal 1994. Enterprises' results reflect the Company's current efforts to improve its Carl's Jr. restaurant-level cost structure while developing and implementing new marketing programs, a longer-term objective. Based upon its initial market research, the Company implemented new pricing strategies during fiscal 1995 which offered lower-priced menu items and several combination meals. New menu boards that prominently display a variety of products were also installed, allowing for more effective promotion of these combination meals. In order to increase retail sales, the Company believes these strategies should be supplemented with new marketing programs that rely heavily on in-depth consumer research and are designed to improve consumers' value perceptions by increasing their awareness of the Company's superior quality products. In addition, several new products are planned for fiscal 1996 and a new advertising agency was recently appointed to help execute this new program. Furthermore, an image enhancement program aimed at revitalizing the Company's Carl's Jr. restaurants will be among management's top priorities in the coming year. All of these actions are intended to improve not only the Company's sales and profits but also the sales and profits of the Company's franchisees as well. Of the 660 Carl's Jr. restaurants in operation as of January 31, 1995, 383 were Company-operated, 246 were franchised and 31 were licensed, representing a system-wide net increase of 12 restaurants as compared with fiscal 1994. Within the United States, four new Company-operated and four new franchised restaurants opened during fiscal 1995 and a total of eight Company-operated restaurants (seven of which were converted to Boston Chicken stores) and two franchised restaurants were closed. Additionally, 12 franchised restaurants returned to Company ownership and one Company-operated restaurant was franchised. Internationally, there was a net increase of 14 restaurants, which were opened primarily in the Philippines. The Company's obligation under the terms of its area development agreement with BCI included opening 20 Boston Chicken stores during fiscal 1995, followed by an additional 40 to 50 stores per year during the next four years, for an aggregate of 200 stores by January 15, 1999. This agreement also contained an option to develop an additional 100 stores under certain conditions. A total of 22 stores were opened by Boston Pacific during fiscal 1995, seven of which were converted Carl's Jr. restaurants. In addition, another five stores were under construction as of January 31, 1995. The first Boston Pacific store commenced operations in July 1994. Management will refocus its resources on the Carl's Jr. concept in the coming fiscal year. With the improvements in operating costs achieved during fiscal 1995 and 1994, management is ready to renew its expansion of this concept which had been slowed in recent years while these cost issues were addressed. Plans to remodel existing Company-operated Carl's Jr. restaurants are also underway. This refocus requires significant capital resources and competes with such resources which are required to comply with the development schedule contained in the Company's agreement with BCI. Accordingly, in April 1995, the Company completed a transaction with BCI that resulted in the formation of a new privately owned company, Boston West, that assumed the operations of Boston Pacific and agreed to fulfill the Company's obligation under its area development agreement with BCI. Boston Pacific contributed a majority of its existing Boston Chicken restaurant assets valued at approximately $22 million to this new entity and BCI agreed to lend Boston West, over time, up to $63.8 million. This loan is convertible to equity in Boston West, at BCI's option, 10 13 at 115% of the original equity price. In addition, this transaction provides for the leasing of approximately $12 million of equipment and real property retained by Boston Pacific to Boston West at current market rates. These terms are subject to final adjustment within the next 60 days. An affiliate of BCI has an option to purchase all the equipment and real property leased to Boston West by Boston Pacific. In exchange for its assets, Boston Pacific received preferred and all of the common equity units in Boston West. During the first half of fiscal 1996, additional equity units in Boston West will be sold such that the Company will own less than 20% of the common equity units of Boston West. Until the sale of these interests is complete, the Company will continue to include the results of Boston West's operations in the Company's consolidated financial statements. After the sale of its common equity units, the Company's ownership may be increased to up to 35% by an option to co-fund the capital requirements of Boston West up to a maximum of $15 million. This $15 million may be funded, in part, by proceeds of the purchase option in the equipment and real property leases when and if they are exercised. Total capitalization of Boston West is expected to reach more than $100 million. As a result of this Boston West transaction, the Company anticipates availability of the capital resources required to improve and expand the Carl's Jr. concept, while retaining the benefits of participating in a growing national concept, side by side with its originators. RESULTS OF OPERATIONS REVENUES Retail sales, composed primarily of Carl's Jr. sales, fell 3.9% in fiscal 1995 to $370.0 million and 7.8% in fiscal 1994 to $384.9 million due to lower average sales per restaurant and fewer restaurants in operation in both fiscal 1995 and 1994. On a same-store basis, the Company's Carl's Jr. sales, which are calculated using only restaurants open for the full two years being compared, declined 3.8% in fiscal 1995 to $356.0 million, following a 6.5% decrease during fiscal 1994 to $366.2 million from $391.5 million in fiscal 1993. Carl's Jr. restaurant sales were adversely affected in both fiscal 1995 and 1994 by aggressive promotions and price reductions by the Company's principal competitors. Total retail sales for fiscal 1995 also reflect one week's fewer sales than for fiscal 1995 because fiscal 1994 was a 53-week reporting period. Revenues from franchised and licensed restaurants in both fiscal 1995 and fiscal 1994 were mainly comprised of sales of food and supplies to franchisees, initial franchise fees, annual franchise royalties and rents and other occupancy-related amounts collected from many of the Company's franchisees. Overall, these revenues decreased 6.3% to $73.7 million in fiscal 1995, following a 4.5% increase to $78.6 million in fiscal 1994. The fiscal 1995 decrease was largely due to declining franchisee sales and lower commodities costs, such as beef, chicken and tomatoes, which costs were passed along to franchisees. The fiscal 1994 increase was due primarily to 21 more franchised restaurants in operation on a weighted-average basis in fiscal 1994 versus fiscal 1993. Revenues from other outside parties were eliminated in fiscal 1993 in connection with the Company's strategy to focus on the operating and franchising of Carl's Jr. restaurants, and the resulting elimination of non-essential lines of business such as its manufacturing and outside sales operations. OPERATING COSTS AND EXPENSES Food and packaging costs as a percentage of the Company's retail sales were 30.3%, 30.0% and 30.5% in fiscal years 1995, 1994 and 1993, respectively. The Company's exit from the manufacturing business, which was begun in fiscal 1993 and completed in fiscal 1994, resulted in the lowering of overall food costs. As a percentage of the Company's retail sales, payroll and other employee benefits were 30.3%, 30.9% and 34.0% in fiscal years 1995, 1994 and 1993, respectively. Reductions in the direct labor component of payroll and other employee benefits were achieved during the past three years due to cost and productivity efficiencies. These savings were offset in fiscal 1993 by an increase in workers' compensation costs resulting from a study of claims and reserve levels by an independent actuary which led to the Company increasing its workers' compensation reserve by $5.1 million in the fourth quarter of fiscal 1993. In fiscal 1994, the Company initiated 11 14 safety and other programs, which, coupled with changes in state regulations, have resulted in a drop in the incident rate of 23.7% and 41.2% in its workers' compensation claims during fiscal 1995 and 1994, respectively. Occupancy and other operating expenses as a percentage of retail sales were 22.2%, 22.0% and 23.1% in fiscal years 1995, 1994 and 1993, respectively. With fewer restaurants in operation and reductions in repair and maintenance costs, occupancy and other costs have decreased in fiscal 1995 and 1994, more than offsetting selected rent and other increases. Overall, 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 improvements in the gross margins of its retail operations. These margins, as a percentage of retail sales, were 17.2%, 17.1% and 12.5% in fiscal years 1995, 1994 and 1993, respectively. The improvement in fiscal 1995 is particularly noteworthy considering Boston Pacific's start-up nature during its first year of operations and that Carl's Jr. retail sales declined during fiscal 1995. Franchised and licensed restaurant costs are closely tied to franchise revenues. These costs decreased 5.0% in fiscal 1995 to $69.9 million, following an 8.8% increase in fiscal 1994 to $73.6 million. The fiscal 1995 decrease was largely due to lower costs which were passed along to franchisees, with little change in the number of franchised restaurants. The fiscal 1994 increase was due primarily to the increase in the number of franchised restaurants. Also contributing to increased costs in both fiscal 1994 and 1993 were increases in occupancy costs associated with the leasing or subleasing of restaurants to franchisees. The margins on sales of food and supplies to franchisees declined over the past three years, particularly in fiscal 1994, as a result of the lowering of prices of food and other products supplied to franchisees. These prices were significantly reduced in fiscal 1993 following the elimination of the Company's manufacturing operations. Costs associated with the revenues from other outside parties were eliminated in fiscal 1993 with the termination of this line of business in that year. As a percentage of the Company's retail sales, advertising expenses were 5.4%, 5.0% and 4.6% in fiscal 1995, 1994 and 1993, respectively. Advertising expenditures have become increasingly important in the current competitive environment and have therefore grown as a percentage of the Company's retail sales over the past three years. Fiscal 1995 general and administrative expenses were reduced by $2.7 million as a result of the reversal of certain previously established lease subsidy reserves in connection with the reacquisition of 12 Carl's Jr. franchised restaurants. Fiscal 1994 general and administrative expenses included a $3.0 million charge related to a binding arbitration judgment and a $1.7 million charge representing the net present value of future retirement benefits granted to the Chairman Emeritus in October 1993. Fiscal 1993 general and administrative expenses included $11.1 million of exit costs due primarily to the Company's strategic initiatives commenced near the end of that year. The fiscal 1993 exit costs included $1.9 million of corporate severance and outplacement costs related to the termination of 53 corporate employees (whose termination was approved by the Company's Board of Directors just prior to the end of fiscal 1993); a $2.0 million charge related to the elimination of the Company's manufacturing operations (which included the losses on the disposition of equipment previously used in such operations and severance costs related to the termination of 232 manufacturing employees); $2.3 million of estimated equipment losses and lease subsidies related to the closure of certain underperforming Carl's Jr. restaurants (of which $315,000 remained accrued as of January 31, 1995); and a $4.9 million increase of certain lease subsidies related to the Company's franchised operations in Arizona (the result of the Company reducing its sublease rental income projections associated with these particular restaurants, which are based largely upon the restaurant sales of Enterprises' Arizona franchisees). There have been no material changes to the strategic measures and other exit costs contemplated by this fiscal 1993 charge or the costs associated with these measures. Excluding the effects of these nonrecurring charges, general and administrative expenses amounted to $41.5 million, $36.5 million and $36.6 million in fiscal years 1995, 1994 and 1993, respectively, which represented 9.4%, 7.9% and 7.2% of total consolidated revenues in those years. The fiscal 1995 increase was 12 15 due primarily to start-up costs associated with the Company's Boston Pacific operations (including the costs to convert seven Carl's Jr. restaurants to Boston Chicken stores), the write-off of the former Carl's Jr. menu boards and expenses related to the plan of reorganization and merger completed during fiscal 1995. INTEREST EXPENSE Lower average notes payable balances throughout fiscal 1995 and 1994 resulted in a $1.2 million, or 11.4%, decrease in interest expense in fiscal 1995, following a $3.2 million, or 23.8%, decrease in fiscal 1994. This decrease was offset by increased borrowings under the Company's former revolving line of credit to fund the Boston Pacific expansion. OTHER INCOME, NET Other income, net, decreased 51.2% in fiscal 1995 to $3.0 million and 54.8% in fiscal 1994 to $6.1 million. The fiscal 1995 and 1994 decreases were due largely to decreases in investment income resulting from the redefining of the Company's cash management activities in fiscal 1994. Effective as of the beginning of fiscal 1995, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Investments in Certain Debt and Equity Securities." As a result of adopting this new standard, net unrealized gains (losses) on the Company's marketable securities portfolio, which is comprised of securities that are considered available-for-sale, are included in stockholders' equity while such unrealized gains (losses) a year ago were included in other income, net. The adoption of this new standard was not material to the Company's consolidated financial statements. CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES Effective as of the beginning of fiscal 1994, the Company recognized a $768,000 cumulative effect charge, net of a $512,000 tax benefit, related to a change in the method used to discount the Company's estimated workers' compensation liability, which is described further in Note 9. Effective as of the beginning of fiscal 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The cumulative effect of this change in accounting principle resulted in a $2.4 million charge to operations, which is described further in Note 16. FINANCIAL CONDITION OVERVIEW The Company's current ratio was .8 and 1.0 as of January 31, 1995 and 1994, respectively. The fiscal 1995 current ratio was materially impacted by the Company's Boston Pacific operations, which resulted in decreased cash and increased borrowings under the Company's former revolving line of credit to develop this new concept. As of January 31, 1995, total cash available to the Company was $18.2 million, which included $3.1 million of idle cash invested in marketable securities. These securities consisted primarily of holdings in investment-grade preferred stock and debt securities in accordance with the Company's investment policy which is designed to maintain a diversified, highly liquid portfolio with minimal interest-rate risk. The State of California requires the Company to secure its potential self-insured workers' compensation claims each year by providing a prescribed amount, either through one or more standby letters of credit or an equivalent amount of cash or investment securities. As of January 31, 1994, other current assets included $6.8 million of investment securities which were held in trust by the State as of that date to secure a like amount of such claims for which the Company had not provided security in the form of cash or a standby letter of credit. In March 1994, the Company negotiated with its bank to increase its existing standby letter of credit to cover the entire $12.1 million State security requirement for that year. In turn, the State returned the $6.8 million of securities to the Company, which added to the Company's liquid assets during fiscal 1995. The upcoming annual security requirement, which begins May 1, 1995, was lowered to $8.5 million due to an improvement in the Company's claims experience. 13 16 As of January 31, 1995, advances totaling $18.8 million were drawn against the Company's former revolving line of credit, primarily to fund the Company's Boston Chicken franchise operations. Following the formation of Boston West in April 1995, the Company's loan agreement with its bank was amended such that these borrowings were converted to a term loan, payable in quarterly installments through September 1998. A new $15 million unsecured revolving credit line that expires in June 1996 was also established for use in the Company's ongoing Carl's Jr. operations, as was a $12.4 million letter of credit facility. Two letters of credit are outstanding under this facility, one for $8.5 million issued in April 1995 and a second for $3.9 million issued in September 1994. The $8.5 million letter of credit secures the Company's potential workers' compensation claims discussed above and expires in June 1996. The $3.9 million letter of credit secures the Industrial Revenue Bonds issued in connection with the construction of the Company's Northern California distribution facility and expires in 1997. As of January 31, 1995, the Company was not in compliance with certain of the covenants governing its previous loan agreement, largely due to the operating losses sustained by Boston Pacific. A waiver of the requirements of these covenants was received and more favorable covenants were negotiated in their place that will apply to future measurement periods. Repayment of all other long-term debt totaled $14.8 million in fiscal 1995, which resulted in the payment in full of three separate notes payable and brought the balance of long-term debt to $35.3 million as of January 31, 1995, of which $8.2 million is scheduled to be repaid in fiscal 1996. The Company filed a shelf registration statement covering up to $75 million of debt, convertible debt or preferred stock with the Securities and Exchange Commission in March 1994. Because pricing levels and terms of these types of investments were below Company expectations following the filing of this statement, management decided not to proceed with any such offerings in fiscal 1995. In June 1994, a plan of reorganization and merger was approved by the shareholders of Enterprises whereby Enterprises and Boston Pacific became wholly owned subsidiaries of the Company and the shareholders of Enterprises became stockholders of the Company. The Company's securities also began trading on the New York Stock Exchange during fiscal 1995. In July 1994, the Board of Directors authorized the repurchase of up to two million shares of the Company's common stock. A total of 590,000 shares of stock were repurchased during fiscal 1995, which included the purchase of 62,500 shares from the Chairman Emeritus at the then market price of $9.13 per share. The balance of these shares were purchased in a series of open market transactions, at an average price of approximately $8 a share, for an aggregate purchase price of $4.0 million. All of the shares purchased are being held as treasury stock. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity during fiscal 1995 were its liquid assets, cash flows from operations and borrowings drawn against its former revolving line of credit. With the formation of the new Boston West entity, the requirement that the Company be the exclusive source of capital for Boston West will be eliminated and future capital needs will arise, principally, for the construction of new Carl's Jr. restaurants, the remodeling of its existing restaurants, the payment of lease obligations, the repayment of debt and the possible exercise of the option to increase its existing equity interest in Boston West by $15 million. Cash and cash equivalents decreased $1.9 million to $15.2 million in fiscal 1995. Total cash provided by the Company's consolidated operations decreased $6.3 million in fiscal 1995 to $21.4 million largely due to the development of, and other start-up costs associated with, the Company's Boston Pacific operations. Total cash provided by the Company's Carl's Jr. operating activities during fiscal 1995, exclusive of these amounts, was comparable to the amount provided by its fiscal 1994 operating activities. Consolidated investing activities required the use of a net $27.0 million in fiscal 1995, largely due to purchases of property and equipment totaling $40.0 million. These purchases were offset by the liquidation of $16.0 million of the Company's marketable securities portfolio. Consolidated financing activities provided the Company with $3.6 million in fiscal 1995, the result of a $10.2 million increase in the bank overdraft and $18.8 million of net advances under the Company's former revolving credit line, offset by payments of long-term debt and capital leases totaling 14 17 $17.6 million, $4.6 million of treasury stock purchases and a $3.1 million decrease in other long-term liabilities. Cash provided by operating activities in fiscal 1994 increased $3.5 million largely attributable to better operating results in that year. Cash provided by investing activities increased $5.7 million due mainly to the liquidation of a net $14.8 million more marketable securities than fiscal 1993, offset by $4.5 million in higher purchases of property and equipment and a $4.2 million reduction in sale/leaseback proceeds due to the de-emphasis of this means of financing during fiscal 1994. Cash used in financing activities increased $4.2 million due primarily to the repayment of the Company's $18.1 million revolving credit line in that year, offset by an $11.9 million decrease in other debt payments, including obligations secured by marketable securities and long-term investments, long-term debt and capital lease obligations. In addition, stock option exercises yielded an additional $3.4 million of proceeds in fiscal 1994 as compared with fiscal 1993. New Carl's Jr. restaurant openings were slowed in fiscal 1995 and fiscal 1994 while management focused on improving the operating profits of its existing restaurants and, during fiscal 1995, developing Boston Chicken stores. Major remodeling activities were similarly deferred. With the cost reductions achieved for the Company's Carl's Jr. restaurants, and elimination of the future capital requirements associated with the Boston Pacific operations, the Company intends to increase these remodeling activities in the coming fiscal year. A total of 14 new restaurants are scheduled to open in fiscal 1996 and as many as 60 existing restaurants will be remodeled under the Company's image enhancement program. The Company believes that cash generated from its operations, along with the cash and marketable securities on hand as of January 31, 1995, and a combination of proceeds from its new revolving credit line and borrowings from other banks or financial institutions will provide the Company the funds necessary to meet all of its obligations, including the payment of maturing indebtedness and the further development of its Carl's Jr. operations. 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. High interest rates can negatively affect lease payments for new restaurants, as well. 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 1995, however, management emphasized cost controls rather than price increases, given the competitive pressures within the quick-service industry and the recessionary environment in the Company's core markets. NEW ACCOUNTING PRONOUNCEMENTS During the coming fiscal year, the Company is required to adopt two new accounting standards, Statement of Financial Accounting Standards No.114, "Accounting by Creditors for Impairment of a Loan" ("SFAS 114"), and Statement of Financial Accounting Standards No.118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures" ("SFAS 118"). SFAS 114 requires that certain impaired loans be valued at the present value of expected future cash flows and SFAS 118, which amends SFAS 114 and is to be reflected prospectively, addresses loans that are restructured in a troubled debt restructuring. Adoption of both of these pronouncements is not expected to have a material effect on the consolidated results of operations or financial condition of the Company. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This Statement requires the assessment of certain long-lived assets, including many intangible assets, for possible impairment when events or circumstances indicate the carrying amounts of these assets may not be recoverable. The Company must adopt this new pronouncement by fiscal 1997 and, upon adoption, any impairment losses recognized for assets to be held and used must be recorded in continuing operations while such losses attributable to assets to be disposed of must be reported as a cumulative effect of a change in 15 18 accounting principle. The Company has not yet completed all of the analysis required to estimate the impact of this new Statement. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See the Index included at "Item 14. Exhibits, Financial Statement Schedules, and Reports of Form 8-K." ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information appearing in the "Information Concerning Nominees" section of the Company's Proxy Statement prepared in connection with the Annual Meeting of Shareholders to be held in 1995, to be filed with the Commission within 120 days of January 30, 1995, is hereby incorporated by reference. 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 appearing in the "Executive Compensation," "Summary Compensation Table," "Option Grants in Last Fiscal Year," "Aggregate Option Exercises in Fiscal 1995 and Fiscal 1995 Year-End Option Values," "Employment Agreements," "Incentive Compensation Plan," "Transactions with Officers and Directors," "Key Employee Stock Option Plan," "1993 Employee Stock Incentive Plan," "1994 Stock Incentive Plan" and "1994 Employee Stock Purchase Plan" sections of the Company's Proxy Statement prepared in connection with the Annual Meeting of Shareholders to be held in 1995, to be filed with the Commission within 120 days of January 30, 1995, is hereby incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information appearing in the "Ownership of the Company's Securities" section of the Company's Proxy Statement prepared in connection with the Annual Meeting of Shareholders to be held in 1995, to be filed with the Commission within 120 days of January 30, 1995, is hereby incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information appearing in the "Transactions with Officers and Directors" section of the Company's Proxy Statement prepared in connection with the Annual Meeting of Shareholders to be held in 1995, to be filed with the Commission within 120 days of January 30, 1995, is hereby incorporated by reference. 16 19 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (A)(1) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS:
PAGE NUMBER ------ Independent Auditors' Report............................................. F-1 Consolidated Balance Sheets -- as of January 31, 1995 and 1994........... F-2 Consolidated Statements of Operations -- for the years ended January 31, 1995, 1994 and 1993.................................................... F-3 Consolidated Statements of Stockholders' Equity -- for the years ended January 31, 1995, 1994 and 1993........................................ F-4 Consolidated Statements of Cash Flows -- for the years ended January 31, 1995, 1994 and 1993.................................................... F-5 Notes to Consolidated Financial Statements............................... F-6
(A)(2) INDEX TO FINANCIAL STATEMENTS 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 and notes hereto. (A)(3) EXHIBITS: An "Exhibit Index" has been filed as a part of this Form 10-K beginning on page E-1 hereof and is incorporated herein by reference. (B) CURRENT REPORTS ON FORM 8-K: No reports on Form 8-K were filed during the quarter ended January 30, 1995. 17 20 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 28, 1995 Pursuant to the requirements of the Securities 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 28, 1995 ------------------- Chief Executive Officer William P. Foley II (Principal Executive Officer) /s/ LOREN C. PANNIER Senior Vice President, April 28, 1995 ------------------- Chief Financial Officer Loren C. Pannier (Principal Financial Officer) /s/ LAURIE A. BALL Vice President, Controller April 28, 1995 ------------------- (Principal Accounting Officer) /s/ PETER CHURM Director April 28, 1995 ------------------- Peter Churm /s/ CARL L. KARCHER Director April 28, 1995 ------------------- Carl L. Karcher /s/ CARL N. KARCHER Director April 28, 1995 ------------------- Carl N. Karcher /s/ DANIEL D. (RON) LANE Vice Chairman of the Board April 28, 1995 -------------------- Daniel D. (Ron) Lane /s/ ELIZABETH A. SANDERS Director April 28, 1995 -------------------- Elizabeth A. Sanders /s/ FRANK P. WILLEY Director April 28, 1995 -------------------- Frank P. Willey
18 21 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders CKE Restaurants, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of CKE Restaurants, Inc. and its 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 its subsidiaries as of January 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended January 31, 1995 in conformity with generally accepted accounting principles. As discussed in Note 9 to the consolidated financial statements, the Company changed the method used to discount its workers' compensation reserve in fiscal 1994. As discussed in Notes 1 and 16 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," in fiscal 1993. KPMG Peat Marwick LLP Orange County, California April 18, 1995, except as to the first and second paragraphs of Note 8, which are as of April 28, 1995. F-1 22 CKE RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS ASSETS
JANUARY 31 --------------------- 1995 1994 -------- -------- (DOLLARS IN THOUSANDS) Current assets: Cash and cash equivalents............................................ $ 15,156 $ 17,075 Marketable securities................................................ 3,088 9,064 Accounts receivable.................................................. 12,411 8,521 Related party receivables............................................ 1,509 1,610 Inventories.......................................................... 5,950 7,485 Deferred income taxes, net........................................... 12,254 15,310 Other current assets................................................. 6,438 10,339 -------- -------- Total current assets......................................... 56,806 69,404 Property and equipment, net............................................ 133,248 113,212 Property under capital leases, net..................................... 30,515 33,608 Notes receivable....................................................... 13,139 15,284 Related party notes receivable......................................... 2,109 2,863 Other assets........................................................... 8,526 7,764 -------- -------- $244,343 $242,135 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt.................................... $ 8,168 $ 13,207 Current portion of capital lease obligations......................... 3,581 3,354 Accounts payable..................................................... 29,736 13,161 Other current liabilities............................................ 30,065 36,831 -------- -------- Total current liabilities.................................... 71,550 66,553 -------- -------- Long-term debt......................................................... 27,178 17,414 Capital lease obligations.............................................. 42,691 45,886 Other long-term liabilities............................................ 14,450 20,206 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 18,845,138 shares and 18,676,587 shares........... 188 186 Additional paid-in capital........................................... 35,119 33,742 Retained earnings.................................................... 57,725 58,148 Treasury stock, at cost; 590,000 shares.............................. (4,558) -- -------- -------- Total stockholders' equity................................... 88,474 92,076 -------- -------- $244,343 $242,135 ======== ========
See accompanying notes to consolidated financial statements. F-2 23 CKE RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED JANUARY 31 ---------------------------------- 1995 1994 1993 -------- -------- -------- IN THOUSANDS EXCEPT PER SHARE DATA Revenues: Retail sales............................................. $370,045 $384,859 $417,268 Franchised and licensed restaurants...................... 73,702 78,635 75,262 Other outside parties.................................... -- -- 12,860 -------- -------- -------- Total revenues................................... 443,747 463,494 505,390 -------- -------- -------- Operating costs and expenses: Retail operations: Food and packaging.................................... 111,985 115,444 127,148 Payroll and other employee benefits................... 112,177 118,774 141,870 Occupancy and other operating expenses................ 82,172 84,890 96,409 -------- -------- -------- 306,334 319,108 365,427 Franchised and licensed restaurants...................... 69,871 73,552 67,590 Other outside parties.................................... -- -- 12,690 Advertising expenses..................................... 20,148 19,104 19,200 General and administrative expenses...................... 38,792 41,222 47,749 -------- -------- -------- Total operating costs and expenses............... 435,145 452,986 512,656 -------- -------- -------- Operating income (loss).................................... 8,602 10,508 (7,266) Interest expense........................................... (9,202) (10,387) (13,630) Other income, net.......................................... 2,998 6,148 13,592 -------- -------- -------- Income (loss) before income taxes and cumulative effect of changes in accounting principles......................... 2,398 6,269 (7,304) Income tax expense (benefit)............................... 1,134 1,836 (4,247) -------- -------- -------- Income (loss) before cumulative effect of changes in accounting principles.................................... 1,264 4,433 (3,057) Cumulative effect of changes in accounting principles (net of income tax benefit of $512 in 1994)................... -- (768) (2,450) -------- -------- -------- Net income (loss).......................................... $ 1,264 $ 3,665 $ (5,507) ======== ======== ======== Net income (loss) per common share: Income (loss) before cumulative effect of changes in accounting principles................................. $ .07 $ .24 $ (.17) Cumulative effect of changes in accounting principles.... -- (.04) (.14) -------- -------- -------- Net income (loss)................................ $ .07 $ .20 $ (.31) ======== ======== ======== Weighted average shares outstanding........................ 18,717 18,567 18,034 ======== ======== ========
See accompanying notes to consolidated financial statements. F-3 24 CKE RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ------------------ ADDITIONAL TOTAL NUMBER OF PAID-IN RETAINED TREASURY STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY --------- ------ ---------- -------- -------- ------------- IN THOUSANDS EXCEPT PER SHARE DATA BALANCE AT JANUARY 31, 1992.......... 17,918 $179 $ 26,609 $ 62,891 -- $89,679 Cash dividends ($.08 per share).... -- -- -- (1,445) -- (1,445) Exercise of stock options.......... 173 2 1,006 -- -- 1,008 Tax benefit associated with exercise of stock options....... -- -- 154 -- -- 154 Remeasurement of stock options..... -- -- 843 -- -- 843 Net income......................... -- -- -- (5,507) -- (5,507) --------- ------ ---------- -------- -------- ------------- BALANCE AT JANUARY 31, 1993.......... 18,091 181 28,612 55,939 -- 84,732 Cash dividends ($.08 per share).... -- -- -- (1,456) -- (1,456) Exercise of stock options.......... 646 6 4,351 -- -- 4,357 Tax benefit associated with exercise of stock options....... -- -- 1,191 -- -- 1,191 Remeasurement of stock options..... -- -- 9 -- -- 9 Repurchase and retirement of shares.......................... (60) (1) (421) -- -- (422) Net income......................... -- -- -- 3,665 -- 3,665 --------- ------ ---------- -------- -------- ------------- BALANCE AT JANUARY 31, 1994.......... 18,677 186 33,742 58,148 -- 92,076 Cash dividends ($.08 per share).... -- -- -- (1,499) -- (1,499) Exercise of stock options.......... 168 2 1,097 -- -- 1,099 Tax benefit associated with exercise of stock options....... -- -- 280 -- -- 280 Purchase of treasury shares........ -- -- -- -- $ (4,558) (4,558) Net unrealized loss on investment securities...................... -- -- -- (188) -- (188) Net income......................... -- -- -- 1,264 -- 1,264 --------- ------ ---------- -------- -------- ------------- BALANCE AT JANUARY 31, 1995.......... 18,845 $188 $ 35,119 $ 57,725 $ (4,558) $88,474 ======== ====== ======= ======= ======= ==========
See accompanying notes to consolidated financial statements. F-4 25 CKE RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED JANUARY 31 ---------------------------------- 1995 1994 1993 -------- -------- -------- IN THOUSANDS Net cash flows from operating activities: Net income (loss)............................................................. $ 1,264 $ 3,665 $ (5,507) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Noncash franchise (revenue) expense......................................... 170 (151) (488) Depreciation and amortization............................................... 22,755 22,842 25,161 Exit costs.................................................................. -- -- 11,124 Arbitration judgment........................................................ -- 3,000 -- (Gain) loss on sale of property and equipment and capital leases............ 2,118 613 (451) Reversal of certain lease subsidy reserves.................................. (2,680) -- -- Write-off of accounts and notes receivable.................................. -- 406 -- Write-down of marketable securities......................................... -- 213 452 Net noncash investment income............................................... (25) (63) (328) Deferred income taxes....................................................... 3,434 (1,675) (8,226) Post-employment benefits.................................................... -- 1,668 -- Cumulative effect of changes in accounting principles....................... -- 768 2,450 Net change in marketable securities reserve................................. -- (479) 651 Net change in receivables, inventories and other current assets............. (4,329) 4,257 1,498 Net change in other assets.................................................. (1,119) (2,699) 160 Net change in accounts payable and other current liabilities................ (133) (4,617) (2,285) -------- -------- -------- Net cash provided by operating activities.............................. 21,455 27,748 24,211 -------- -------- -------- Cash flows from investing activities: Construction of restaurant property to be reimbursed or sold and leased back........................................................................ -- -- (9,422) Sale of or reimbursement on restaurant property to be sold and leased back.... -- 487 14,086 Purchases of: Marketable securities....................................................... (3,549) (12,722) (42,426) Property and equipment...................................................... (40,010) (13,865) (9,329) Long-term investments....................................................... -- -- (3,054) Proceeds from sale of: Marketable securities....................................................... 15,994 30,177 46,831 Property and equipment...................................................... 110 490 2,121 Long-term investments....................................................... -- -- 1,352 Collections on leases receivable.............................................. 148 129 102 Increases in notes receivable and related party notes receivable.............. (1,985) -- -- Collections on notes receivable and related party notes receivable............ 2,293 4,824 3,562 -------- -------- -------- Net cash provided by (used in) investing activities.................... (26,999) 9,520 3,823 -------- -------- -------- Cash flows from financing activities: Net change in bank overdraft.................................................. 10,203 170 2,109 Net change in obligations secured by marketable securities and long-term investments................................................................. -- (2,422) (6,197) Short-term borrowings......................................................... 32,806 15,150 123,017 Repayments of short-term debt................................................. (13,981) (33,250) (123,917) Long-term borrowings.......................................................... -- -- 755 Repayments of long-term debt.................................................. (14,771) (11,488) (19,890) Repayments of capital lease obligations....................................... (2,878) (2,650) (2,365) Net change in other long-term liabilities..................................... (3,076) (887) (682) Repurchase and retirement of common stock..................................... -- (422) -- Purchase of treasury stock.................................................... (4,558) -- -- Payment of dividends.......................................................... (1,499) (1,456) (1,445) Exercise of stock options..................................................... 1,099 4,366 1,008 Tax benefit associated with the exercise of stock options..................... 280 1,191 154 -------- -------- -------- Net cash provided by (used in) financing activities.................... 3,625 (31,698) (27,453) -------- -------- -------- Net increase (decrease) in cash and cash equivalents............... $ (1,919) $ 5,570 $ 581 ========= ========= =========
See accompanying notes to consolidated financial statements. F-5 26 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. Basis of Presentation and Fiscal Year In June 1994, a plan of reorganization and merger (the "Merger") was approved by the shareholders 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 CKE Restaurants, Inc. ("CKE" and collectively with its subsidiaries, the "Company"), a Delaware corporation organized during fiscal 1995. Since Boston Pacific began its start-up operations in February 1994 and the Company did not commence its operations until June 1994, the accompanying consolidated financial statements for fiscal 1994 and earlier were comprised solely of the results of operations and financial condition of Enterprises. 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 1995 and 1993 each included 52 weeks of operations and fiscal year 1994 included 53 weeks of operations. For clarity of presentation, the Company has described all periods presented as if the fiscal year ended January 31. Cash Equivalents The Company considers short-term investments which have an original maturity of three months or less to be cash equivalents for purposes of reporting cash flows. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. Deferred Pre-opening Costs Deferred pre-opening costs consist of the direct and incremental costs associated with the opening of restaurants or stores and are deferred and amortized over the first year they are in operation. Such costs include uniforms and promotional costs related to the grand opening of each new location. Additionally, these costs include initial food, beverage, supply and direct labor costs associated with the testing of all equipment and recipes, and the simulation of other operational procedures shortly before a restaurant or store opens. Deferred pre-opening costs also include, if significant, the cost of required training classes for new managers, assistant managers and regional managers; airfare and lodging related to this training; and the salaries of these individuals during their training classes. Such costs, including training, were not significant prior to fiscal 1995. Since there is not an existing employee base from which to hire Boston Pacific store management and the training related to the opening of Boston Pacific stores is conducted outside of California, these costs were more significant in fiscal 1995. Investment in Joint Venture In fiscal 1994, the Company entered into a joint venture agreement with a Mexican company to operate a Carl's Jr. restaurant in Baja California. The Company owns a 50% interest in this joint venture, which is accounted for by the equity method and is not considered material to the Company's consolidated financial statements. F-6 27 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Advertising Production costs of commercials and programming are charged to operations in the fiscal year first aired. The costs of other advertising, promotion and marketing programs are charged to operations in the fiscal year incurred. Income Taxes The Company adopted Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes," effective as of the beginning of fiscal 1993. Under this method, income tax assets and liabilities are recognized using enacted tax rates for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A change in tax rates is recognized in income in the period that includes the enactment date. Earnings (Loss) per Share Earnings (loss) per share is computed based on the weighted average number of common shares outstanding during the year, after consideration of the dilutive effect of outstanding stock options. The outstanding stock options were not included in the per share computations for fiscal 1993 as the effect would have been antidilutive. For all years presented, primary earnings per share approximate fully diluted earnings per share. Reclassifications Certain prior year amounts in the accompanying consolidated financial statements have been reclassified to conform to the fiscal 1995 presentation. NOTE 2 -- BOSTON CHICKEN FRANCHISE OPERATIONS In January 1994, the Company acquired the rights to develop, own and operate up to 300 Boston Chicken stores throughout designated markets in California from Boston Chicken, Inc. ("BCI"). In consideration for these rights, the Company paid a total of $2,000,000, which consisted of a $1,000,000 initial development fee and a $1,000,000 deposit towards the future franchise fees due BCI ($35,000 per store payable upon the opening of each new Boston Chicken store) over the five-year term of this agreement. The unamortized balances of both of these amounts were included in other assets in the accompanying consolidated balance sheets. The Company's obligation under the terms of this agreement included opening 20 Boston Chicken stores during fiscal 1995, followed by an additional 40 to 50 stores per year during the next four years, for an aggregate of 200 stores by January 15, 1999. This agreement also contained an option to develop an additional 100 stores under certain conditions. Boston Pacific was formed during fiscal 1995 to conduct the Company's Boston Chicken franchise operations and the results of these operations were included in the accompanying consolidated financial statements. A total of 22 stores were opened by Boston Pacific during fiscal 1995, seven of which were converted Carl's Jr. restaurants. In addition, another five stores were under construction as of January 31, 1995. The Company's first Boston Chicken store commenced operations in July 1994. In April 1995, the Company completed a transaction with BCI that resulted in the formation of a new privately owned company, Boston West, L.L.C. ("Boston West"), that assumed the operations of Boston Pacific and agreed to fulfill the Company's obligation under its area development agreement with BCI. Boston Pacific contributed a majority of its existing Boston Chicken restaurant assets valued at approximately $22 million to this new entity and BCI agreed to lend Boston West, over time, up to $63.8 million. This loan is F-7 28 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) convertible to equity in Boston West, at BCI's option, at 115% of the original equity price. In addition, this transaction provides for the leasing of approximately $12 million of equipment and real property retained by Boston Pacific to Boston West at current market rates. These terms are subject to final adjustment within the next 60 days. An affiliate of BCI has an option to purchase all the equipment and real property leased to Boston West by Boston Pacific. In exchange for its assets, Boston Pacific received preferred and all of the common equity units in Boston West. During the first half of fiscal 1996, additional equity units in Boston West will be sold such that the Company will own less than 20% of the common equity units of Boston West. Until the sale of these interests is complete, the Company will continue to include the results of Boston West's operations in the Company's consolidated financial statements. After the sale of its common equity units, the Company's ownership may be increased to up to 35% by an option to co-fund the capital requirements of Boston West up to a maximum of $15 million. This $15 million may be funded, in part, by proceeds of the purchase option in the equipment and real property leases when and if they are exercised. Total capitalization of Boston West is expected to reach more than $100 million. NOTE 3 -- MARKETABLE SECURITIES The Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," as of February 1, 1994, which did not have a material effect on the Company's consolidated financial statements. The consolidated balance sheet at January 31, 1994 was not restated to give effect to the adoption of this statement. At January 31, 1995, marketable securities are categorized as available-for-sale, and as a result, are stated at fair value. Unrealized holding gains and losses are included as a component of stockholders' equity until realized. At January 31, 1994, marketable securities were stated at the lower of aggregate cost or fair value. Fair values are based on quoted market prices where available. For marketable securities not actively traded, fair values are estimated using values obtained from independent sources. Marketable securities consist primarily of holdings in investment-grade preferred stock and debt securities in a variety of industries. During fiscal 1994, as part of its strategic program, the Company began liquidating a significant portion of its marketable securities. The fair value and cost of marketable securities, classified as current assets, were as follows:
1995 1994 ----------------- ----------------- FAIR FAIR DOLLARS IN THOUSANDS VALUE COST VALUE COST ------ ------ ------ ------ Adjustable rate preferred stock................. $ 503 $ 536 $ 720 $ 583 Fixed rate preferred stock...................... 1,510 1,921 3,093 2,937 Debt securities................................. 763 763 2,855 2,635 Mutual funds and common stock................... 312 372 2,815 2,909 ------ ------ ------ ------ $3,088 $3,592 $9,483 $9,064 ====== ====== ====== ======
Gross unrealized holding gains and unrealized holding losses as of January 31, 1995 were $41,000 and $(545,000), respectively, and, as of January 31, 1994, were $480,000 and $(61,000), respectively. Dividend income is recorded on the ex-dividend date and interest income is recorded as earned. Securities transactions are accounted for on the trade date, or the date the order to buy or sell is executed. Realized gains and losses from securities transactions are determined on a specific identification basis. F-8 29 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4 -- ACCOUNTS RECEIVABLE AND OTHER CURRENT ASSETS Details of accounts receivable and other current assets were as follows:
DOLLARS IN THOUSANDS 1995 1994 ------- ------- Accounts receivable: Trade receivables...................................... $ 3,961 $ 4,545 Income tax receivable.................................. 5,171 2,261 Notes receivable, current.............................. 3,062 1,512 Other.................................................. 217 203 ------- ------- $12,411 $ 8,521 ======= ======= Other current assets: Cash held in trust..................................... -- $ 6,776 Prepaid expenses and other............................. $ 6,438 3,563 ------- ------- $ 6,438 $10,339 ======= =======
NOTE 5 -- PROPERTY AND EQUIPMENT Property and equipment is stated at cost less accumulated depreciation and amortization, and was comprised of the following:
ESTIMATED USEFUL DOLLARS IN THOUSANDS LIFE 1995 1994 ---------- -------- -------- Land...................................... $ 25,621 $ 19,804 Leasehold improvements.................... 4-25 years 92,421 81,875 Buildings and improvements................ 7-35 years 35,064 27,082 Equipment, furniture and fixtures......... 3-10 years 124,735 116,299 -------- -------- 277,841 245,060 Less: Accumulated depreciation and amortization............................ 144,593 131,848 -------- -------- $133,248 $113,212 ======== ========
Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. Buildings and improvements and equipment, furniture and fixtures are depreciated on a straight-line basis over the estimated useful lives of these assets. Provision is made for an impairment loss if the Company determines that the carrying amount of a particular real estate asset may not be recoverable. Management evaluates current and anticipated market conditions of the respective properties to determine if an impairment loss has occurred. Such losses are recognized to the extent the carrying value of these assets exceeds the total estimated undiscounted cash flows expected to be generated over the assets' estimated life. NOTE 6 -- LEASES The Company occupies land and buildings under terms of numerous lease agreements expiring on various dates through 2026. Many of these leases provide for future rent escalations and renewal options. In addition, contingent rentals, determined as a percentage of sales in excess of specified levels, are often stipulated. Most of these leases obligate the Company to pay costs of maintenance, insurance and property taxes. F-9 30 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Property under capital leases was comprised of the following:
DOLLARS IN THOUSANDS 1995 1994 ------- ------- Buildings................................................ $65,017 $66,587 Less: Accumulated amortization........................... 34,502 32,979 ------- ------- $30,515 $33,608 ======= =======
Amortization is calculated on the straight-line method over the shorter of the lease term or estimated useful life of the asset. Minimum lease payments for all leases and the present value of net minimum lease payments for capital leases as of January 31, 1995 were as follows:
DOLLARS IN THOUSANDS CAPITAL OPERATING ------- --------- Fiscal Year 1996.................................................... $ 8,615 $ 30,072 1997.................................................... 8,419 29,226 1998.................................................... 8,096 28,272 1999.................................................... 7,805 27,442 2000.................................................... 7,325 25,930 Thereafter.............................................. 47,493 220,753 ------- --------- Total minimum lease payments............................ 87,753 $ 361,695 ======== Less: Amount representing interest...................... 41,481 ------- Present value of minimum lease payments................. 46,272 Less: Current portion................................... 3,581 ------- Capital lease obligations, excluding current portion.... $42,691 =======
Total minimum lease payments have not been reduced by minimum sublease rentals of $44,658,000 due in the future under certain operating subleases. The Company has leased and subleased land and buildings to others, primarily as a result of the franchising of certain restaurants. Many of these leases provide for fixed payments with contingent rent when sales exceed certain levels, while others provide for monthly rentals based on a percentage of sales. Lessees generally bear the cost of maintenance, insurance and property taxes. Components of the net investment in leases receivable, included in other assets, were as follows:
DOLLARS IN THOUSANDS 1995 1994 ------- ------- Net minimum lease payments receivable...................... $10,690 $11,497 Less: Unearned income...................................... 5,774 6,433 ------- ------- Net investment............................................. $ 4,916 $ 5,064 ======= =======
F-10 31 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Minimum future rentals to be received as of January 31, 1995 were as follows:
CAPITAL OPERATING LEASES OR LESSOR DOLLARS IN THOUSANDS SUBLEASES LEASES --------- --------- Fiscal Year: 1996.................................................. $ 803 $ 244 1997.................................................. 803 244 1998.................................................. 804 244 1999.................................................. 809 246 2000.................................................. 808 246 Thereafter............................................ 6,663 1,975 --------- --------- Total minimum future rentals.......................... $10,690 $ 3,199 ======= =======
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 at January 31, 1995 and 1994 was $1,804,000. Aggregate rents under noncancelable operating leases during fiscal 1995, 1994 and 1993 were as follows:
DOLLARS IN THOUSANDS 1995 1994 1993 ------- ------- ------- Minimum rentals............................... $29,173 $28,989 $28,139 Contingent rentals............................ 1,459 1,583 2,323 Less: Sublease rentals........................ 5,029 4,812 4,688 ------- ------- ------- $25,603 $25,760 $25,774 ======= ======= =======
NOTE 7 -- OTHER CURRENT LIABILITIES Other current liabilities were comprised of the following:
DOLLARS IN THOUSANDS 1995 1994 ------- ------- Salaries, wages and other benefits....................... $ 7,732 $ 7,754 Self-insured workers' compensation reserve (see Note 9)..................................................... 7,650 7,650 Other self-insurance reserves............................ 1,323 2,638 Arbitration judgment and other litigation................ -- 3,554 Other accrued liabilities................................ 13,360 15,235 ------- ------- $30,065 $36,831 ======= =======
In March 1994, the Company was found liable for breach of contract involving an investor group which had been negotiating for the purchase of several existing Carl's Jr. restaurants. The $3,000,000 binding arbitration judgment was accrued in other current liabilities as of January 31, 1994, and was paid during fiscal 1995. NOTE 8 -- CREDIT FACILITIES AND LONG-TERM DEBT As of January 31, 1995, advances totaling $18.8 million were drawn against the Company's former revolving credit line, primarily to fund the Company's Boston Chicken franchise operations. Interest on this revolving line was calculated at the bank's prime rate, which was 8.5% as of January 31, 1995. Following the formation of Boston West in April 1995, the Company's loan agreement with its bank was amended such that these borrowings were converted to a term loan, payable in quarterly installments through September 1998. A F-11 32 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) new $15 million unsecured revolving credit line that expires in June 1996 was also established for use in the Company's ongoing Carl's Jr. operations, as was a $12.4 million letter of credit facility. Two letters of credit are outstanding under this facility, one for $8.5 million issued in April 1995 and a second for $3.9 million issued in September 1994. The $8.5 million letter of credit secures the Company's potential workers' compensation claims and expires in June 1996. The $3.9 million letter of credit secures the Industrial Revenue Bonds issued in connection with the construction of the Company's Northern California distribution facility and expires in 1997. As of January 31, 1995, the Company was not in compliance with certain of the covenants governing its previous loan agreement, largely due to operating losses sustained by Boston Pacific. A waiver of the requirements of these covenants was received and more favorable covenants were negotiated in their place that will apply to future measurement periods. Long-term debt was comprised of the following:
DOLLARS IN THOUSANDS 1994 1995 ------- ------- Unsecured note payable to bank, principal payments in specified amounts monthly through 1994, interest at 9.26%................................ -- $ 6,417 Unsecured note payable to bank, principal payments in specified amounts quarterly through 1998, interest based on the prime rate plus .25%..... $18,825 -- Secured notes payable to bank, principal payments in specified amounts annually through 1999, interest at 12.95%.............................. 4,494 6,099 Secured note payable, principal payments in specified amounts annually through 2000, interest at 13.5%........................................ 5,168 6,108 Secured notes payable to bank, principal payments in specified amounts monthly through 1995, interest based on the prime rate plus .25% beginning in fiscal 1995, interest based on the prime rate plus .25%, not to exceed 14.75% nor less than 10.25% for prior years.............. -- 5,428 Industrial Revenue Bonds, payable in 1999, variable interest rate averaging 3.02% in fiscal 1995 and 2.37% in fiscal 1994................ 3,600 3,600 Other.................................................................... 3,259 2,969 ------- ------- 35,346 30,621 Less: Current portion.................................................... 8,168 13,207 ------- ------- $27,178 $17,414 ======= =======
Notes payable mature in fiscal years ending after January 31, 1995 as follows:
DOLLARS IN THOUSANDS Fiscal Year: 1996............................................................. $ 8,168 1997............................................................. 9,353 1998............................................................. 8,634 1999............................................................. 1,467 2000............................................................. 4,789 Thereafter......................................................... 2,935 ------- $35,346 =======
Secured notes payable are collateralized by certain restaurant property deeds of trust, with a carrying value at January 31, 1995 of $16,346,000. F-12 33 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9 -- OTHER LONG-TERM LIABILITIES Other long-term liabilities were as follows:
DOLLARS IN THOUSANDS 1995 1994 ------- ------- Self-insured workers' compensation reserve............... $ 7,160 $ 8,460 Exit costs............................................... 5,649 10,105 Other.................................................... 1,641 1,641 ------- ------- $14,450 $20,206 ======= =======
A total of $14,810,000 and $16,110,000 was accrued as of January 31, 1995 and 1994, 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 in both years. These amounts are net of a discount of $1,680,000 and $1,771,000 in fiscal years 1995 and 1994, respectively. In the fourth quarter of fiscal 1994, the method used by the Company to discount the actuarial projection of losses to be paid in connection with its existing workers' compensation claims was changed from its incremental borrowing rate to the Company's risk-free interest rate of 5%. The Company accounted for this change as a change in accounting principle, effective as of the beginning of fiscal 1994. The first quarter of fiscal 1994 was restated to reflect the cumulative effect of this adoption, which resulted in a decrease in net income of $768,000, net of an income tax benefit of $512,000. In prior years, the Company initiated programs to dispose of or franchise its Arizona and Texas operations. As of January 31, 1995 and 1994, $7,086,000 and $11,542,000, respectively, was accrued for these reserves, including the current portion. These balances were mainly comprised of estimated lease subsidies, $2,680,000 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 12). 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 of these lease subsidies at January 31, 1995 was $4,671,000 and will be amortized to operations over the remaining sublease terms, which range up to 21 years. In fiscal 1993, the Company recognized $11,124,000 of exit costs related to its strategic initiatives, workforce reductions and certain lease subsidies. Components of this charge included $1,918,000 of corporate severance and outplacement costs related to the termination of 53 corporate employees (whose termination was approved by the Company's Board of Directors just prior to the end of fiscal 1993); a $2,052,000 charge related to the elimination of the Company's manufacturing operations (which included the losses on the disposition of equipment previously used in that operation and severance costs related to the termination of 232 manufacturing employees); $2,299,000 of estimated equipment losses and lease subsidies related to the closure of certain underperforming Carl's Jr. restaurants (of which $315,000 remained accrued as of January 31, 1995); and a $4,855,000 increase of certain lease subsidies related to the Company's franchised operations in Arizona (the result of the Company reducing its sublease rental income projections associated with these particular restaurants, which are based largely upon the restaurant sales of the Arizona franchisees). NOTE 10 -- STOCKHOLDERS' EQUITY Upon consummation of the Merger, shareholders 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. F-13 34 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In July 1994, the Board of Directors authorized the repurchase of up to two million shares of the Company's common stock. A total of 590,000 shares were repurchased, which included the purchase of 62,500 shares from the Chairman Emeritus at the then market price of $9.13 per share. The balance of these shares were purchased in a series of open market transactions, at an average price of approximately $8 per share, for an aggregate purchase price of $4.0 million. All shares purchased are being held as treasury stock. During the second quarter of fiscal 1994, the Company purchased a total of 59,750 shares from the Carl N. and Margaret M. Karcher Trust for an aggregate purchase price of $422,000. All shares purchased were canceled and retired. NOTE 11 -- FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents information on the Company's financial instruments:
1995 1994 ---------------------- ---------------------- ESTIMATED ESTIMATED CARRYING FAIR CARRYING FAIR DOLLARS IN THOUSANDS AMOUNT VALUE AMOUNT VALUE -------- --------- -------- --------- Financial assets: Cash and cash equivalents.......... $ 15,156 $15,156 $ 17,075 $17,075 Marketable securities.............. 3,088 3,088 9,064 9,483 Notes receivable................... 18,112 17,976 20,000 21,029 Financial liabilities: Long-term debt..................... 32,832 31,953 28,084 27,487
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 based upon rates currently available to the Company for debt with similar terms and remaining maturities. NOTE 12 -- RELATED PARTY TRANSACTIONS Certain members of management and the Karcher family are franchisees of the Company. A total of 37 restaurants have been sold to these individuals, two of which occurred during fiscal 1995. As part of these transactions, the Company received cash and accepted $10,358,000 of interest-bearing notes. Additionally, these franchisees regularly purchase food and other products from the Company on the same terms and conditions as other franchisees. 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. The entire amount will be repaid by December 1998. F-14 35 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Details of amounts outstanding were as follows:
DOLLARS IN THOUSANDS 1995 1994 ------ ------ Advance to Chairman Emeritus............................... $ 667 -- 7.0% Unsecured notes...................................... 296 -- 12.0% Secured notes........................................ 297 $ 341 12.5% Secured notes........................................ 1,318 2,863 ------ ------ 2,578 3,204 Less: Long-term portion.................................... 2,109 2,863 ------ ------ 469 341 Trade receivables.......................................... 1,040 1,269 ------ ------ $1,509 $1,610 ====== ======
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 $1,360,000, and a cash payment of $650,000. In addition, as described in Note 9, certain previously established lease subsidy reserves totaling $2,680,000 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 was $4,939,000 and $5,286,000, representing the present value of lease obligations related to these various properties at January 31, 1995 and 1994, respectively. Lease payments under these leases for fiscal 1995, 1994 and 1993 amounted to $1,362,000, $1,515,000, and $1,612,000, respectively. This was net of sublease rentals of $154,000, $171,000 and $64,000 in fiscal 1995, 1994 and 1993, respectively. In November 1993, the Company purchased two restaurants from the Chairman Emeritus for an aggregate purchase price of $848,000. 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 $1,668,000 as of that date. This amount was computed using certain actuarial assumptions, including a discount rate of 7%. A total of $1,526,000 remained accrued as of January 31, 1995. The Company anticipates funding these obligations as they become due. NOTE 13 -- CARL'S JR. FRANCHISE AND LICENSE OPERATIONS Franchise arrangements, with franchisees who operate in Arizona, California, Nevada, Oregon and Utah, generally provide for initial fees and continuing royalty payments to the Company based upon a percent of 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. 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. F-15 36 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company receives notes from franchisees in connection with the sales of Company-operated restaurants. Generally, these notes bear interest at 12.5%, mature in five to 15 years and are secured by an interest in the restaurant equipment sold. Revenues from franchised and licensed restaurants were comprised of the following:
DOLLARS IN THOUSANDS 1995 1994 1993 ------- ------- ------- Food service.................................. $57,058 $60,979 $57,503 Rental income................................. 10,257 10,575 9,601 Royalties..................................... 6,284 6,253 5,517 Initial fees.................................. 91 297 1,095 Other......................................... 12 531 1,546 ------- ------- ------- $73,702 $78,635 $75,262 ======= ======= =======
Operating costs and expenses for franchised and licensed restaurants were comprised of the following:
DOLLARS IN THOUSANDS 1995 1994 1993 ------- ------- ------- Food service.................................. $57,334 $60,827 $54,947 Occupancy and other operating expenses........ 12,537 12,725 12,643 ------- ------- ------- $69,871 $73,552 $67,590 ======= ======= =======
NOTE 14 -- INTEREST EXPENSE Interest expense was comprised of the following:
DOLLARS IN THOUSANDS 1995 1994 1993 ------- -------- -------- Notes payable and revolving credit lines.... $(2,484) $ (3,472) $ (5,941) Capital lease obligations................... (6,194) (6,454) (6,809) Obligations secured by marketable securities................................ (4) (60) (581) Capitalized interest........................ -- 19 89 Other....................................... (520) (420) (388) ------- -------- -------- $(9,202) $(10,387) $(13,630) ======= ======== ========
NOTE 15 -- OTHER INCOME, NET Other income, net was comprised of the following:
DOLLARS IN THOUSANDS 1995 1994 1993 ------ ------ ------- Net gains (losses) on sales of restaurants...... $ (463) $ (162) $ 867 Gains on sales of investments................... 564 2,675 8,839 Losses on sales of investments.................. (721) (1,325) (3,422) Dividend income................................. 357 559 2,513 Interest income................................. 3,261 4,401 5,714 Other........................................... -- -- (919) ------ ------ ------- $2,998 $6,148 $13,592 ====== ====== =======
F-16 37 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 16 -- INCOME TAXES In the fourth quarter of fiscal 1993, the Company adopted SFAS 109. The cumulative effect of this change in accounting principle of $2,450,000 included a $500,000 valuation allowance. Had the Company implemented SFAS 109 in the first quarter of fiscal 1993, net income and earnings per share would have been reduced by $2,450,000 and $.14, respectively. The pro forma effects on net income (loss) by adopting SFAS 109, assuming the adoption was applied retroactively to 1990, would have been to reduce the net loss in fiscal 1993 by $2,450,000, or $.14 per share, and would have been immaterial in fiscal 1992 and fiscal 1991. Income tax expense (benefit) was comprised of the following:
DOLLARS IN THOUSANDS 1995 1994 1993 ------- ------- ------- Current: Federal....................................... $(1,996) $ 2,327 $ 2,996 State......................................... (304) 672 983 ------- ------- ------- (2,300) 2,999 3,979 ------- ------- ------- Deferred: Federal....................................... 2,517 (1,471) (7,422) State......................................... 917 (204) (804) ------- ------- ------- 3,434 (1,675) (8,226) ------- ------- ------- 1,134 1,324 (4,247) Tax effect of cumulative effect of change in accounting principle........................ -- 512 -- ------- ------- ------- $ 1,134 $ 1,836 $(4,247) ======= ======= =======
A reconciliation of income tax expense (benefit) at the federal statutory rate of 34% to the Company's provision for taxes on income is as follows:
DOLLARS IN THOUSANDS 1995 1994 1993 ------ ------ ------- Income taxes (benefit) at statutory rate........ $ 815 $2,131 $(2,483) State income taxes, net of federal income tax benefit....................................... 800 306 (950) Dividend exclusion.............................. (86) (161) (475) Targeted jobs tax credits....................... (338) (774) (1,033) Alternative minimum tax credit.................. (551) -- -- Adjustment of prior years' estimated liabilities................................... 157 -- -- Increase in valuation allowance................. 298 200 795 Remeasurement of stock options.................. -- -- 287 Other, net...................................... 39 134 (388) ------ ------ ------- $1,134 $1,836 $(4,247) ====== ====== =======
F-17 38 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Temporary differences and carryforwards gave rise to a significant amount of deferred tax assets and liabilities as follows:
DOLLARS IN THOUSANDS 1995 1994 1993 ------- ------- ------- Deferred tax asset: Capitalized leases.......................... $ 8,589 $ 8,449 $ 8,223 Workers' compensation reserve............... 6,413 6,976 6,544 Exit costs.................................. 3,068 4,997 7,196 Targeted jobs tax credit carryforward....... 2,695 2,137 1,112 Arbitration judgment and other litigation... -- 1,539 -- Other....................................... 5,208 5,612 5,579 ------- ------- ------- 25,973 29,710 28,654 Less: Valuation allowance................... 1,793 1,495 1,295 ------- ------- ------- Total deferred tax asset...................... 24,180 28,215 27,359 ------- ------- ------- Deferred tax liability: Depreciation................................ 9,537 10,210 10,676 Safe harbor leases.......................... 1,054 1,461 1,815 Other....................................... 1,335 1,234 1,178 ------- ------- ------- Total deferred tax liability.................. 11,926 12,905 13,669 ------- ------- ------- Net deferred tax asset........................ $12,254 $15,310 $13,690 ======= ======= =======
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 asset at January 31, 1995, based on the Company's current, historical and future pre-tax earnings. The Company had targeted jobs tax credit carryforwards of $2,695,000, which expire in the years 2007 through 2011, and net operating loss carryforwards of $2,300,000, which expire in 2011, available at January 31, 1995. The Company also had an alternative minimum tax credit carryforward of $551,000 with no expiration date. NOTE 17 -- EMPLOYEE BENEFIT AND RETIREMENT PLANS Profit Sharing and Savings Plan The Company maintains a voluntary contributory profit sharing and savings investment plan for all eligible employees other than operations hourly employees. Annual contributions under the profit sharing portion of the plan are determined at the discretion of the Company's Board of Directors. Under the savings investment portion of the plan, participants may elect to reduce their annual salary by up to 15% and have this amount contributed 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, 1994 and 1993 were $344,000, $813,000 and $429,000, respectively. Pension Plan The Company also maintains a defined benefit pension plan covering substantially all operations employees qualified as to age and service. For fiscal 1995, 1994 and 1993, pension contributions were $438,000, $442,000 and $348,000, respectively. Under the terms of the defined benefit plan, pension expense is computed based upon an independent actuarial valuation study. Company contributions under this plan are F-18 39 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) funded quarterly. As of February 1, 1994 and 1993, the accumulated benefit obligation related to the plan was $1,819,000 and $1,323,000, respectively. Stock Purchase Plan In September 1994, the Board of Directors adopted a new employee stock purchase plan under which eligible employees may voluntarily purchase up to 500,000 shares of the Company's common stock through payroll deductions. The plan provides that participants may authorize the Company to withhold up to 10% of earnings to purchase such stock at prevailing market prices. The Company will then match up to 50% of the participant's contributions. Purchases of shares under this plan are scheduled to begin during the coming fiscal year. 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 and Stock Option Committee of the Board of Directors. The 1994 plan also provides for the automatic award of stock options to nonemployee directors, nonemployee director members of the Executive Committee and the Chairman of the Board annually. These options generally have a term of five years, become exercisable at a rate of 33 1/3% per year following the grant date and are priced at the fair market value of the shares on the date of grant. A total of 1,750,000 shares are available for grants of options or other awards under this plan, from which 50,000 stock options were outstanding as of January 31, 1995. The grant price of options outstanding under this plan was $9.00 per share. The Company's 1993 stock incentive plan was superseded by the 1994 plan, as discussed above. As of January 31, 1995, 641,983 stock options, with grant prices ranging from $7.13 per share to $13.38 per share, were outstanding under the 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 3,000,000 shares of its common stock at a price equal to or greater than the fair market value at the date of grant. The options generally had a term of 10 years from the grant date and become exercisable at a rate of 25%, 35% and 40% per year following the grant date. The grant price of the 496,050 options outstanding as of January 31, 1995 under this plan ranges from $5.21 per share to $13.38 per share. Transactions under all plans were as follows:
NUMBER OF SHARES 1995 1994 1993 ---------- ---------- ---------- Outstanding at beginning of year....... 1,372,634 1,554,766 1,840,440 Granted................................ 437,206 579,812 134,230 Canceled............................... (454,296) (116,349) (247,476) Exercised.............................. (167,511) (645,595) (172,428) ---------- ---------- ---------- Outstanding at end of year............. 1,188,033 1,372,634 1,554,766 ========= ========= ========= Exercisable at end of year............. 648,324 745,310 1,332,136 ========= ========= =========
F-19 40 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 18 -- SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest and income taxes were as follows:
DOLLARS IN THOUSANDS 1995 1994 1993 ------- ------- ------- Interest (net of amount capitalized).......... $ 9,208 $10,558 $13,860 Income taxes.................................. 645 1,675 5,584
Noncash investing and financing activities were as follows:
DOLLARS IN THOUSANDS 1995 1994 1993 ------- ------- ------- Noncash investing and financing activities: Transfers of marketable securities to (from) other current assets..................... $(6,776) $ 6,776 -- Transfers of long-term investments to marketable securities.................... -- -- $ 6,184 Other investing activities: Net change in marketable securities from noncash transactions................... (25) (99) (474) Net change in long-term investments from noncash transactions................... -- -- 5 Net change in dividends receivable....... -- 36 141 Leasing activities: Capital lessee additions.................... -- 505 1,048 Capital lessor additions.................... -- 538 628 Other leasing activities: Increase in property and equipment....... (1,356) -- -- Decrease in property under capital leases................................. 91 169 671 Decrease in capital lease obligations.... (90) (285) (1,561) Reverse certain lease subsidy reserves... 2,680 -- -- Franchising and other disposition activities: Sales of property and equipment............. -- 344 7,304 Sales of inventory.......................... -- 11 139 (Increase) decrease in notes receivable..... 1,356 (551) (7,203) Net change in restructuring reserve and other current liabilities................ -- 45 4,698 Increase in other long-term liabilities..... -- -- 4,855 Remeasurement of stock options.............. -- -- 843 Sale/leaseback activities: Transfer of restaurant property costs to property and equipment................... -- 6,750 1,553 Sale/leaseback transaction resulting in an increase to notes receivable............. -- -- 1,300
F-20 41 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following table presents summarized quarterly results:
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA QUARTER 1ST 2ND 3RD 4TH -------- -------- -------- -------- FISCAL 1995 Total revenues.......................... $135,006 $105,308 $103,791 $ 99,642 Operating income........................ 2,904 2,392 1,581 1,725 Net income (loss)....................... 656 864 286 (542) Income (loss) per common share.......... $ .04 $ .05 $ .02 $ (.03) FISCAL 1994 Total revenues.......................... $140,858 $108,912 $107,141 $106,583 Operating income........................ 1,412 4,449 3,519 1,128 Income (loss) before cumulative effect of change in accounting principle..... 926 2,359 1,606 (458) Cumulative effect of change in accounting principle (net of income tax benefit of $512).................. (768) -- -- -- -------- -------- -------- -------- Net income (loss)....................... $ 158 $ 2,359 $ 1,606 $ (458) ======== ======== ======== ======== Income (loss) per common share: Income (loss) before cumulative effect of change in accounting principle.......................... $ .05 $ .13 $ .09 $ (.02) Cumulative effect of change in accounting principle............... (.04) -- -- -- -------- -------- -------- -------- Net income (loss)............. $ .01 $ .13 $ .09 $ (.02) ======== ======== ======== ========
Quarterly operating results are not necessarily representative of operations for a full year for various reasons, including the seasonal nature of the quick-service restaurant industry, unpredictable adverse weather conditions which may affect sales volume and food costs, and the fact that all quarters have 12-week accounting periods, except the first quarters of 1995 and 1994, which had 16-week accounting periods, and the fourth quarter of 1994 which had 13 weeks. The first quarter of 1994 has been restated to reflect the cumulative effect of a change in accounting principle, related to a change in the method used to discount the workers' compensation reserve. The second and third quarters have been restated to reflect the impact of this adoption. See Note 9. Operating results for the fourth quarter of fiscal 1994 included a $3,000,000 charge in connection an arbitration judgment (or $1,800,000 net of tax). See Note 7. NOTE 20 -- COMMITMENTS AND CONTINGENT LIABILITIES The Company presently self-insures for group insurance, workers' compensation and fire and comprehensive protection on most equipment and certain other assets. In the opinion of management, past experience plus the wide dispersion of restaurants indicates that the Company is assuming a minimal risk by self-insuring and, if any loss should occur, it would not have a material effect on the Company's consolidated financial position or results of operations. During fiscal 1995, the Company obtained a $12,146,000 standby letter of credit related to its self-insured workers' compensation program, which will expire on June 30, 1995 (see Note 8). The State of California requires that the Company provide this letter of credit each year based on its existing claims experience, or set F-21 42 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) aside a comparable amount of cash or investment securities in a trust account. The upcoming annual security requirement, which begins May 1, 1995, was lowered to $8.5 million due to an improvement in the Company's claims experience. A new letter of credit was issued for this amount in April 1995. The Company's standby letter of credit agreements with various banks expire as follows:
DOLLARS IN THOUSANDS June 1995.......................... $12,146 January 1997....................... 3,852 April 2000......................... 275 ------- $16,273 =======
The Company may be required to purchase up to ten restaurant properties during fiscal year 1996, at the option of the current owners, for an aggregate purchase price of $7,990,000. The Company presently leases these facilities and subleases them to others. The Company is currently in negotiations with these owners to determine if the Company will be required to purchase these properties. The ultimate impact of this obligation to the Company is not known; however, if any loss should occur, management believes that it would not have a material effect on the Company's consolidated financial position or results of operations. F-22 43 EXHIBIT INDEX 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 33-52523. 3-2 Bylaws of Registrant, incorporated herein by reference to exhibit 3-2 to the Registrant's Form S-4 Registration Statement Number 33-52523. 10-1 Carl Karcher Enterprises, Inc. Profit Sharing Plan, as amended, filed as exhibit 10-21 to the Company's Registration Statement on Form S-1, file no. 2-73695, and is hereby incorporated by reference.(2) 10-2 Carl Karcher Enterprises, Inc. Key Employee Stock Option Plan, filed as exhibit 10-24 to the Company's Registration Statement on Form S-1, file No. 2-80283, and is hereby incorporated by reference.(2) 10-3 Agreement of Sale, dated May 17, 1984, filed as exhibit 10-25 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1985, and is hereby incorporated by reference. 10-4 Note Purchase Agreement, dated April 2, 1984, filed as exhibit 10-27 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1985, and is hereby incorporated by reference. 10-5 Note Purchase Agreement, dated April 2, 1984, filed as exhibit 10-28 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1985, and is hereby incorporated by reference. 10-6 Note Purchase Agreement, dated January 3, 1985, filed as exhibit 10-29 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1985, and is hereby incorporated by reference. 10-7 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. 10-8 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (13010 Palm Drive), filed as exhibit 10-54 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-9 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (57222 29 Palms Highway), filed as exhibit 10-55 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-10 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (73-125 Highway 111), filed as exhibit 10-56 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-11 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (68980 Highway 111), filed as exhibit 10-57 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-12 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (81-770 Highway 111), filed as exhibit 10-58 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference.
E-1 44 10-13 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (2520 Palm Canyon Drive), filed as exhibit 10-59 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-14 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (102 North Sunrise Way), filed as exhibit 10-60 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-15 Franchise Agreement dated May 17, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (72840 Highway 111), filed as exhibit 10-61 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-16 Sublease dated May 15, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 323/730), filed as exhibit 10-62 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-17 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, as amended by Amendment to Sublease dated December 18, 1990 (Unit 447/731), filed as exhibit 10-63 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-18 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 300/729), filed as exhibit 10-64 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-19 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 300/729), filed as exhibit 10-65 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-20 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, as amended by the Amendment to Sublease dated December 18, 1990 (Unit 207/725), filed as exhibit 10-66 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-21 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, as amended (Unit 206/724), filed as exhibit 10-67 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-22 Sublease dated May 16, 1985 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, as amended by the First Amendment to Sublease dated April 24, 1987 (Unit 289/728), filed as exhibit 10-68 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-23 Franchise Agreement dated December 31, 1985 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 456/768), filed as exhibit 10-69 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-24 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. 10-25 Franchise Agreement dated January 25, 1986 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 188/769), filed as exhibit 10-72 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference.
E-2 45 10-26 Franchise Agreement dated January 25, 1986 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 382/771), filed as exhibit 10-73 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-27 Franchise Agreement dated January 25, 1986 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 342/770), filed as exhibit 10-74 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-28 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc. dated March 3, 1987 (1489 Adams Avenue), filed as exhibit 10-75 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-29 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. 10-30 Continuing Guaranty dated January 27, 1987 executed by Carl Leo Karcher, filed as exhibit 10-77 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-31 Franchise Agreement dated March 3, 1987 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (1489 Adams Avenue), filed as exhibit 10-78 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-32 Franchise Agreement dated July 6, 1987 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Varner Road), filed as exhibit 10-79 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-33 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., General Release and Continuing Guaranty each dated October 5, 1987, filed as exhibit 10-80 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-34 Lease Agreement dated September 25, 1987 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, as amended by the Amendment to Lease dated October 19, 1990 (Brawley), filed as exhibit 10-81 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-35 Sublease Agreement dated September 25, 1987 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Bullhead City), filed as exhibit 10-82 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-36 Agreement to Purchase dated October 27, 1987 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 772), filed as exhibit 10-83 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-37 Agreement to Purchase dated October 27, 1987 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 482/794), filed as exhibit 10-84 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-38 Franchise Agreement dated October 27, 1987 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 722), filed as exhibit 10-85 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference.
E-3 46 10-39 Franchise Agreement dated October 27, 1987 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 794), filed as exhibit 10-86 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-40 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., General Release and Continuing Guaranty each dated October 27, 1987 (Brawley), filed as exhibit 10-87 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-41 Franchise Agreement dated June 14, 1988 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Bermuda Dunes), filed as exhibit 10-88 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-42 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., General Release and Continuing Guaranty each dated August 1, 1988, filed as exhibit 10-89 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-43 Franchise Agreement dated June 26, 1989 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (I-8 Business Loop), filed as exhibit 10-92 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-44 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 10-93 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-45 Assignment of Franchise Agreement and Lease Agreement by Carl Leo Karcher to CLK, Inc. dated August 17, 1989 (Unit 726), filed as exhibit 10-94 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-46 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK, Inc. dated November 28, 1989 (Rivera, Arizona), filed as exhibit 10-95 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-47 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK, Inc. General Release and Continuing Guaranty each dated January 9, 1990 (I-8 Business Loop), filed as exhibit 10-96 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-48 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. 10-49 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. 10-50 Franchise Agreement dated November 12, 1990 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 873), filed as exhibit 10-99 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference.
E-4 47 10-51 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release and Continuing Guaranty each dated November 13, 1990 (Unit 873), filed as exhibit 10-100 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-52 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. 10-53 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. 10-54 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK, Inc. Release and Continuing Guaranty each dated April 5, 1991, filed as exhibit 10-103 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-55 Franchise Development Agreement dated December 15, 1991 by and between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, as amended by the Amendment to Franchise Development Agreement dated December 17, 1991, filed as exhibit 10-104 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-56 Assignment of Franchise Development Agreement by Carl Leo Karcher to CLK, Inc., Release and Continuing Guaranty each dated December 16, 1991, filed as exhibit 10-105 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-57 Franchise Agreement dated December 16, 1991 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 7013/433), filed as exhibit 10-107 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-58 Assignment of Restaurant Franchise Agreement by Carl Leo Karcher to CLK, Inc. Release and Continuing Guaranty each dated December 16, 1991, filed as exhibit 10-108 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-59 Sublease Agreement dated December 16, 1991 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher, as amended by the First Amendment to Sublease dated December 24, 1991, filed as exhibit 10-109 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-60 Promissory Note executed by Carl Leo Karcher in favor of Carl Karcher Enterprises, Inc, filed as exhibit 10- 110 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-61 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. 10-62 Franchise Agreement dated January 10, 1992 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Havasu), filed as exhibit 10-112 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-63 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release and Continuing Guaranty each dated January 10, 1992, filed as exhibit 10-113 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference.
E-5 48 10-64 Franchise Agreement dated January 20, 1992 between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 7038), filed as exhibit 10-114 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-65 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release and Continuing Guaranty each dated January 20, 1992, filed as exhibit 10-115 to the Company's Form 10-K Annual Report as amended for fiscal year ended January 27, 1992, and is hereby incorporated by reference. 10-66 Employment Agreement dated January 15, 1993 by and between Carl Karcher Enterprises, Inc. and Loren C. Pannier, filed as exhibit 10-118 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1993, and is hereby incorporated by reference.(2) 10-67 Employment Agreement dated January 15, 1993 by and between Carl Karcher Enterprises, Inc. and Rory J. Murphy, filed as exhibit 10-119 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1993, and is hereby incorporated by reference.(2) 10-68 Employment Agreement dated January 15, 1993 by and between Carl Karcher Enterprises, Inc. and Richard C. Celio, filed as exhibit 10-120 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1993, and is hereby incorporated by reference.(2) 10-69 Employment Agreement dated February 1, 1993 by and between Carl Karcher Enterprises, Inc. and Kerry W. Coin, filed as exhibit 10-122 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1993, and is hereby incorporated by reference.(2) 10-70 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) 10-71 Franchise Agreement dated April 7, 1993, between Carl Karcher Enterprises, Inc. and Carl Leo Karcher (Unit 7085), filed as exhibit 10-85 to the Company's Form 10-K Annual Report for fiscal year ended January 31, 1994, and is hereby incorporated by reference. 10-72 Assignment of Franchise Agreement by Carl Leo Karcher to CLK, Inc., Release and continuing Guaranty, each dated April 7, 1993, filed as exhibit 10-86 to the Company's Form 10-K Annual Report for fiscal year ended January 31, 1994, and is hereby incorporated by reference. 10-73 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. 10-74 Form of Development and Franchise Agreement dated January 14, 1994, by and between Carl Karcher Enterprises, Inc. and Boston Chicken, Inc.(3) 10-75 Addendum No. 1 to Boston Chicken, Inc. Franchise Agreement, by and between Carl Karcher Enterprises, Inc. and Boston Chicken, Inc, filed as exhibit 10-91 to the Company's Form 10-K Annual Report for fiscal year ended January 31, 1994, and is hereby incorporated by reference. 10-76 Addendum No. 1 to Boston Chicken, Inc. Area Development Agreement dated January 14, 1994, by and between Carl Karcher Enterprises, Inc. and Boston Chicken, Inc., filed as exhibit 10-92 to the Company's Form 10-K Annual Report for fiscal year ended January 31, 1994, and is hereby incorporated by reference. 10-77 CKE Restaurants, Inc. 1994 Stock Incentive Plan, incorporated herein by reference to exhibit 99 to the Registrant's Form S-8 Registration Statement Number 33-55337.(2) 10-78 CKE Restaurants, Inc. 1994 Employee Stock Purchase Plan, incorporated herein by reference to exhibit 99 to the Registrant's Form S-8 Registration Statement Number 33-56313.(2) 10-79 Business Loan Agreement dated October 31, 1994, by and between CKE Restaurants, Inc., Carl Karcher Enterprises, Inc., Boston Pacific, Inc. and Bank of America National Trust and Savings Association.(1)
E-6 49 10-80 Continuing Guaranty dated October 31, 1994, by and between CKE Restaurants, Inc. and Bank of America National Trust and Savings Association.(1) 10-81 Amendment No. One to Loan Agreement dated April 5, 1995, by and between CKE Restaurants, Inc., Carl Karcher Enterprises, Inc., Boston Pacific, Inc. and Bank of America National Trust and Savings Association.(1) 10-82 Amendment No. Two and Waiver to Business Loan Agreement dated April 28, 1995, by and between CKE Restaurants, Inc., Carl Karcher Enterprises, Inc. and Bank of America National Trust and Savings Association.(1) 10-83 Employment Agreement dated November 8, 1994, by and between Carl Karcher Enterprises, Inc. and Thomas Thompson.(1)(2) 10-84 Agreement to Contribute Assets dated April 17, 1995 by and between Boston West, L.L.C. and Boston Pacific, Inc.(1) 10-85 Amended and Restated Limited Liability Company Agreement of Boston West, L.L.C. (a Delaware Limited Liability Company) dated April 16, 1995.(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).
- --------------- (1) Filed herewith. (2) A management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 14(c) of Form 10-K. (3) Incorporated by reference to Exhibit 99 to Boston Chicken, Inc.'s Registration Statement on Form S-1, file No. 33-69256, filed by Boston Chicken, Inc. on September 22, 1993. E-7 EX-10.79 2 BUSINESS LOAN AGREEMENT / OCT. 31, 1994 1 EXHIBIT 10-79 BUSINESS LOAN AGREEMENT This Agreement dated as of October 31, 1994, is among Bank of America National Trust and Savings Association (the "Bank"), CKE Restaurants, Inc. ("CKR"), Carl Karcher Enterprises, Inc. ("CKE") and Boston Pacific, Inc. ("BPI"). CKR, CKE and BPI are sometimes referred to collectively as the "Borrowers" and individually as the "Borrower"). 1. LINE OF CREDIT AMOUNT AND TERMS 1.1 Line of Credit Amount (a) During the availability period described below, the Bank will provide a line of credit to the Borrowers. The amount of the line of credit (the "Commitment") is Sixty Five Million Dollars ($65,000,000). (b) This is a revolving line of credit with a within line facility for letters of credit. During the availability period, the borrowers may repay principal amounts and reborrow them; provided, however, that direct advances outstanding under this line of credit may not exceed Fifty Million Dollars ($50,000,000) at any time. (c) Each advance must be for at least One Hundred Thousand Dollars ($100,000), or for the amount of the remaining available line of credit, if less. (d) The Borrowers agree not to permit the outstanding principal balance of the line of credit plus the outstanding amounts of any letters of credit, including amounts drawn on letters of credit and not yet reimbursed, to exceed the Commitment. 1.2 Availability Period. The line of credit is available between the date of this Agreement and January 27, 1997 (the "Expiration Date"), unless any Borrower is in default. 1.3 Interest Rate (a) Unless the Borrowers elect an optional interest rate as described below, the interest rate is the Bank's Reference Rate. (b) The Reference Rate is the rate of interest publicly announced from time to time by the Bank in San Francisco, California, as its Reference Rate. The Reference Rate is set by the Bank based on various factors, including the Bank's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans. The Bank may price loans to its customers at, above, or below the Reference Rate. Any change in the Reference Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Bank's Reference Rate. - 1 - 2 1.4 Repayment Terms (a) The Borrowers will pay interest on any principal outstanding on November 1, 1994, and then monthly thereafter until payment in full of any principal outstanding under this line of credit. (b) The Borrowers will repay in full all principal and any unpaid interest or other charges outstanding under this line of credit no later than the Expiration Date. Any amount bearing interest at an optional interest rate (as described below) may be repaid at the end of the applicable interest period, which shall be no later than the Expiration Date. 1.5 Optional Interest Rates. Instead of the interest rate based on the Bank's Reference Rate, the Borrowers may elect to have all or portions of the line of credit (during the availability period bear interest at the rate described below during an interest period agreed to by the Bank and the Borrowers. Each interest rate is a rate per year. Interest will be paid on the first day of each month and on the last day of each interest period. At the end of any interest period, the interest rate will revert to the rate based on the Reference Rate, unless the Borrowers have designated another optional interest rate for the portion. Upon the occurrence of an event of default under this Agreement and expiration of any applicable cure period, the Bank may terminate the availability of optional interest rates for interest periods commencing after the default occurs. 1.6 Offshore Rate. The Borrowers may elect to have all or portions of the principal balance of the line of credit bear interest at the Offshore Rate plus 1.50 percentage points. (a) The interest period during which the Offshore Rate will be in effect will be no shorter than 30 days and no longer than 180 days. The last day of the interest period will be determined by the Bank using the practices of the offshore dollar inter-bank market. (b) Each Offshore Rate portion will be for an amount not less than Five Hundred Thousand Dollars ($500,000). (c) The "Offshore Rate" means the interest rate determined by the following formula, rounded upward to the nearest 1/100 of one percent. (All amounts in the calculation will be determined by the Bank as of the first day of the interest period.) Offshore Rate = Grand Cayman Rate --------------------------- (1.00 - Reserve Percentage) Where, (i) "Grand Cayman Rate" means the interest rate (rounded upward to the nearest 1/16th of one percent) at which the Bank's Grand Cayman Branch, Grand Cayman, British West Indies, would offer U.S. - 2 - 3 dollar deposits for the applicable interest period to other major banks in the offshore dollar inter-bank market. (ii) "Reserve Percentage" means the total of the maximum reserve percentages for determining the reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency Liabilities, as defined in Federal Reserve Board Regulation D, rounded upward to the nearest 1/100 of one percent. The percentage will be expressed as a decimal, and will include, but not be limited to, marginal, emergency, supplemental, special, and other reserve percentages. (d) The Borrowers may not elect an Offshore Rate with respect to any portion of the principal balance of the line of credit which is scheduled to be repaid before the last day of the applicable interest period. (e) Any portion of the principal balance of the line of credit already bearing interest at the Offshore Rate will not be converted to a different rate during its interest period. (f) Each prepayment of an Offshore Rate portion, whether voluntary, by reason of acceleration or otherwise, will be accompanied by the amount of accrued interest on the amount prepaid, and a prepayment fee equal to the amount (if any) by which (i) the additional interest which would have been payable on the amount prepaid had it not been paid until the last day of the interest period, exceeds (ii) the interest which would have been recoverable by the Bank by placing the amount prepaid on deposit in the offshore dollar market for a period starting on the date on which it was prepaid and ending on the last day of the interest period for such portion. (g) The Bank will have no obligation to accept an election for an Offshore Rate portion if any of the following described events has occurred and is continuing: (i) Dollar deposits in the principal amount, and for periods equal to the interest period, of an Offshore Rate portion are not available in the offshore Dollar inter-bank market; or (ii) the Offshore Rate does not accurately reflect the cost of an Offshore Rate portion. 1.7 Letters of Credit. This line of credit may be used for financing: - 3 - 4 (i) commercial letters of credit with a maximum maturity not to extend beyond the Expiration Date. Each commercial letter of credit will require drafts payable at sight. (ii) standby letters of credit with a maximum maturity not to extend beyond the Expiration Date. (iii) the amount of the letters of credit outstanding at any one time (including amounts drawn on letters of credit and not yet reimbursed) may not exceed Seventeen Million Dollars ($17,000,000). Each Borrower agrees: (a) any sum drawn under a letter of credit may, at the option of the Bank, be added to the principal amount outstanding under this Agreement. The amount will bear interest and be due as described elsewhere in this Agreement. (b) if there is a default under this Agreement including the expiration of any applicable cure period, to immediately prepay and make the Bank whole for any outstanding letters of credit. (c) the issuance of any letter of credit and any amendment to a letter of credit is subject to the Bank's written approval and must be in form and content satisfactory to the Bank and in favor of a beneficiary acceptable to the Bank. (d) to sign the Bank's form Application and Agreement for Commercial Letter of Credit or Application and Agreement for Standby Letter of Credit. (e) to pay any issuance and/or other fees that the Bank notifies the Borrowers will be charged for issuing and processing letters of credit for the Borrowers. (f) to allow the Bank to automatically charge its checking account for applicable fees, discounts, and other charges. (g) if the line of credit is terminated for any reason, Borrowers will immediately deliver to the Bank as collateral, cash or cash equivalents acceptable to the Bank, in the amount of all outstanding letters of credit (including amounts drawn on letters of credit and not yet reimbursed), together with such security agreements as Bank may require. - 4 - 5 2. FEES AND EXPENSES 2.1 Fees (a) Loan fee. The Borrowers agree to pay a One Hundred Twenty-Five Thousand Dollar ($125,000) fee due on the date of execution of this Agreement. (b) Unused Commitment Fee. The Borrowers agree to pay a fee on any difference between the Commitment and the amount of credit the Borrowers actually use (including all outstanding letter of credit), determined by the weighted average loan balance maintained during the specified period. The fee will be calculated at 1/8% per year. This fee is payable quarterly in arrears, commencing with the quarter ending November 7, 1994, until the expiration of the availability period. (d) Waiver Fee. If the Bank, at its discretion, agrees to waive or amend any terms of this Agreement, then the Borrowers will pay the Bank a fee for each waiver or amendment. Nothing in this paragraph shall imply that the Bank is obligated to agree to any waiver or amendment requested by the Borrowers. The Bank may impose additional requirements as a condition to any waiver or amendment. 2.2 Expenses. The Borrowers agree to reimburse the Bank for any expenses it incurs in the preparation of this Agreement and any agreement or instrument required by this Agreement. Expenses include, but are not limited to, reasonable attorneys' fees, including any allocated costs of the Bank's in-house counsel. 3. DISBURSEMENTS, PAYMENTS AND COSTS 3.1 Requests for Credit. Each request for an extension of credit will be made in writing in a manner acceptable to the Bank, or by another means acceptable to the Bank. 3.2 Disbursements and Payments. Each disbursement by the Bank and each payment by the Borrowers will be: (a) made at the Bank's branch (or other location) selected by the Bank from time to time; (b) made for the account of the Bank's branch selected by the Bank from time to time; (c) made in immediately available funds, or such other type of funds selected by the Bank; - 5 - 6 (d) evidenced by records kept by the Bank. In addition, the Bank may, at its discretion, require the Borrowers to sign one or more promissory notes. 3.3 Telephone and Telefax Authorization (a) The Bank may honor telephone or telefax instructions for advances or repayments or for the designation of optional interest rates or the issuance of letters of credit given by any one of the individual signer(s) of this Agreement or a person or persons authorized by any one of the signer(s) of this Agreement. (b) Advances will be deposited in and repayments will be withdrawn from CKE's account number 14585-20411, or such other accounts with the Bank as designated in writing by the Borrowers. (c) The Borrowers indemnify and excuse the Bank (including its officers, employees, and agents) from all liability, loss, and costs in connection with any act resulting from telephone or telefax instructions it reasonably believes are made by any individual authorized by the Borrowers to give such instructions. This indemnity and excuse will survive this Agreement's termination. 3.4 Direct Debit (Pre-Billing) (a) The Borrowers agree that the Bank will debit the CKE's account number 14585-20411, or such other of the Borrowers' accounts with the Bank as designated in writing by the Borrowers (the "Designated Account") on the date each payment of principal and interest and any fees from the Borrowers becomes due (the "Due Date"). If the Due Date is not a banking day, the Designated Account will be debited on the next banking day. (b) Approximately 5 days prior to each Due Date, the Bank will mail to the Borrowers a statement of the amounts that will be due on that Due Date (the "Billed Amount"). The calculation will be made on the assumption that no new extensions of credit or payments will be made between the date of the billing statement and the Due Date, and that there will be no changes in the applicable interest rate. (c) The Bank will debit the Designated Account for the Billed Amount, regardless of the actual amount due on that date (the "Accrued Amount"). If the Billed Amount debited to the Designated Account differs from the Accrued Amount, the discrepancy will be treated as follows: (i) If the Billed Amount is less than the Accrued Amount, the Billed Amount for the following Due Date will be increased by the amount of the discrepancy. The Borrowers will not be in default by reason of any such discrepancy. - 6 - 7 (ii) If the Billed Amount is more than the Accrued Amount, the Billed Amount for the following Due Date will be decreased by the amount of the discrepancy. Regardless of any such discrepancy, interest will continue to accrue based on the actual amount of principal outstanding without compounding. The Bank will not pay the Borrowers interest on any overpayment. (d) The Borrowers will maintain sufficient funds in the Designated Account to cover each debit. If there are insufficient funds in the Designated Account on the date the Bank enters any debit authorized by this Agreement, the debit will be reversed. 3.5 Banking Days. Unless otherwise provided in this Agreement, a banking day is a day other than a Saturday or a Sunday on which the Bank is open for business in California. For amounts bearing interest at an offshore rate (if any), a banking day is a day other than a Saturday or a Sunday on which the Bank is open for business in California and dealing in offshore dollars. All payments and disbursements which would be due on a day which is not a banking day will be due on the next banking day. All payments received on a day which is not a banking day will be applied to the credit on the next banking day. 3.6 Additional Costs. The Borrowers will pay the Bank, on demand, for the Bank's costs or losses arising from any statute or regulation, or any request or requirement of a regulatory agency which is applicable to all national banks or a class of all national banks. The costs and losses will be allocated to the loan in a manner determined by the Bank, using any reasonable method. The costs include the following: (a) any reserve or deposit requirements; and (b) any capital requirements relating to the Bank's assets and commitments for credit. 3.7 Interest Calculation. Except as otherwise stated in this Agreement, all interest and fees, if any, will be computed on the basis of a 360-day year and the actual number of days elapsed. This results in more interest or a higher fee than if a 365-day year is used. 3.8 Interest on Late Payments. At the Bank's sole option in each instance, any amount not paid when due under this Agreement (including interest) shall bear interest from the due date at the Bank's Reference Rate plus two (2) percentage points. This may result in compounding of interest. 3.9 Default Rate. Upon the occurrence and during the continuation of any default under this Agreement, advances under this Agreement will at the option of the Bank bear interest at a rate which is two (2) percentage points higher than the rate of interest otherwise provided under this Agreement. This will not constitute a waiver of any default. - 7 - 8 4. CONDITIONS The Bank must receive the following items, in form and content acceptable to the Bank, before it is required to extend any credit to the Borrowers under this Agreement: 4.1 Authorizations. Evidence that the execution, delivery and performance by each Borrower (and each guarantor) of this Agreement and any instrument or agreement required under this Agreement have been duly authorized. 4.2 Governing Documents. A copy of each Borrower's articles of incorporation. 4.3 Guaranties. Guaranty signed by CKE, in the amount of Three Million Eight Hundred Fifty-Two Thousand Dollars ($3,852,000), guarantying the obligations of CKE under that certain Reimbursement Agreement dated as of September 23, 1994, between the Bank and CKE ("Reimbursement Agreement"). 4.4 Good Standing. Certificates of good standing for each Borrower from its state of incorporation and from any other state in which such Borrower is required to qualify to conduct its business. 4.5 Payment of Fees. Payment of all accrued and unpaid expenses incurred by the Bank as required by the paragraph 2.1. 4.6 Other Items. Any other items that the Bank reasonably requires. 5. REPRESENTATIONS AND WARRANTIES When the Borrowers sign this Agreement, and until the Bank is repaid in full, each Borrower makes the following representations and warranties. Each request for an extension of credit constitutes a renewed representation: 5.1 Organization of Borrowers. Each Borrower is a corporation duly formed and existing under the laws of the state where organized. 5.2 Authorization. This Agreement, and any instrument or agreement required hereunder, are within each Borrower's powers, have been duly authorized, and do not conflict with any of its organizational papers. 5.3 Enforceable Agreement. This Agreement is a legal, valid and binding agreement of each Borrower, enforceable against each Borrower in accordance with its terms, and any instrument or agreement required hereunder, when executed and delivered, will be similarly legal, valid, binding and enforceable, except as may be limited by laws of equity or insolvency. 5.4 Good Standing. In each state in which each Borrower does business, it is properly licensed, in good standing, and, where required, in compliance with fictitious name statutes. - 8 - 9 5.5 No Conflicts. This Agreement does not, in any material respect, conflict with any law, agreement, or obligation by which any Borrower is bound. 5.6 Financial Information. All financial and other information that has been or will be supplied to the Bank, is: (a) sufficiently complete to give the Bank accurate knowledge of the Borrowers' (and any guarantor's) financial condition. (b) in form and content reasonably required by the Bank. (c) in compliance with all material government regulations that apply. 5.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or to its knowledge threatened against any Borrower which, if lost, would impair the borrowers' or any Borrower's financial condition or ability to repay the loan, except as have been disclosed in writing to the Bank. 5.8 Permits, Franchises. Each Borrower possesses all material permits, memberships, franchises, contracts and licenses required and all trademark rights, trade name rights, patent rights and fictitious name rights necessary to enable it to conduct the business in which it is now engaged. 5.9 Other Obligations. No Borrower is in default, in any material respect, on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation, except as have been disclosed in writing to the Bank. 5.10 Income Tax Returns. No Borrower has any knowledge of any pending assessments or adjustments of its income tax for any year, except as have been disclosed in writing to the Bank. 5.11 No Event of Default. There is no event which is, or with notice or lapse of time or both would be, a default under this Agreement. 5.12 ERISA Plans. (a) Each Borrower has fulfilled its obligations, if any, under the minimum funding standards of ERISA and the Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and has not incurred any liability with respect to any Plan under Title IV of ERISA. (b) No reportable event has occurred under Section 4043(b) of ERISA for which the PBGC requires 30 day notice. - 9 - 10 (c) No action by any Borrower to terminate or withdraw from any Plan has been taken and no notice of intent to terminate a Plan has been filed under Section 4041 of ERISA. (d) No proceeding has been commenced with respect to a Plan under Section 4042 of ERISA, and no event has occurred or condition exists which might constitute grounds for the commencement of such a proceeding. (e) The following terms have the meanings indicated for purposes of this Agreement: (i) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (ii) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 6. COVENANTS The Borrowers agree, so long as credit is available under this Agreement and until the Bank is repaid in full: 6.1 Use of Proceeds. To use the proceeds of the credit only for working capital, restaurant development costs and for other general corporate purposes. 6.2 Use of Proceeds - Ineligible Securities. Not to use, directly or indirectly, any portion of the proceeds of the credit (including any letters of credit) for any of the following purposes: (a) knowingly to purchase Ineligible Securities from BA Securities, Inc. (the "Arranger") during any period in which the Arranger makes a market in such Ineligible Securities; or (b) knowingly to purchase during the underwriting or placement period Ineligible Securities being underwritten or privately placed by the Arranger; or (c) to make payments of principal, interest or dividends on Ineligible Securities underwritten or privately placed by the Arranger and issued by or for the benefit of any Borrower or any affiliate of any Borrower. The occasional use of the proceeds of this credit for seasonal needs or cash management would not ordinarily constitute the use of the proceeds for the making of payments within the meaning of this subparagraph. "Ineligible Securities" means securities which may not be underwritten or dealt in by member banks of the Federal Reserve System under Section 16 of the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as amended. The Arranger is a wholly- owned subsidiary of BankAmerica Corporation, and is a registered - 10 - 11 broker-dealer which is permitted to underwrite and deal in certain Ineligible Securities. 6.3 Financial Information. To provide the following financial information and statements and such additional information as requested by the Bank from time to time: (a) Within 100 days of CKR's fiscal year end, CKR's annual consolidated and consolidating financial statements. The consolidated annual financial statements must be audited (with an unqualified opinion) by a Certified Public Accountant ("CPA") acceptable to the Bank. The statements shall be prepared on a consolidated and consolidating basis for the CKR and its subsidiaries. CKR's consolidating statement may be Borrower prepared. (b) Within 50 days of the period's end, CKR's quarterly financial statements. These financial statements may be Borrower prepared. The statements shall be prepared on a consolidated and consolidating basis. (c) Within 30 days after the end of each four (4) week operating period, a copy of CKE's and BPI's prepared summary operating statement describing variances from the business plan required under Paragraph 6.2(e). (d) Copies of the CKR's Form 10-K Annual Report within 100 days of CKR's fiscal year end, Form 10-Q Quarterly Report within 50 days of the end of each fiscal quarter, and Form 8-K Current Report within 15 days after the date of filing with Securities and Exchange Commission. (e) Within 100 days of each fiscal year end, CKR's consolidated and consolidating financial forecast by fiscal quarter for the next fiscal year, and on a fiscal year end basis for the following four fiscal years. Financial forecast to include balance sheet, operating statement (including components of other income), operating cash flow statement, and a schedule showing compliance with all financial covenants; and for the immediately succeeding fiscal year, and detailed capital budget report. (f) Within the period(s) provided in (a) and (b) above, a compliance certificate signed by an authorized financial officer of the borrowers setting forth (i) the information and computations (in sufficient detail) to establish that the Borrowers are in compliance with all financial covenants at the end of the period covered by the financial statements then being furnished and (ii) whether there existed as of the date of such financial statements and whether there exists as of the date of the certificate, any default under this Agreement and, if any such default exists, specifying the nature thereof and the action the Borrowers are taking and propose to take with respect thereto. (g) Such other information as Bank may reasonably request. - 11 - 12 6.4 Fixed Charge Coverage Ratio. To maintain a Fixed Charge Coverage Ratio, determined on a consolidated basis, of not less than the ratio indicated at the end of each fiscal period as specified below:
Fiscal Period Ending Ratio -------------------- ----- at third quarter 1995, calculated on a year to date basis .60:1.00 at fiscal year end 1995, and at first quarter 1996, calculated on a Four Quarter Rolling Basis .85:1.00 at second quarter 1996, and at third quarter 1996, calculated on a Four Quarter Rolling Basis 1.00:1.00 at fiscal year end 1996, and at first quarter 1997, calculated on a Four Quarter Rolling Basis 1.15:1.00 at second quarter 1997, and thereafter, calculated on a Four Quarter Rolling Basis 1.25:1.00
For purposes of this Agreement, 'Fixed Charge Coverage Ratio' means the following calculation, expressed as a ratio for any fiscal period: (a) EBITDA less the net gain realized on sales of fixed assets (or the EBITDA less the net loss incurred on sales of fixed assets), less unfinanced capital expenditures of CKE, less taxes and less dividends divided by (b) the sum of (i) interest expense, (ii) current portion of long-term debt and (iii) current portion of capital leases. The current portion of long term debt and the current portion of capital leases will be the amount shown on the balance sheet as of the end of each quarter, except that for the third quarter of fiscal year 1995, the amount used in this ratio will be 75% of the amount shown on the balance sheet for such period. 'EBITDA' means earnings before interest and tax expense, depreciation amortization, and other non-cash charges. This ratio shall be calculated quarterly using a Four Quarter Rolling Basis, except for the third quarter of fiscal year 1995, which will be calculated on a year-to-date basis. 'Four Quarter Rolling Basis' shall mean the four quarters calculated using the results of the fiscal quarter then most recently ended and the immediately preceding three (3) quarters." 6.5 Net Worth. To maintain, on a consolidated basis determined at the end of each quarter, Net Worth equal to at least the amounts indicated for each period specified below: - 12 - 13
Period Amount ------ ------ at end of second quarter 1995 $92,000,000 at end of third quarter 1995 $93,000,000 at fiscal year end 1995 $94,000,000 at end of second quarter 1996 $96,000,000 at fiscal year end 1996 $101,000,000
For the purpose of this Agreement, "Net Worth" for CKR and its subsidiaries, on a consolidated basis, shall mean the total amount of shareholders' equity shown on the balance sheet at the end of each fiscal quarter or fiscal year end, as the case may be, plus the aggregate amount of stock repurchases permitted under this Agreement. 6.6 Minimum Operating Income. With respect to BPI, to earn on an unconsolidated basis, operating income of at least the amount shown (or not to exceed an operating loss shown) for each period specified below:
Period Amount ------ ------ Fiscal year end 1995 ($2,500,000) Thereafter through second quarter 1996 $1,400,000 Thereafter through fiscal year end 1996 $3,532,000 Thereafter through second quarter 1997 $4,384,000
For purposes of this Agreement, with respect to BPI, "Operating Income" means income before tax expense, interest expense, CKR overhead allocation expense, non-operating income or expense and taxes. 6.7 Capital Expenditures. With respect to BPI, not to spend more than the amount indicated for each period specified below to acquire fixed or capital assets:
Period Amount ------ ------ Through fiscal year end 1995 $22,000,000 Thereafter through the end of second quarter 1996 $20,000,000
- 13 - 14 Thereafter through fiscal year end 1996 $42,000,000
6.8 Other Debts. Not to have outstanding or incur any direct or contingent debts (other than those to the Bank), or become liable for the debts of others without the Bank's written consent. This does not prohibit: (a) Acquiring goods, supplies, or merchandise on normal trade credit. (b) Endorsing negotiable instruments received in the usual course of business. (c) Obtaining surety bonds in the usual course of business. (d) Debt and lines of credit having a maturity of one year or less which do not exceed a total amount of Five Hundred Thousand Dollars ($500,000) outstanding at any one time. (e) Additional debts (including capital lease obligations) for the acquisition of real property or the refinancing thereof so long as the net proceeds of any refinancing are applied to reduce any amounts outstanding under this line of credit. (f) Addition debts for the acquisition of personal property not to exceed Eighteen Million Dollars ($18,000,000) or the refinancing thereof so long as the net proceeds of any refinancing are applied to reduce any amounts outstanding under this line of credit. (g) Debts and contingent liabilities and leases in existence on the date of this Agreement and disclosed in writing to the Bank. (h) CKE's obligations owing to the CIT Group/Equipment Financing, Inc. under that certain Program agreement dated as of March 9, 1992, as such agreement is in effect on the date hereof; provided, however: (i) the total amount of all such obligations incurred in any fiscal year of CKE may not exceed Five Million Dollars ($5,000,000); and (ii) the total amount of all such obligations may not exceed Ten Million Dollars ($10,000,000). (i) Contingent debts not to exceed $17,000,000 in the aggregate, including obligations under Paragraphs 6.8(g) and 6.8(h). 6.9 Other Liens. Not to create, assume, or allow any security interest or lien (including judicial liens) on any property any Borrower now or later owns, except: - 14 - 15 (a) Deeds of trust and security agreements in favor of the Bank. (b) Liens of taxes not yet due. (c) Liens outstanding on the date of this Agreement disclosed in writing to the Bank. (d) Additional purchase money security interests in personal or real property acquired after the date of this Agreement. (e) Liens relating to the refinancing of real property or equipment held as long term assets. 6.10 Stock Redemption. Nor to expend funds for the redemption of capital stock of CKR in excess of Five Million Dollars ($5,000,000). 6.11 Profitability. To maintain on a consolidated basis a positive net income before taxes and extraordinary items for each quarterly accounting period, except that for the first fiscal quarter of fiscal year 1996, Borrower shall not suffer a net loss before taxes and extraordinary items in excess of Seven Hundred Fifty Thousand Dollars ($750,000). 6.12 Change of Ownership. Not to cause, permit, or suffer any change, direct or indirect, in CKR's ownership in excess of 50%. 6.13 Notices to Bank. To promptly notify the Bank in writing of: (a) any lawsuit over One Million Thousand Dollars ($1,000,000) against any Borrower. (b) any substantial dispute between any Borrower and any governmental authority. (c) any failure to comply with this Agreement. (d) any material adverse change in the Borrowers' or in any Borrower's financial condition or operations. (e) any change in any Borrower's name, legal structure, place of business, or chief executive office. 6.14 Books and Records. To maintain adequate books and records. 6.15 Audits. To allow the Bank and its agents to inspect the Borrowers' properties and examine, audit and make copies of books and records at any reasonable time. If any of the Borrowers' properties, books or records are in the possession of a third party, the Borrowers authorize that third party to permit the Bank or its agents to have access to perform inspections or audits and to respond to the Bank's requests for information concerning such properties, books and records. - 15 - 16 6.16 Compliance with Laws. To comply in all material respects with the laws (including any fictitious name statute), regulations, and orders of any government body with authority over each Borrower's business. 6.17 Preservation of Rights. To maintain and preserve all rights, privileges, and franchises each Borrower now has. 6.18 Maintenance of Properties. To make any repairs, renewals, or replacements to keep each Borrower's properties in good working condition. 6.19 Cooperation. To take any action reasonably requested by the Bank to carry out the intent of this Agreement. 6.20 Insurance. To maintain insurance as is usual for the business it is in. 6.21 Additional Negative Covenants. Not to, without the Bank's written consent: (a) engage in any business activities substantially different from the Borrower's present business. (b) liquidate or dissolve the Borrower's business. (c) enter into any consolidation, merger, pool, joint venture, syndicate, or other combination. (d) lease, or dispose of all or a substantial part of the Borrower's business or the Borrower's assets except in the ordinary course of the Borrower's business. (e) acquire or purchase a business or its assets. (f) sell or otherwise dispose of any assets for less than fair market value or enter into any sale and leaseback agreement covering any of its existing real or personal property unless the net proceeds of such transaction are applied to reduce outstandings under this line of credit. 6.22 ERISA Plans. To give prompt written notice to the Bank of: (a) The occurrence of any reportable event under Section 4043(b) of ERISA for which the PBGC requires 30 day notice. (b) Any action by the Borrower to terminate or withdraw from a Plan or the filing of any notice of intent to terminate under Section 4041 of ERISA. (c) Any notice of noncompliance made with respect to Plan under Section 4041(b) of ERISA. - 16 - 17 (d) The commencement of any proceeding with respect to Plan under Section 4042 of ERISA. 6.23 Loans. Not to make any loans, advances or other extensions of credit to any of Borrowers' executives, officers, directors, shareholders of CKR or affiliates (other than to any Borrower) (or any relatives of the foregoing) in excess of an aggregate amount of $100,000, excluding affiliates notes receivable shown on the balance sheet at fiscal year end 1994. 7. HAZARDOUS WASTE INDEMNIFICATION The Borrowers will indemnify and hold harmless the Bank from any loss or liability directly or indirectly arising out of the use, generation, manufacture, production, storage, release, threatened release, discharge, disposal or presence of a hazardous substance. This indemnity will apply whether the hazardous substance is on, under or about the Borrowers' property or operations or property leased to the Borrowers. The indemnity includes but is not limited to attorneys' fees (including the reasonable estimate of the allocated cost of in-house counsel and staff). The indemnity extends to the Bank, its parent, subsidiaries and all of their directors, officers, employees, agents, successors, attorneys and assigns. For these purposes, the term "hazardous substances" means any substance which is or becomes designated as "hazardous" or "toxic" under any federal, state or local law. This indemnity will survive repayment of the Borrowers' obligations to the Bank. 8. DEFAULT If any of the following events occur, the Bank may do one or more of the following: declare the Borrowers in default, stop making any additional credit available to the Borrowers, and require the Borrowers to repay its entire debt immediately and without prior notice. If a bankruptcy petition is filed with respect to any Borrower, the entire debt outstanding under this Agreement will automatically be due immediately. 8.1 Failure to Pay. Any Borrower fails to make a payment under this Agreement within 5 days after the date when due. 8.2 False Information. Any Borrower has given the Bank false or misleading information or representations, except for immaterial clerical errors. 8.3 Bankruptcy. Any Borrower files a bankruptcy petition, a bankruptcy petition is filed against any Borrower or any Borrower makes a general assignment for the benefit of creditors. The default will be deemed cured if any bankruptcy petition filed against any Borrower is dismissed within a period of 60 days after the filing; provided, however, that the Bank will not be obligated to extend any additional credit to the Borrowers during that period. 8.4 Receivers. A receiver or similar official is appointed for any Borrower's business, or the business is terminated. - 17 - 18 8.5 Lawsuits. Any lawsuit or lawsuits are filed on behalf of one or more trade creditors against any Borrower in an aggregate amount of One Million Dollars ($1,000,000) or more in excess of any insurance coverage. 8.6 Judgments. Any judgments or arbitration awards are entered against any Borrower, or any Borrower enters into any settlement agreements with respect to any litigation or arbitration, in an aggregate amount of Three Million Dollars ($3,000,000) or more in excess of any insurance coverage. 8.7 Government Action. Any government authority takes action that the Bank believes materially adversely affects any Borrower's financial condition or ability to repay. 8.8 Material Adverse Change. A material adverse change occurs in any Borrower's financial condition, properties or prospects, or ability to repay the loan. 8.9 Cross-default. Any default occurs under any agreement in connection with any credit in excess of Five Hundred Thousand Dollars ($500,000) any Borrower has obtained from anyone else or which any Borrower has guaranteed. 8.10 Other Bank Agreements. Any Borrower fails to meet the conditions of, or fails to perform any obligation under any other agreement (including the Reimbursement Agreement) any Borrower has with the Bank or any affiliate of the Bank. 8.11 ERISA Plans. The occurrence of any one or more of the following events with respect to any Borrower, provided such event or events could reasonably be expected, in the judgment of the Bank, to subject any Borrower to any tax, penalty or liability (or any combination of the foregoing) which, in the aggregate, could have a material adverse effect on the financial condition of any Borrower with respect to a Plan: (a) A reportable event shall occur with respect to a Plan which is, in the reasonable judgment of the Bank likely to result in the termination of such Plan for purposes of Title IV of ERISA. (b) Any Plan termination (or commencement of proceedings to terminate a Plan) or any Borrower's full or partial withdrawal from a Plan. 8.12 Other Breach Under Agreement. Any Borrowers fail to meet the conditions of, or fails to perform any obligation under, any term of this Agreement not specifically referred to in this Article. If, in the Bank's opinion, the breach is capable of being remedied, the breach will not be considered an event of default under this Agreement for a period of fifteen (15) days after the date on which the Bank gives written notice of the breach to the Borrowers; provided, however, that the Bank will not be obligated to extend any additional credit to the Borrowers during that period. 8.13 Boston Chicken Franchise. Any violation of the franchise development agreement with Boston Chicken Inc. which results in the loss of the franchise and/or right to area exclusivity. - 18 - 19 9. ENFORCING THIS AGREEMENT: MISCELLANEOUS 9.1 GAAP. Except as otherwise stated in this Agreement, all financial information provided to the Bank and all financial covenants will be made under generally accepted accounting principles, consistently applied. 9.2 California Law. This Agreement is governed by California law. 9.3 Successors and Assigns. This Agreement is binding on the Borrowers' and the Bank's successors and assignees. The Borrowers agree that they may not assign this Agreement without the Bank's prior consent. The Bank may sell participations in or assign this loan, and may exchange financial information about the Borrowers with actual or potential participants or assignees; provided that such actual or potential participants or assignees shall agree to treat all financial information exchanged as confidential. If a participation is sold or the loan is assigned, the purchaser will have the right of set-off against the Borrowers. 9.4 Arbitration. (a) This paragraph concerns the resolution of any controversies or claims between any one or more of Borrowers and the Bank, including but not limited to those that arise from: (i) This Agreement (including any renewals, extensions or modifications of this Agreement); (ii) Any document, agreement or procedure related to or delivered in connection with this Agreement; (iii) Any violation of this Agreement; or (iv) Any claims for damages resulting from any business conducted between any one or more of Borrowers and the Bank, including claims for injury to persons, property or business interests (torts). (b) At the request of any Borrower or the Bank, any such controversies or claims will be settled by arbitration in accordance with the United States Arbitration Act. The United States Arbitration Act will apply even though this Agreement provides that it is governed by California law. (c) Arbitration proceedings will be administered by the American Arbitration Association and will be subject to its commercial rules of arbitration. (d) For purposes of the application of the statute of limitations, the filing of an arbitration pursuant to this paragraph is the equivalent of the filing of a lawsuit, and any claim or controversy which may be arbitrated under this - 19 - 20 paragraph is subject to any applicable statute of limitations. The arbitrators will have the authority to decide whether any such claim or controversy is barred by the statute of limitations and, if so, to dismiss the arbitration on that basis. (e) If there is a dispute as to whether an issue is arbitrable, the arbitrators will have the authority to resolve any such dispute. (f) The decision that results from an arbitration proceeding may be submitted to any authorized court of law to be confirmed and enforced. (g) The procedure described above will not apply if the controversy or claim, at the time of the proposed submission to arbitration, arises from or relates to an obligation to the Bank secured by real property located in California. In this case, both the Borrowers and the Bank must consent to submission of the claim or controversy to arbitration. If all parties do not consent to arbitration, the controversy or claim will be settled as follows: (i) The Borrowers and the Bank will designate a referee (or a panel of referees) selected under the auspices of the American Arbitration Association in the same manner as arbitrators are selected in Association- sponsored proceedings; (ii) The designated referee (or the panel of referees) will be appointed by a court as provided in California Code of Civil Procedure Section 638 and the following related sections; (iii) The referee (or the presiding referee of the panel) will be an active attorney or a retired judge; and (iv) The award that results from the decision of the referee (or the panel) will be entered as a judgment in the court that appointed the referee, in accordance with the provisions of California Code of Civil Procedure Sections 644 and 645. (h) This provision does not limit the right of the Borrowers or the Bank to: (i) exercise self-help remedies such as setoff; (ii) foreclose against or sell any real or personal property collateral; or (iii) act in a court of law, before, during or after the arbitration proceeding to obtain: (A) an interim remedy; and/or - 20 - 21 (B) additional or supplementary remedies. (i) The pursuit of or a successful action for interim, additional or supplementary remedies, or the filing of a court action, does not constitute a waiver of the right of the Borrowers or the Bank, including the suing party, to submit the controversy or claim to arbitration if the other party contests the lawsuit. However, if the controversy or claim arises from or relates to an obligation to the Bank which is secured by real property located in California at the time of the proposed submission to arbitration, this right is limited according to the provision above requiring the consent of both the Borrowers and the Bank to seek resolution through arbitration. (j) If the Bank forecloses against any real property securing this Agreement, the Bank has the option to exercise the power of sale under the deed of trust or mortgage, or to proceed by judicial foreclosure. 9.5 Severability; Waivers. If any part of this Agreement is not enforceable, the rest of the Agreement may be enforced. The Bank retains all rights, even if it makes a loan after default. If the Bank waives a default, it may enforce a later default. Any consent or waiver under this Agreement must be in writing. 9.6 Administration Costs. The Borrowers shall pay the Bank for all reasonable costs incurred by the Bank in connection with administering this Agreement. 9.7 Attorneys' Fees. The Borrowers shall reimburse the Bank for any reasonable costs and attorneys' fees incurred by the Bank in connection with the enforcement or preservation of any rights or remedies under this Agreement and any other documents executed in connection with this Agreement, and including any amendment, waiver, "workout" or restructuring under this Agreement. In the event of a lawsuit or arbitration proceeding, the prevailing party is entitled to recover costs and reasonable attorneys' fees incurred in connection with the lawsuit or arbitration proceeding, as determined by the court or arbitrator. As used in this paragraph, "attorneys' fees" includes the allocated costs of the Bank's in-house counsel. 9.8 Joint and Several Liability. (a) Each Borrower agrees that it is jointly and severally liable to the Bank for the payment of all obligations arising under this Agreement, and that such liability is independent of the obligations of the other Borrower(s). The Bank may bring an action against any Borrower, whether an action is brought against the other Borrower(s). (b) Each Borrower agrees that any release which may be given by the Bank to the other Borrower(s) or any guarantor will not release such Borrower from its obligations under this Agreement. (c) Each Borrower waives any right to assert against the Bank any defense, setoff, counterclaim, or claims which such Borrower may have - 21 - 22 against the other Borrower(s) or any other party liable to the Bank for the obligations of the Borrowers under this Agreement. (d) Each Borrower agrees that it is solely responsible for keeping itself informed as to the financial condition of the other Borrower(s) and of all circumstances which bear upon the risk of nonpayment. Each Borrower waives any right it may have to require the Bank to disclose to such Borrower any information which the Bank may now or hereafter acquire concerning the financial condition of the other Borrower(s). (e) Each Borrower waives all rights to notices of default or nonperformance by any other Borrower under this Agreement. Each Borrower further waives all rights to notices of the existence or the creation of new indebtedness by any other Borrower. (f) The Borrowers represent and warrant to the Bank that each will derive benefit, directly and indirectly, from the collective administration and availability of credit under this Agreement. The Borrowers agree that the Bank will not be required to inquire as to the disposition by any Borrower of funds disbursed in accordance with the terms of this Agreement. (g) Each Borrower waives any right of subrogation, reimbursement, indemnification and contribution (contractual, statutory or otherwise), including without limitation, any claim or right of subrogation under the Bankruptcy Code (Title 11 of the U.S. Code) or any successor statute, which such Borrower may now or hereafter have against any other Borrower with respect to the indebtedness incurred under this Agreement. Each Borrower waives any right to enforce any remedy which the Bank now has or may hereafter have against any other Borrower, and waives any benefit of, and any right to participate in, any security now or hereafter held by the Bank. 9.9 One Agreement. This Agreement and any related security or other agreements required by this Agreement, collectively: (a) represent the sum of the understandings and agreements between the Bank and the Borrowers concerning this credit; (b) replace any prior oral or written agreements between the Bank and the Borrowers concerning this credit; and (c) are intended by the Bank and the Borrowers as the final, complete and exclusive statement of the terms agreed to by them. In the event of any conflict between this Agreement and any other agreements required by this Agreement, this Agreement will prevail. 9.10 Notices. All notices required under this Agreement shall be personally delivered or sent by first class mail, postage prepaid, to the addresses on the signature page - 22 - 23 of this Agreement, or to such other addresses as the Bank and the Borrowers may specify from time to time in writing. 9.11 Headings. Article and paragraph headings are for reference only and shall not affect the interpretation or meaning of any provisions of this Agreement. 9.12 Counterparts. This Agreement may be executed in as many counterparts as necessary or convenient, and by the different parties on separate counterparts each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same agreement. 9.13 Prior Agreement Superseded. This Agreement supersedes the Amended and Restated Credit Agreement entered into as of November 20, 1992, as amended between the Bank and CKE, and any credit outstanding thereunder shall be deemed to be outstanding under this Agreement. 9.14 Amendment to Note. CKE hereby amends that certain Note: Principal in Installments with Interest Added executed by CKE in favor of Bank on November 14, 1989, as amended, in the original principal sum of Thirty Five Million Dollars ($35,000,000) ("Fixed Rate Note"), to read as follows: "The Fixed Rate Note is subject to the terms and conditions of the Business Loan Agreement dated as of October 31, 1994, as it may be amended from to time; provided, further that if said Business Loan Agreement is terminated prior to the maturity of this Fixed Rate Note, this Fixed Rate Note shall be subject to the terms and conditions of the Business Loan Agreement in effect on the date of its termination." This Agreement is executed as of the date stated at the top of the first page. BANK OF AMERICA NATIONAL CKE RESTAURANTS, INC. TRUST AND SAVINGS ASSOCIATION By: /s/ Deborah Miller By: /s/ Loren C. Pannier -------------------------- --------------------------------- Deborah Miller Loren C. Pannier Title: Vice President Title: Sr. Vice President and CFO ------------------- -------------------------- By: By: /s/ Richard C. Celio ------------------------- --------------------------------- Richard C. Celio Title: Title: Vice President, General Counsel ----------------------- ------------------------------- Address where notices to the Bank are to be sent: 3233 Park Center Dr., 5th Fl. Costa Mesa, California 92626 (Signatures continue) - 23 - 24 CARL KARCHER ENTERPRISES, INC. By: /s/ C. T. Thompson ------------------------------------ C. T. Thompson Title: President and COO --------------------------------- By: /s/ Richard C. Celio ------------------------------------ Richard C. Celio Title: Vice President, Corporate Counsel --------------------------------- BOSTON PACIFIC, INC. By: /s/ Kerry Coin ------------------------------------ Kerry Coin Title: President and COO --------------------------------- By: /s/ Richard C. Celio ------------------------------------ Richard C. Celio Title: Vice President, General Counsel --------------------------------- Address where notices to the Borrowers are to be sent: 1200 North Harbor Blvd. Anaheim, California 92803 - 24 - EX-10.80 3 CONTINUING GUARANTY / OCT. 31, 1994 1 EXHIBIT 10-80 BORROWER: Carl Karcher Enterprises, Inc. GUARANTOR: CKE Restaurants, Inc. CONTINUING GUARANTY To: Bank of America National Trust and Savings Association (1) For valuable consideration, the undersigned ("Guarantor") unconditionally guarantees and promises to pay to Bank of America National Trust and Savings Association ("Bank"), or order, on demand, in lawful money of the United States, any and all indebtedness of Carl Karcher Enterprises. Inc. ("Borrower") to Bank. The word "indebtedness" as used herein means any and all obligations and liabilities of Borrower to Bank arising under that certain Reimbursement Agreement dated as of September 23, 1994, as amended from time to time. (2) The liability of Guarantor under this Guaranty (exclusive of liability under any other guaranties executed by Guarantor) shall not exceed at any one time the total of (a) Three Million Eight Hundred Fifty Two Thousand Dollars ($3,852,000), for the principal amount of the indebtedness and (b) all interest, fees, and other costs and expenses relating to or arising out of the indebtedness or such part of the indebtedness as shall not exceed the foregoing limitation. Bank may permit the indebtedness to exceed Guarantor's liability, and may apply any amounts received from any source, other than from Guarantor, to the unguaranteed portion of the indebtedness. This is a continuing guaranty relating to any indebtedness, including that arising under successive transactions which shall either continue the indebtedness or from time to time renew it after it has been satisfied. Any payment by Guarantor shall not reduce guarantor's maximum obligation hereunder, unless written notice to that effect be actually received by Bank at or prior to the time of such payment. (3) The obligations hereunder are independent of the obligations of Borrower, and a separate action or actions may be brought and prosecuted against Guarantor whether action is brought against Borrower or whether Borrower be joined in any such action or actions; and Guarantor waives the benefit of any statute of limitations affecting Guarantor's liability hereunder. (4) Guarantor authorizes Bank, without notice or demand and without affecting Guarantor's liability hereunder, from time to time, either before or after revocation hereof, to (a) renew, compromise, extend, accelerate, or otherwise change the time for payment of, or otherwise change the terms of the indebtedness or any part thereof, including increase or decrease of the rate of interest thereon; (b) receive and hold security for the payment of this Guaranty or any of the indebtedness, and exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any such security; (c) apply such security and direct the order or manner of sale thereof as Bank in its discretion may determine; and (d) release or substitute any one or more of the endorsers or guarantors. - 1 - 2 (5) Guarantor waives any right to require Bank to (a) proceed against Borrower; (b) proceed against or exhaust any security held from Borrower; or (c) pursue any other remedy in Bank's power whatsoever. Guarantor waives any defense arising by reason of any disability or other defense of Borrower, or the cessation from any cause whatsoever of the liability of Borrower, or any claim that Guarantor's obligations exceed or are more burdensome than those of Borrower. Guarantor waives any right of subrogation, reimbursement, indemnification, and contribution (contractual, statutory, or otherwise), including without limitation, any claim or right of subrogation under the Bankruptcy code (Title 11 of the U.S. Code) or any successor statute, arising from the existence or performance of this Guaranty, and Guarantor waives any right to enforce any remedy which Bank now has or may hereafter have against Borrower and waives any benefit of and any right to participate in any security now or hereafter held by Bank. Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional indebtedness. (6) Guarantor understands and acknowledges that if Bank forecloses, either by judicial foreclosure or by exercise of power of sale, any deed of trust securing the indebtedness, that foreclosure could impair or destroy any ability that Guarantor may have to seek reimbursement, contribution, or indemnification from Borrower or others based on any right Guarantor may have of subrogation, reimbursement, contribution, or indemnification for any amounts paid by Guarantor under this Guaranty. Guarantor further understands and acknowledges that in the absence of this paragraph, such potential impairment or destruction of Guarantor's rights, if any, may entitle Guarantor to assert a defense to this Guaranty based on Section 580d of the California Code of Civil Procedure as interpreted in Union Bank v. Gradsky, 265 Cal. App. 2d. 40 (1968). By executing this Guaranty, Guarantor freely, irrevocably, and unconditionally: (i) waives and relinquishes that defense and agrees that Guarantor will be fully liable under this Guaranty even though Bank may foreclose, either by judicial foreclosure or by exercise of power of sale, any deed of trust securing the indebtedness; (ii) agrees that Guarantor will not assert that defense in any action or proceeding which Bank may commence to enforce this Guaranty; (iii) acknowledges and agrees that the rights and defenses waived by Guarantor in this Guaranty include any right or defense that Guarantor may have or be entitled to assert based upon or arising out of any one or more of Sections 580a, 580b, 580d, or 726 of the California Code of Civil Procedure or Section 2848 of the California Civil Code; and (iv) acknowledges and agrees that Bank is relying on this waiver in creating the indebtedness, and that this waiver is a material part of the consideration which Bank is receiving for creating the indebtedness. (7) Guarantor acknowledges and agrees that Guarantor shall have the sole responsibility for obtaining from Borrower such information concerning Borrower's financial conditions or business operations as Guarantor may require, and that Bank has no duty at any time to disclose to Guarantor any information relating to the business operations of financial conditions of Borrower. (8) To secure all of Guarantors obligations hereunder, Guarantor assigns and grants to Bank a security interest in all moneys, securities, and other property of Guarantor now or hereafter in the possession of Bank, all deposit accounts of Guarantor maintained with Bank, and all proceeds thereof. Upon default or breach of any of Guarantor's - 2 - 3 obligations to Bank, Bank may apply any deposit account to reduce the indebtedness, and may foreclose any collateral as provided in the Uniform Commercial Code and in any security agreements between Bank and Guarantor. (9) Any obligations of Borrower to Guarantor, now or hereafter existing, including but not limited to any obligations to Guarantor as subrogees of Bank or resulting from Guarantor's performance under this Guaranty, are hereby subordinated to the indebtedness. Such obligations of Borrower to Guarantor if Bank so requests shall be enforced and performance received by Guarantor as trustees for Bank, and the proceeds thereof shall be paid over to Bank on account of the indebtedness, but without reducing or affecting in any manner the liability of Guarantor under the other provisions of this Guaranty. (10) This Guaranty may be revoked at any time by Guarantor in respect to future transactions, unless there is a continuing consideration as to such transactions which Guarantor does not renounce. Such revocation shall be effective upon actual receipt by Bank at the address shown below of written notice of revocation. Revocation shall not affect any of Guarantor's obligations or Bank's rights with respect to transactions which precede Bank's receipt of such notice, regardless of whether or not the indebtedness related to such transactions, before or after revocation, has been renewed, compromised, extended, accelerated, or otherwise changed as to any of its terms, including time for payment or increase or decrease of the rate of interest thereon, and regardless of any other act or omission of Bank authorized hereunder. Revocation by any other guarantor of the indebtedness shall not affect any obligations of Guarantor. If this Guaranty is revoked, returned, or canceled, and subsequently any payment or transfer of any interest in property by Borrower to Bank is rescinded or must be returned by Bank to Borrower, this Guaranty shall be reinstated with respect to any such payment or transfer, regardless of any such prior revocation, return, or cancellation. (11) Where Borrower is a corporation or partnership, it is not necessary for Bank to inquire into the powers of Borrower or of the officers, directors, partners, or agents acting or purporting to act on Borrower's behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder. (12) Bank may, without notice to Guarantor and without affecting Guarantor's obligations hereunder, assign the indebtedness and this Guaranty, in whole or in part. Guarantor agrees that Bank may disclose to any assignee or purchaser, or any prospective assignee or purchaser, of all or part of the indebtedness any and all information in Bank's possession concerning Guarantor, this Guaranty, and any security for this Guaranty. (13) Guarantor agrees to pay all reasonable attorney's fees, including allocated costs of Bank's in-house counsel, and all other costs and expenses which may be incurred by Bank in the enforcement of this Guaranty. (14) (a) Any controversy or claim between or among the parties, including but not limited to those arising out of relating to this Agreement or any agreements or instruments relating hereto or delivered in connection herewith any claim based on or arising from an alleged tort, shall at the request of any party be determined by arbitration. - 3 - 4 The arbitration shall be conducted in accordance with the United States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law provision in this Agreement, and under the Commercial Rules of the American Arbitration Association ("AAA"). The arbitrators shall give effect to statutes of limitation in determining any claim. Any controversy concerning whether an issue is arbitrable shall be determined by the arbitrators. Judgment upon the arbitration award may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief. (b) Notwithstanding the provisions of subparagraph (a), no controversy or claim shall be submitted to arbitration without the consent of all parties if, at the time of the proposed submission, such controversy or claim arises from or relates to an obligation to Bank which is secured by real property collateral located in California. If all parties do not consent to submission of such a controversy or claim to arbitration, the controversy or claim shall be determined as provided in subparagraph (c). (c) A controversy or claim which is not submitted to arbitration as provided and limited in subparagraphs (a) and (b) shall, at the request of any party, be determined by a reference in accordance with California Code of Civil Procedure Sections 638 et seq. If such an election is made, the parties shall designate to the court a referee or referees selected under the auspices of the AAA in the same manner as arbitrators are selected in AAA-sponsored proceedings. The presiding referee of the panel, or the referee if there is a single referee, shall be an active attorney or retired judge. Judgment upon the award rendered by such referee or referees shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. (d) No provision of this paragraph shall limit the right of any party to this Agreement to exercise self-help remedies such as setoff, to foreclose against or sell any real or personal property collateral or security or to obtain provisional or ancillary remedies from a court of competent jurisdiction before, after, or during the pendency of any arbitration or other proceeding. The exercise of a remedy does not waive the right of either party to resort to arbitration or reference. At Bank's option, foreclosure under a deed of trust or mortgage may be accomplished either by exercise of power of sale under the deed of trust or mortgage or by judicial foreclosure. - 4 - 5 (15) This Guaranty shall be governed by and construed according to the laws of the State of California, to the jurisdiction of which the parties hereto submit. Executed this 31st day of October, 1994. -------- CKE Restaurants, Inc. By: /s/ Loren C. Pannier ------------------------------------ Loren C. Pannier Title: Sr. Vice President & C.F.O. --------------------------------- By: /s/ Richard C. Celio ------------------------------------ Richard C. Celio Title: Vice President, General Counsel --------------------------------- Address for notices to Bank Addresses where notices to Guarantor: 3233 Park Center Drive, 5th Floor 1200 North Harbor Blvd. Costa Mesa, California 92626 Anaheim, California 92803 - 5 - EX-10.81 4 AMENDMENT NO. 1 TO LOAN AGREEMENT 1 Exhibit 10.81 AMENDMENT NO. ONE TO LOAN AGREEMENT This Amendment No. One (the "Amendment") dated as of April 5, 1995, is between Bank of America National Trust and Savings Association (the "Bank"), CKE Restaurants, Inc. ("CKR"), Carl Karcher Enterprises, Inc. ("CKE") and Boston Pacific, Inc. ("BPI"). CKR, CKE and BPI are sometimes referred to collectively as the "Borrowers" and individually as the "Borrower"). RECITALS A. The Bank and the Borrowers entered into a certain Business Loan Agreement dated as of October 31, 1994 (the "Agreement"). B. An Event of Default ("Pre-Existing Event of Default") has occurred in a certain covenant contained in the Agreement as is specified in that letter from the Bank to the borrowers dated March 1, 1995. C. The Borrowers' 1995 fiscal year-end forecasted operating results provided to the Bank by Borrowers indicated the likelihood of additional covenant violations occurring as of fiscal year-end 1995, also as mentioned in the above-referenced letter. D. Pursuant to the above-referenced letter, the Bank and the Borrowers agreed to amend the Agreement on the terms and conditions herein contained. AGREEMENT 1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Agreement. 2. Amendments. The Agreement is hereby amended as follows: 2.1 Paragraph 1.1(a) of the Agreement is hereby amended in full to read as follows: "(a) During the availability period described below, the Bank will provide a line of credit to the Borrowers. The amount of the line of credit (the 'Commitment') is Fifty One Million Dollars ($51,000,000)." 2.2 Paragraph 1.1(b) of the Agreement is amended in full to read as follows: "(b) This is a revolving line of credit with a within line facility for letters of credit. During the availability period, the Borrowers may repay principal amounts and reborrow them; provided, however, that direct advances outstanding under this line of credit may not exceed Thirty Five Million Dollars ($35,000,000) at any time and when added to the amount of letters of credit outstanding at any one time (including the letter of credit -1- 2 issued by the Bank pursuant to the Reimbursement Agreement defined in Paragraph 4.3 herein and including amounts drawn on letters of credit and not yet reimbursed) may not exceed Fifty One Million Dollars ($51,000,000) in the aggregate." 2.3 Paragraph 1.2 is hereby amended in full to read as follows: "1.2 Availability Period. The line of credit is available between the date of this Agreement and January 29, 1996 (the 'Expiration Date'), unless any Borrower is in default." 2.4 Paragraph 1.7(iii) of the Agreement is hereby amended in full to read as follows: "(iii) the amount of the letters of credit outstanding at any one time (including that letter of credit issued by the Bank pursuant to the Reimbursement Agreement and including amounts drawn on letters of credit and not yet reimbursed) may not exceed Seventeen Million Dollars ($17,000,000)." 3. Effect of Amendment. Except as provided in this Amendment, all of the terms and conditions of the Agreement shall remain in full force and effect. The Bank has not waived the Pre-Existing Event of Default or any breach of the Agreement based upon future financial results, including those resulting from the projections the Borrowers have provided the Bank, as discussed in the above letter, and nothing contained in this Amendment shall be deemed to constitute a waiver of any right available to the Bank as a result of the Pre-Existing Event of default or those resulting from the projections or future financial results. The Bank may still exercise its rights or any other or future rights against the Borrowers because of the Pre-Existing Event of Default or any other breach of the Agreement, including those base upon the above mentioned projections. This Amendment is executed as of the date stated at the beginning of this Amendment. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/ Deborah Miller ---------------------------------------- Deborah Miller Title: Vice President (Signatures continue) -2- 3 CKE RESTAURANTS, INC. By: /s/ William P. Foley ------------------------------------- Title: Chief Executive Officer ---------------------------------- By: ------------------------------------- Title: ---------------------------------- CARL KARCHER ENTERPRISES, INC. By: /s/ William P. Foley ------------------------------------- Title: Chief Executive Officer ---------------------------------- By: ------------------------------------- Title: ---------------------------------- BOSTON PACIFIC, INC. By: /s/ Ron Lane ------------------------------------- Title: CEO ---------------------------------- By: ------------------------------------- Title: ---------------------------------- -3- EX-10.82 5 AMEND. NO. 2 & WAIVER TO BUSINESS LOAN AGREEMENT 1 Exhibit 10.82 AMENDMENT NO. TWO AND WAIVER TO BUSINESS LOAN AGREEMENT This Amendment No. Two and Waiver (the "Amendment") dated as of April 28, 1995, is between Bank of America National Trust and Savings Association (the "Bank"), CKE Restaurants, Inc. ("CKR") and Carl Karcher Enterprises, Inc. ("CKE"). CKR and CKE are sometimes referred to collectively as the "Borrowers" and individually as the "Borrower"). RECITALS A. The Bank, the Borrowers and Boston Pacific, Inc. ("BPI") entered into a certain Business Loan Agreement dated as of October 31, 1994, as amended by Amendment No. One dated as of April 5, 1995 (the "Agreement"). B. The Borrowers are in default of certain covenants of the Agreement and have requested that the Bank waive such defaults. C. The Borrowers have requested that the Bank agree to amend the Agreement to eliminate BPI as a borrower under the Agreement and release BPI from any and all liability under the Agreement. D. The Borrowers have requested that the Bank agree to further amend the Agreement on the terms and conditions herein contained. E. The Bank has agreed to waive the defaults and amend the Agreement on the terms and conditions herein contained. AGREEMENT 1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Agreement. 2. Amendments. The Agreement is hereby amended as follows: 2.1 Upon the effective date of this Amendment, the parties hereto agree that the Agreement is hereby amended to delete all references to BPI as a Borrower in the preamble to the Agreement and on the signature page and BPI shall no longer be a party entitled to any benefit of or have any liability under the Agreement. 2.2 Paragraph 1.1(a) of the Agreement is hereby amended in full to read as follows: "(a) During the availability period described below, the Bank will provide a line of credit to the Borrowers. The amount of the line of credit (the 'Commitment') is Twenty Seven Million Dollars ($27,000,000)." -1- 2 2.3 Paragraph 1.1(b) of the Agreement is amended in full to read as follows: "(b) This is a revolving line of credit with a within line facility for letters of credit. During the availability period, the borrowers may repay principal amounts and reborrow them; provided, however, that direct advances outstanding under this line of credit may not exceed Fifteen Million Dollars ($15,000,000) at any time and when added to the amount of letters of credit outstanding at any one time (including the letter of credit issued by the Bank pursuant to the Reimbursement Agreement defined in Paragraph 4.3 herein and including amounts drawn on letters of credit and not yet reimbursed) may not exceed Twenty Seven Million Dollars ($27,000,000) in the aggregate." 2.4 Paragraph 1.2 is hereby amended in full to read as follows: "1.2 Availability Period. The line of credit is available between the date of this Agreement and June 30, 1996 (the 'Expiration Date'), unless any Borrower is in default." 2.5 Paragraph 1.7(iii) of the Agreement is hereby amended in full to read as follows: "(iii) the amount of the letters of credit outstanding at any one time (including that letter of credit issued by the Bank pursuant to the Reimbursement Agreement and including amounts drawn on letters of credit and not yet reimbursed) may not exceed Twelve Million Five Hundred Thousand Dollars ($12,500,000)." 2.6 The Agreement is hereby amended to add Paragraphs 1.8, 1.9, 1.10, 1.11, 1.12 and 1.13 to read as follows: "1.8 Term Loan Commitment. Upon the effective date of Amendment No. Two, the Bank agrees to provide a term loan to the Borrowers. The amount of the term loan (the "Term Loan Commitment") shall not exceed Twenty Eight Million Dollars ($28,000,000). 1.9 Term Loan Interest Rate. Unless the Borrowers elect an optional interest rate as described below, the interest rate is the Bank's Reference Rate plus one quarter of one percent (.25%). 1.10 Term Loan Repayment Terms. (a) The Borrowers will pay interest on any principal outstanding on June 1, 1995, and then monthly thereafter until payment in full of any principal outstanding under the term loan. -2- 3 (b) The Borrowers will repay principal in successive, quarterly installments as indicated below:
Quarterly Period Installment Amount ---------------- ------------------ Commencing June 30, 1995 through and including March 31, 1997 $1,750,000 June 30, 1997 through and including March 31, 1998 $2,000,000 June 30, 1998 through and including September 30, 1998 $3,000,000
On September 30, 1998, the borrower will repay the remaining principal balance plus any interest then due. 1.11 Mandatory Prepayment, Early Termination. Anything herein to the contrary notwithstanding, if the revolving line of credit, as now in effect or as hereafter renewed, amended or restated, terminates for any reason, including, without limitation, termination resulting from failure by the Bank to renew the revolving line of credit beyond any availability period applicable thereto, or termination as otherwise provided or permitted under this Agreement, the entire principal balance of the term loan, together with all accrued interest thereon, shall be due and payable on the effective date of such termination, provided, however, that if the revolving line of credit is terminated by reason of the Bank's failure to renew the revolving line of credit and the Borrower is not then in default under this Agreement such term loan shall be due and payable within ninety (90) days after the termination of the revolving line of credit, and provided, further, that if a default shall occur under this Agreement during such ninety (90) day period the term loan shall become immediately due and payable. 1.12 Term Loan Optional Interest Rate. Instead of the interest rate based on the Bank's Reference Rate, the Borrowers may elect to have all or portions of the term loan bear interest at the rate described below during an interest period agreed to by the Bank and the Borrowers. Each interest rate is a rate per year. Interest will be paid on the first day of each month and on the last day of each interest period. At the end of any interest period, the interest rate will revert to the rate based on the Reference Rate, unless the Borrowers have designated another optional interest rate for the portion. Upon the occurrence of an event of default under this Agreement, the Bank may terminate the availability of optional interest rates for interest periods commencing after the default occurs. -3- 4 1.13 Offshore Rate. The Borrowers may elect to have all or portions of the principal balance of the term loan bear interest at the Offshore Rate plus 1.75 percentage points. All other provisions applicable to the Offshore Rate set forth in subparagraphs (a) through (g) of Paragraph 1.6 are incorporated herein by reference." 2.7 Paragraph 6.4 of the Agreement is amended in full to read: "6.4 Fixed Charge Coverage Ratio. to maintain a Fixed Charge Coverage Ratio, determined on a consolidated basis, of not less than the ratio indicated at the end of each fiscal period as specified below:
Fiscal Period Ending Ratio -------------------- ----- at first quarter 1996, and second quarter 1996 .50:1.00 at third quarter 1996, and at fourth quarter 1996 .55:1.00 at each quarter of 1997 .65:1.00 at first, second and third quarter 1998 .75:1.00 at fourth quarter 1998 .85:1.00 at first quarter 1999 and thereafter 1.00:1.00
For purposes of this Agreement, 'Fixed Charge Coverage Ratio" means the following calculation, expressed as a ratio for any fiscal period: (a) EBITDA less the net gain realized on sales of fixed assets (or the EBITDA less the net loss incurred on sales of fixed assets), less unfinanced capital expenditures of CKE, less taxes and less dividends divided by (b) the sum of (i) interest expense, (ii) current portion of long-term debt and (iii) current portion of capital leases. The current portion of long term debt and the current portion of capital leases will be the amount shown on the balance sheet as of the end of each quarter. 'EBITDA' means earnings before interest and tax expense, depreciation, amortization, and other non-cash charges. This ratio shall be calculated quarterly using a Four Quarter Rolling Basis. 'Four Quarter Rolling Basis' shall mean the four quarters calculated using the results of the fiscal quarter then most recently ended and the immediately preceding three (3) quarters." 2.8 Paragraph 6.5 of the Agreement is amended in full to read: -4- 5 "6.5 Net Worth. To maintain, on a consolidated basis determined at the end of each quarter, Net Worth equal to at least the amounts indicated for each period specified below:
Period Amount ------ ------ at end of second quarter 1996 $ 94,000,000 at fiscal year end 1996 $ 96,000,000 at end of second quarter 1997 $101,000,000 at fiscal year end 1997 and thereafter $105,000,000
For the purpose of this Agreement, "Net Worth" for CKR and its subsidiaries, on a consolidated basis, shall mean the total amount of shareholders' equity shown on the balance sheet at the end of each fiscal quarter or fiscal year end, as the case may be, plus the aggregate amount of stock repurchases permitted under this Agreement." 2.9 Paragraph 6.6 of the Agreement is deleted in its entirety. 2.10 Paragraph 6.7 of the Agreement is amended in full to read: "6.7 Capital Expenditures. With respect to CKE, not to spend more than the amount indicated for each period specified below to acquire fixed or capital assets:
Period Amount ------ ------ Through fiscal year end 1996 $22,500,000 Through fiscal year end 1997 and thereafter $25,000,000."
2.11 Subparagraphs (e), (f) and (i) of Paragraphs 6.8 of the Agreement are amended to read: "(e) Additional debts (including capital lease obligations) for the acquisition of real property or the refinancing thereof so long as the net proceeds of any refinancing are applied first to reduce any amounts outstanding under the term loan and then to reduce any amounts outstanding under the line of credit. (f) Additional debts for the acquisition of personal property not to exceed Fifteen Million Dollars ($15,000,000) or the refinancing thereof so long as the net proceeds of any refinancing are applied first to reduce any -5- 6 amounts outstanding under the term loan and then to reduce any amounts outstanding under the line of credit. (i) Contingent debts not to exceed $13,000,000 in the aggregate, including obligations under Paragraphs 6.8(g) and 6.8(h)." 2.12 paragraph 6.11 of the Agreement is amended in full to read: "6.11 Profitability. To maintain on a consolidated basis a positive net income before taxes and extraordinary items for each quarterly accounting period." 2.13 The Agreement is hereby amended to add a new Paragraph 6.24 to read: "6.24 Out of Debt Period. To repay any advances in full, and not to draw any additional advances on the revolving line of credit, for a period of at least 30 consecutive days in each semi-annual fiscal period beginning the second semi-annual fiscal period of fiscal 1996. for purposes of this paragraph, 'advances' does not include undrawn amounts of outstanding letters of credit." 2.14 Paragraph 8.13 of the Agreement is deleted in its entirety. 3. Defaults. the Borrowers hereby acknowledge that they have breached the following covenants of the Agreement: (a) Paragraph 6.5 for the fiscal quarter ending November 7, 1994; and (b) Paragraphs 6.4, 6.5, 6.6 and 6.11 for the fiscal quarter ending January 31, 1995. 4. Waivers. The Bank hereby waives the failure of the Borrowers to comply with the covenants referred to above during the fiscal periods set forth above. 5. Representations and Warranties. When the Borrowers sign this Amendment, the Borrowers represent and warrant to the Bank that: (a) other than the defaults listed above, there is no event which is, or with notice of, or lapse of time, or both would be, a default under the Agreement; (b) the representations and warranties in the Agreement are true as of the date of this Amendment as if made on the date of this Amendment; (c) this Amendment is within the Borrowers' powers, has been duly authorized and does not conflict with any organizational papers of the Borrowers; and (d) this Amendment does not conflict with any law, agreement, by which any Borrower is bound. 6. Effect of Amendment and Waivers. The above waivers shall be limited precisely as written and relate solely to the sections of the Agreement and for the time referred to above. Except as expressly set forth herein, the terms, provisions, and conditions of -6- 7 the Agreement shall remain in full force and effect and in all other respects are hereby ratified and confirmed. -7- 8 This Amendment is executed as of the date stated at the beginning of this Amendment. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/ DEBORAH MILLER ----------------------------- Deborah Miller Vice President CKE RESTAURANTS, INC. By: /s/ LOREN PANNIER ---------------------------------- Title: Chief Financial Officer ------------------------------- By: /s/ RICHARD C. CELIO ---------------------------------- Title: VICE PRESIDENT, GENERAL COUNSEL ------------------------------- CARL KARCHER ENTERPRISES, INC. Acknowledged by: By: /s/ RICHARD C. CELIO ---------------------------------- BOSTON PACIFIC, INC. Title: VICE PRESIDENT, GENERAL COUNSEL ------------------------------- By: /s/ DANIEL D. (RON) LANE By: /s/ LAURIE A. BALL -------------------------- ----------------------------------- Title: Chief Ececutive Officer Title: VICE PRESIDENT, CONTROLLER ----------------------- ------------------------------- -8- EX-10.83 6 EMPLOYMENT AGREEMENT / NOV. 8, 1994 1 EXHIBIT 10.83 EMPLOYMENT AGREEMENT CARL KARCHER ENTERPRISES, INC. AGREEMENT, dated as of November 8, 1994 by and between CARL KARCHER ENTERPRISES, INC., a California corporation (the "Company") and Thomas Thompson (the "Executive") presently residing at 1175 Jackling Drive, Hillsborough, California 94010. WITNESSETH: WHEREAS, the Company desires to employ the Executive and the Executive desires to be employed to provide his services to the Company, all on the terms and subject to the conditions, as hereinafter set forth: NOW, THEREFORE, in consideration of the premises and the mutual covenants and obligations hereinafter set forth, the parties agree as follows: 1. EMPLOYMENT. The Company agrees to employ the Executive as its President and Chief Operating Officer during the Employment Term (as defined in paragraph 3) and the Executive hereby accepts such employment and agrees to serve the Company subject to the general supervision, advice and direction of the Board of Directors and upon the terms and conditions set forth in this Agreement. 2. DUTIES. During the Employment Term, the Executive shall perform such services and duties as would normally be ascribed to a person with the position of President and Chief Operating Officer. The duties would include but not be limited to final responsibility for all aspects of the Company's business and establishing both current and long range objectives. Executive may be requested to serve as a member of the Board of Directors based on the guidelines of the by-laws of the Company without compensation in addition to that specified in paragraph 4.a. below. The Executive shall devote the Executive's full time and best efforts to the business affairs of the Company; however, with the approval of the Board of Directors, the Executive may divide reasonable time and attention to: (i) serving as a director or member of a committee of any non-for-profit organization or engaging in other charitable or community activities; (ii) upon approval of the Board of Directors, serving as a director of a corporation or as a member of a committee of an organization; 2 (iii) managing his personal investments; provided that the Executive agrees to be bound by the conflict of interests policy of the Company and may not accept employment or any engagement with any other individual or other entity, or engage in any other venture which is in conflict with the business of the Company. Notwithstanding the foregoing, the Company acknowledges that Executive has an ownership interest in an entity which is a franchisee of the Company and therefore to that extent there exists the potential for conflicting interests. 3. EMPLOYMENT TERM. The Executive shall be employed under this Agreement for a term of two (2) years from date of execution of this Agreement, (the "Employment Term") commencing on the date hereof and terminating on the close of business on October 31, 1996, unless sooner terminated as provided in paragraphs 6, 7, 8, 9 or 10. 4. COMPENSATION. 4.a. BASE COMPENSATION. During the Employment Term, the Company will pay the Executive an annual base salary as compensation for his services hereunder of $250,000 the "Base Salary"), payable in equal installments not less often than once in each calendar month. 4.b. BONUS. As additional compensation to Executive, Company shall pay an annual bonus based on performance criteria specified by the Compensation Committee for the Company. 4.c. VACATION. During each calendar year of the Employment Term, the Executive shall be entitled to take paid vacation time for such length of time as determined by the Board of Directors. For calendar year 1995 vacation time shall be two (2) weeks. 4.d. BENEFITS. During the Employment Term, the Executive shall be entitled to participate in all pension, profit sharing and other retirement plans, all incentive compensation plans and all group health, hospitalization and disability insurance plans and other employee welfare benefit plans in which other executives of the Company participate. Executive may, at his option, not participate in the Company's group health and hospitalization plan in which case the Company shall pay up to $400 per month during the Employment Term towards Executive's current health plan. 4.e. MEDICAL EXAMINATION. Executive agrees to submit, at any time requested by the Company, to a medical 2 3 physical examination by a physician selected by the Company. The cost of said examination shall be borne by the Company. 4.f. AUTOMOBILE. The Company shall provide at no expense to the Executive a late model automobile to be utilized by the Executive in connection with the Company's business. 5. REIMBURSEMENT OF EXPENSES INCURRED IN PERFORMANCE OF EMPLOYMENT. In addition to the compensation provided for under paragraph 4 hereof, upon submission of proper vouchers, the Company shall pay or reimburse the Executive for all normal and reasonable expenses, including travel expenses, incurred by the Executive prior to the termination of the Employment Term in connection with the Executive's responsibilities to the Company. The Executive currently resides in northern California and he will incur travel expenses in commuting to the Company's headquarters in Orange County. The Company agrees to reimburse Executive for all such reasonable out-of-pocket travel expenses not to exceed $20,000 per annum and provide a temporary housing allowance of $2,000 per month. If during the Employment Term the Executive relocates his primary residence to Southern California (i.e. Los Angeles County or south) such travel reimbursement and temporary housing allowance shall terminate; however, the Company shall reimburse Executive for all usual and customary moving expenses and closing costs incurred in connection with the acquisition of a single family residence (e.g. loan application fees, appraisal fees, recording costs, inspection fees, title insurance fees) but in no event shall such reimbursement exceed $10,000.00. 6. TERMINATION FOR CAUSE. The Company may dismiss Executive for good and valid cause and shall then and thereafter be relieved of its obligations hereunder. In such event, Executive shall not receive any severance pay or pro-rata portion of any bonus compensation otherwise payable pursuant to paragraph 4 hereof. As used herein, "good and valid cause" shall mean a breach of material duty by Executive in the course of his employment, the habitual neglect of his duties, or the commission by Executive of any act of a fraudulent or criminal nature (excluding minor traffic violations or other infractions of a non-serious nature). 7. TERMINATION WITHOUT CAUSE BY THE COMPANY. If Executive is terminated for reasons other than cause as defined in paragraph 6 hereof, the Company will pay Executive, not later than 30 days after such termination, in a lump sum, the lesser of (a) Base Salary for six (6) months; or (b) Base Salary for the balance of the Employment Term together with all accrued but unpaid compensation and benefits pursuant to paragraph 4 hereof including prorated bonus (if any), through the date of the Executive's termination. Executive shall be deemed to have been 3 4 terminated for reasons other than cause if Executive voluntarily terminates his employment in response to the Company relocating its headquarters for executive offices to a location outside the state of California. The date of termination of employment by the Company under paragraphs 6 and 7 shall be the date specified in a written notice of termination by the Board of Directors to Executive which shall be at least twenty (20) days after the date of the written notice of termination. If no date is specified, termination date will be the date Executive is given notice by the Board. 8. RESIGNATION. In the event, at anytime during the term of this Agreement, Executive resigns for reasons other than as specified in paragraph 7 or 9, Company shall then and thereafter be relieved from its obligations hereunder. 9. CHANGE OF CONTROL. In the event, at any time during the term of this Agreement, the Company is acquired by or merged with another corporation or entity (or a subsidiary thereof) such that the direction or control of the Company is acquired, or all or substantially all of the assets of the Company are acquired in a transaction or series of transactions, by an individual, entity or group of individuals or entities acting together that had no such direction or control prior to such acquisition or merger and in anticipation of that acquisition or after it is completed, the Executive is terminated for other than cause, then the Executive shall be entitled to receive in a lump sum payment all amounts provided for by paragraph 4.a., above, for the balance of the Employment Term, plus all other compensation and all benefits that would have been payable or available to Executive in the event of a termination under Section 7 of this Agreement. For purposes of this Section 9, direct or indirect ownership of stock having at least 30 percent of the voting power of the Company (or a contract or other arrangement conferring similar rights) shall be deemed to constitute control and thus be deemed the type of acquisition contemplated by this Section 9. 10. DISABILITY OR DEATH. 10.a. Disability of the Executive. If Executive for any reason whatsoever becomes permanently disabled so that the Executive is unable to perform the duties described in Paragraph 2 herein, the Company agrees to pay Executive fifty percent (50%) of Executive's annual salary payable in the same manner as provided for the payment of salary herein for the remainder of the Employment Term provided for herein. "Permanent disability" shall mean the Executive is unable to perform the duties contemplated by this Agreement by 4 5 reason of a physical or mental disability or infirmity which has continued for more than 90 consecutive calendar days. Executive agrees to submit such medical evidence regarding such disability or infirmity as may be requested by the Company. 10.b. DEATH OF EXECUTIVE. Upon the death of the Executive for any reason whatsoever, the Company shall then and thereafter be released from its obligations hereunder. 11. PROTECTED INFORMATION; PROHIBITED SOLICITATION. 11.a. The Executive hereby recognizes and acknowledges that during the course of this employment by the Company, the Company has disclosed and will furnish, disclose or make available to the Executive confidential or proprietary information related to the Company's business, including, without limitation, customer lists, ideas, processes, inventions and devices, that such confidential or proprietary information has been developed and will be developed through the expenditure by the Company of substantial time and money and that all such confidential information shall constitute trade secrets, and further agrees to use such confidential proprietary information only for the purpose of carrying out his duties with the Company and not otherwise to disclose such information. No information otherwise in the public domain shall be considered confidential. 11.b. The Executive hereby agrees, in consideration of his employment hereunder and in view of the confidential position to be held by the Executive hereunder, that during the Employment Term and for the period ending on the date which is one (1) year after the later of (A) the termination of the Employment Term and (B) the date on which the Company is no longer required to provide the payments and benefits described in paragraph 4, the Executive shall not, without the written consent of the Company, knowingly solicit, entice or persuade any other employees of the Company or any affiliate of the Company to leave the services of the Company or such affiliate for any reason. 11.c. So long as the Executive is employed by the Company and so long as the restrictions of this paragraph 11 apply, prior to accepting any engagement to act as an employee, officer, director, trustee, principal, agent or representative of any type of business or service (other than as an employee of the Company), the Executive shall (A) disclose such engagement in writing to the Company, and (B) disclose to the other entity to which he has agreed to act as an employee, officer, director, trustee, agent or representative, or to other principals together with whom he proposed to act as a principal in such business or service, the existence of the covenants set forth in this paragraph 11 and the provisions of paragraph 12 hereof. 5 6 11.d. The restrictions of this paragraph 11 shall survive the termination of this Agreement and shall be in addition to any restrictions imposed upon the Executive by statute or at common law. 12. INJUNCTIVE RELIEF. The Executive hereby expressly acknowledges that any breach or threatened breach by the Executive of any of the terms set forth in paragraph 11 of this Agreement may result in significant and continuing injury to the Company, the monetary value of which would be impossible to establish. Therefore, the Executive agrees that the Company shall be entitled to apply for injunctive relief in a court of appropriate jurisdiction. The provisions of this paragraph 12 shall survive the Employment Term. 13. PARTIES BENEFITED; ASSIGNMENTS. This Agreement shall be binding upon the Executive, the heirs and personal representative or representatives of the Executive and upon the Company and its successors and assigns. Neither this Agreement nor any rights or obligations hereunder may be assigned by the Executive. The Company will not consolidate with, merge into, or sell all or substantially all of its assets to another corporation, partnership, or other entity unless such corporation, partnership, or entity shall assume this Agreement, and upon such assumption Executive and remaining corporation, partnership or other entity, shall become obligated to perform all of the terms and conditions set forth herein. However, that assignment shall not relieve the Company of its obligations under this Agreement. 14. NOTICES. Any notice required or permitted by this Agreement shall be in writing, sent by personal delivery or by registered or certified mail, return receipt requested, addressed to the Chairman of the Board of the Company at its then principal office, or to the Executive at the address set forth in the preamble, as the case may be, or to such other address or addresses as any party hereto may from time to time specify in writing for the purpose of a notice given to the other parties in compliance with this paragraph 14. Notice shall be deemed given when received. 15. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California without regard to conflict of law principles. 16. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES. The Company will indemnify the Executive to the fullest extent permitted by the laws of the State of California, as in effect at the time of the subject act or omission, and the Executive shall be entitled to the protection of any insurance policies the 6 7 Company may elect to maintain generally for the benefit of its directors and officers insuring against all costs, charges and expenses whatsoever incurred or sustained by the Executive in connection with any action, suit or proceedings to which the Executive may be made a part by reason of being or having been an officer or employee of the Company or any of its subsidiaries or serving or having served any other enterprises at the request of the Company (other than any dispute, claim or controversy described in paragraph 11 of this Agreement except, that the Executive shall be entitled to reimbursement of reasonable attorneys' fees and expenses if the Executive is the prevailing party). 17. OPTIONS. Executive shall receive a grant of an option to purchase 25,000 shares under the Company's 1994 Stock Incentive Plan. Vesting of such options shall accelerate to the date of termination (if any) pursuant to paragraph 7 or 9 above and Executive shall have ninety (90) days after such termination within which to exercise the option. In the event of any conflict or inconsistency between the Plan (and any agreements thereunder) and this Agreement, this Agreement shall control. 18. ARBITRATION. The parties agree that any controversy or claim arising out of, or in any way related to, this Agreement, to a breach or alleged breach of this Agreement or to any other aspect of the Executive's employment shall be settled by Arbitration in accordance with the Rules of the American Arbitration Association (the "Association"). The parties further agree that judgment upon any award rendered by the arbitrator may be entered in any court of competent jurisdiction. Should either party hereto institute any action or proceeding to enforce any provision hereof, or for damages by reason of any alleged breach of any provision of this Agreement, or for a declaration of such party's rights or obligations hereunder, or for any other judicial remedy, the prevailing party shall be entitled to costs and expenses incurred thereby, including, without limitation, reasonable attorneys' fees and expenses, pre-arbitration, arbitration and appellate costs, costs and expenses incurred in ascertaining or enforcing such party's rights under this Agreement, and any additional relief to which such party may be entitled. The decision of the arbitrator within the scope of the submission shall be final and binding on all parties, and, accordingly, the parties agree that any right to judicial action on any matter subject to arbitration hereunder is hereby waived (unless otherwise provided by applicable law), except the right to judicial action to compel arbitration or to enforce the arbitration award, or except in the event arbitration is unavailable to the parties for any reason. 7 8 19. SOURCE OF PAYMENTS. All payments provided under this Agreement, shall be paid in cash from the general funds of the Company and no special or separate fund shall be established and no other segregation of assets made to assure payment. To the extent that any person acquires a right to receive payments from the Company hereunder, such right shall be no greater than the right of an unsecured creditor of the Company. 20. MISCELLANEOUS. This Agreement contains or refers to the entire agreement of the parties relating to the subject matter hereof. The Agreement supersedes any prior written or oral agreements or understandings between the parties relating to the subject matter hereto. No modification or amendment of this Agreement shall be valid unless in writing and signed by or on behalf of the parties hereto. A waiver of the breach of any term or condition of this Agreement shall not be deemed to constitute a waiver of any subsequent breach of the same or any other term or condition. This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules and regulations. If any provision of this Agreement, or the application thereof to any person or circumstance, shall for any reason and to any extent, be held invalid or unenforceable, such invalidity and unenforceability shall not affect the remaining provisions hereof and the application of such provisions to other persons or circumstances, all of which shall be enforced to the greatest extent permitted by law. The compensation provided to the Executive pursuant to this Agreement shall be subject to any withholdings and deductions required by any applicable tax laws. Any amounts payable to the Executive hereunder after the death of the Executive shall be paid to the Executive's estate or legal representative. The headings in this Agreement are inserted for convenience of reference only and shall not be part of or control or affect the meaning of any provision hereof. IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the day and year first above written. CARL KARCHER ENTERPRISES, INC. By: /s/ Richard C. Celio ------------------------------------ Richard C. Celio Its: Vice President/General Counsel ----------------------------------- /s/ Charles T. Thompson ---------------------------------- Employee Charles T. (Tom) Thompson 8 9 Insert As additional compensation to Executive, Company shall pay an annual bonus based on (i) for the first year of the Employment Term a certain percentage cost savings, if any, realized by the Company during the first year of the Employment Term; and (ii) for the second year of the Employment Term a formula applied to the amount, if any, by which the average November 1996 market value of the stock for CKE Restaurants, Inc. over a base market value. First Year Percentage cost savings shall be measured by changes in costs as a percentage of total gross revenue by an overall period to period comparison from a base period of November 8, 1993 through November 8, 1994 against the first twelve (12) month periods comprising the Employment Term. The costs included in the measurement shall be an aggregation of the following line items on the Company's internal profit and loss statement: food, labor, restaurant management personnel, paper, labor benefits, supply, uniform and "cash shorts." Calculation of such line item costs shall be in accordance with the Company's present accounting principles consistently applied and in the event of disagreement, the decision of the Company's outside accounting firm shall be final, binding and conclusive. The bonus shall be as follows:
Percentage Cost Savings Annual Bonus ----------------------- ------------ 3% or more $200,000 2% or more but less than 3% $100,000 Less than 2% $ -0-
By way of hypothetical example only, if included costs for the base period were in the aggregate 75% of total gross revenue for such period and included costs for the period November 8, 1994 through November 8, 1995 were 73% of total gross revenue for that period, the percentage cost savings is 2% and Executive would receive a $100,000 bonus for that year. Second Year For the second year of the Employment Term, Employee shall be entitled to a cash bonus payable on December 31, 1996 equal to the amount by which the average daily closing price of CKE Restaurants, Inc. on the New York Stock Exchange for November 1996 exceeds $9 per share multiplied by $50,000 but in no event 9 10 shall the bonus exceed $250,000. The average daily closing price shall be adjusted as appropriate and proportionate for all stock dividends, stock splits, reorganizations, mergers or similar events occurring after November 8, 1994. By way of hypothetical examples only, if the average daily closing price for CKE Restaurants, Inc. stock November 1996 is $9, 10-1/2 or $15, the Executive would receive a bonus for that year respectively of $0, $75,000 or $250,000. To the extent that the bonus is to be calculated for a period which is less than a twelve (12) month period and yet a bonus is earned (e.g. termination of Executive without cause), (i) the bonus for the first year shall be measured against the same months of the base period; and (ii) the bonus for such second year period market shall be calculated on the basis of the average closing price for the twenty (20) trading day period prior to termination of employment and payable on the 20th day after that termination. This bonus shall be payable in cash only and is intended not to be a derivative security as exempted under Rule 16a-1(c) (3). 10 EX-10.84 7 AGREEMENT TO CONTRIBUTE ASSETS 1 EXHIBIT 10.84 AGREEMENT TO CONTRIBUTE ASSETS BY AND BETWEEN BOSTON WEST, L.L.C. AND BOSTON PACIFIC, INC. 2 AGREEMENT TO CONTRIBUTE ASSETS This agreement to contribute assets (the "Agreement") is made and entered into this day of April 17, 1995 by and between Boston Pacific, Inc., a California corporation (the "Transferor"), and Boston West, L.L.C., a Delaware limited liability company (the "Transferee"). RECITALS A. The Transferee is being formed for the purpose of acquiring, developing and operating food service businesses as part of the system of food service businesses developed by Boston Chicken, Inc. ("BCI") and its franchisees and area developers, which food service businesses sell, among other things, rotisserie roasted chicken, roasted turkey, baked ham, meatloaf, pot pies, vegetables, salads, soups, desserts, beverages, and other food products ("Boston Chicken/Boston Market Stores"). B. Transferor currently owns and operates certain assets and properties constituting (a) certain open Transferor-leased Boston Chicken/Boston Market Stores all as set forth on Schedule A hereto (collectively known as the "Leased Stores"), (b) certain open Transferor-owned Boston Chicken/Boston Market Stores, all as set forth on Schedule B hereto, excluding the real estate relating thereto (collectively known as the "Owned Stores"), (c) the Transferor's interest in certain Boston Chicken/Boston Market Stores being developed pursuant to certain executed leases relating to potential Boston Chicken/Boston Market Store sites, all as set forth on Schedule C hereto (collectively known as the "Leased Sites"), (d) the Transferor's interest in certain Boston Chicken/Boston Market Stores being developed on sites owned by the Transferor, all as set forth on Schedule D hereto (collectively, the "Owned Sites"), (e) the Transferor's interest, if any, in certain Boston Chicken/Boston Market Stores contemplated in connection with leases being negotiated for the sites set forth on Schedule E hereto (collectively known as the "Sites in Progress"), (f) the Transferor's interest in certain contracts executed by the Transferor for the purchase of real property ("Real Estate Contracts") for potential Boston Chicken/Boston Market Store sites, all as set forth on Schedule F hereto (collectively known as the "Contracted Sites"), and (g) certain of the Transferor's corporate facilities, all as set forth on Schedule G hereto (collectively known as the "Corporate Facilities"), all as set forth below. As used herein, the term "Stores" shall mean the Leased Stores and the Owned Stores, and the term "Sites" shall mean the Leased Sites, the Owned Sites and the Contracted Sites. The assets and properties constituting the Stores, the Sites, and the Corporate Facilities, as well as the business and operations thereof, shall be referred to herein as the "Business." References in this Agreement to the Transferor's ownership or operation of the Business or any part thereof or otherwise with respect to the status or condition of the Business or any part thereof shall be deemed to include the ownership and operation of all or any part of the Business at any time whatsoever by Carl Karcher Enterprises, Inc., a California corporation and affiliate of the Transferor ("Carl Karcher 3 Enterprises") or CKE Restaurants, Inc., a Delaware corporation and the parent company of the Transferor ("CKER"). C. The Transferor desires to contribute to the Transferee and the Transferee desires to accept from the Transferor all of the net assets and properties of the Business in exchange for certain Class A membership units and Class B membership units of the Transferee (as described below) (such membership units of the Transferee are referred to herein as the "Exchange Units"), cash, and the assumption by the Transferee of certain liabilities of the Transferor, all as herein provided and on the terms and conditions hereinafter set forth. D. Concurrent with the Closing (hereinafter defined), the Transferee shall enter into a Secured Loan Agreement with BCI, substantially in the form attached hereto as Exhibit A (the "Loan Agreement"), and shall receive a contribution of cash from certain third party investors in exchange for certain membership units of the Transferee. E. Subsequent to the Closing, the parties contemplate that the Transferee will expand the Business in California as more fully set forth in the Area Development Agreement (defined hereinafter) COVENANTS In consideration of the mutual representations, warranties and covenants and subject to the conditions herein contained, the parties hereto agree as follows: 1. CONTRIBUTED AND EXCLUDED ASSETS A. Contributed Assets. The Transferor agrees to and will contribute, convey, transfer, assign and deliver to the Transferee at the Closing (as hereinafter defined), free and clear of all liens, mortgages, pledges, encumbrances and charges of every kind, except as set forth on Schedule 3.F., on the terms and subject to the conditions set forth in this Agreement, all of the Transferor's properties, business and assets used in the Business, of every kind and description, real, personal and mixed, tangible and intangible, wherever located (except those assets of the Transferor which are specifically excluded from this transaction by Section 1.B. hereof) as they shall exist at the Closing Date (as hereinafter defined), whether or not appearing on the Balance Sheet (as hereinafter defined) (collectively, the "Contributed Assets"). Without limiting the generality of the foregoing, the Contributed Assets shall include the following: (1) other than those Fixed Assets to be leased by the Transferor to the Transferee, as further described in Section 1.B. below, all machinery, equipment, tools, supplies, leasehold improvements, computer hardware and software, vehicles, construction in progress, and furniture and fixtures relating to or necessary for the operation of the Business and all other fixed assets owned by the Transferor and used in or related to the Business (the "Contributed Fixed Assets"); 2 4 (2) all inventories and raw materials of the Transferor used in or related to the Business (the "Contributed Inventory"); (3) all of the Transferor's right, title, and interest in and to any and all buildings and improvements of every kind and description, including, without limitation, all fixtures, attachments, appliances, equipment, machinery and other articles attached to said buildings and improvements (collectively, "Improvements"), located on the real property owned by the Transferor and related to the Business (the "Owned Real Property") (the "Contributed Improvements on the Owned Real Property"); (4) (a) all of the interest of and the rights and benefits accruing to the Transferor as lessee under leases of real property and all Improvements located thereon used in or related to the Business, including without limitation those described in Schedule 3.E. attached hereto (the "Contributed Leasehold Premises"), and (b) all leases or rental agreements covering machinery, equipment, tools, supplies, vehicles, furniture and fixtures and other fixed assets and personal property used in or related to the Business, including without limitation those described in Schedule 1.A. attached hereto (the leasehold rights and improvements described in clauses (a) and (b) are collectively referred to as the "Contributed Leasehold Rights"); (5) all of the rights and benefits accruing to the Transferor under all sales orders, sales contracts, supply contracts, purchase orders and purchase commitments used in or related to the Business and made by the Transferor in the ordinary course of business, all other agreements to which the Transferor is a party or by which it is bound with respect to the Business, including, without limitation, the Real Estate Contracts, and all other choses in action, causes of action and other rights of every kind of the Transferor, in each case relating to or necessary for the operation of the Business (the "Contributed Contract and Other Rights"); (6) all operating data and records of the Transferor related to the Business, including, without limitation, customer lists, financial, accounting and credit records, correspondence, budgets and other similar documents and records (the "Contributed Records"); (7) all of the proprietary rights of the Transferor related to the Business, including, without limitation, all trademarks, trade names, patents, patent applications, licenses thereof, trade secrets, technology, know-how, formulae, designs and drawings, computer software, slogans, copyrights, processes, operating rights, other licenses and permits, and other similar intangible property and rights relating to the Business (the "Contributed Proprietary Rights"); (8) all prepaid and deferred items of the Transferor related to the Business, including, without limitation, prepaid rentals, insurance, taxes and unbilled charges and 3 5 deposits relating to the operation of the Business (the "Contributed Prepaid Items"); and (9) all of the Transferor's right, title and interest in and to its corporate and trade names and all of the other intangibles of the Transferor used in or related to the Business (the "Contributed Intangibles"). B. EXCLUDED ASSETS. Anything to the contrary in Section 1.A. notwithstanding, the Contributed Assets shall exclude the following assets of the Transferor: (1) the Consideration (as hereinafter defined) and the Transferor's other rights under this Agreement; (2) any shares of capital stock of Boston Pacific which are owned and held by the Transferor; (3) the corporate minute books and stock records of the Transferor; (4) the Transferor's right, title, and interest in and to the Owned Real Property, which Owned Real Property shall be leased by the Transferor to the Transferee pursuant to certain Ground Lease Agreements between the Transferor and the Transferee, each of which Ground Lease Agreement shall be in the form attached hereto as Exhibit B (the "Ground Lease Agreement"); (5) the Transferor's right, title and interest in and to the fixed assets owned by the Transferor and related to the Business (the "Owned Fixed Assets"), which Owned Fixed Assets shall be leased by the Transferor to the Transferee pursuant to a certain Equipment Lease Agreement between the Transferor and the Transferee, which Equipment Lease Agreement shall be in the form attached hereto as Exhibit C.; and (6) those assets described in Schedule 1.B. 2. CONSIDERATION TO BE EXCHANGED FOR CONTRIBUTED ASSETS. A. CONSIDERATION AND RIGHT TO ACQUIRE ADDITIONAL UNITS. As consideration for the Contributed Assets (the "Consideration"), the Transferee agrees, subject to the terms, conditions and limitations set forth in this Agreement, to deliver to the Transferor the Exchange Units plus cash, all determined in accordance with the provisions hereof. The number of Class A Exchange Units to be delivered to the Transferor shall be 62,000. The number of Class B Exchange Units to be delivered to the Transferor shall be the quotient derived by dividing (a) the difference between (i) the sum of the Contributed Assets Valuation (hereinafter defined) as of March 27, 1995 plus the net loss of the Business through March 27, 1995 (the "Original Net Loss") and (ii) $620,000 by (b) $1,000. The amount of cash to be delivered to the Transferor shall be an amount equal to the sum of (y) the difference between the Contributed Assets Valuation as of the Closing Date and the Contributed Assets Valuation as of March 27, 1995, and (z) the net loss of the Business expressed as a positive number for the period from March 28, 1995 to the Closing Date (the "Closing Date Net Loss"). All amounts specified herein shall be determined in accordance with generally accepted accounting principles applied on a consistent basis (the "Cash Calculation"). In the event the Cash Calculation results in a positive number, the Transferor shall pay said amount to the Transferee at the Closing. For purposes hereof, the term "Contributed Assets Valuation" shall mean the sum of the net book value of the Contributed Fixed Assets, Contributed Improvements on the Owned Real Property, Contributed Inventory, Contributed Leasehold Rights, Contributed Proprietary Rights, Contributed Prepaid Items, and 4 6 Contributed Intangibles. The Original Net Loss and the Closing Date Net Loss shall not include depreciation of the Owned Fixed Assets. Subject to the provisions of Section 2.F. below, the parties agree that the Contributed Assets Valuations and the calculations of the Original Net Loss and Closing Date Net Loss shall be agreed upon as of the Closing Date by the Transferor, the Transferee, and BCI. Subject to the terms and conditions described herein, the Transferor shall also have the right to acquire up to $15,000,000 of additional Class B membership units of the Transferee, whether pursuant to the provisions hereof or as otherwise contemplated under any other agreement between or among the Transferee, the Transferor, BCI or any or all of the foregoing. After the three (3) month anniversary of the Closing Date, in connection with each request the Transferee makes for an advance under the Loan Agreement between the Transferee and BCI to be entered into as of the Closing Date following, the Transferee shall, simultaneously therewith, request the Transferor to purchase additional Class B membership units at a price equal to $1,000 per unit (each such request to the Transferor to purchase the Class B membership units is herein referred to as a "Request to Purchase"). Each such Request to Purchase Class B membership units shall be for an aggregate purchase price equal to 19.048% of the Draw Amount (as defined in Section 1.11 of the Loan Agreement) the ("Purchase Price"). Within 7 days after receipt of the Request to Purchase, the Transferor shall notify the Transferee and BCI in writing that (1) the Transferor elects to purchase the requested number of Class B membership units, or (2) the Transferor elects to purchase some but not all of the Class B membership units (a "Partial Purchase"), or (3) the Transferor has declined the Request to Purchase. If the Transferor elects to purchase the additional Class B membership units, (i) the Transferor shall pay to the Company the Purchase Price (or portion thereof if Transferor elects a Partial Purchase) for the Class B membership units by wire transfer of immediately available funds to the Transferee's bank account, and (ii) the Transferee shall issue the requisite number of Class B membership units, which units shall be subject to the Pledge Agreement (as defined in the Loan Agreement). In the event the Transferor shall have declined Requests to Purchase, in full or in part, in the aggregate amount of $1,500,000, the Transferor's option to acquire up to $15,000,000 of additional Class B membership units or any remaining portion thereof shall automatically terminate without notice. All transactions under this subsection shall be consummated in compliance with all applicable federal and state securities laws. B. ASSUMED LIABILITIES. The Transferee agrees to and will at the Closing assume and agree to pay, discharge and perform when lawfully due the obligations of the Transferor under the leases described in Schedule 3.E which arise and relate to periods after the Closing and the items set forth on Schedule 2.B. attached hereto (the "Assumed Liabilities"). The Transferee shall not assume or otherwise be responsible for any other liabilities, contracts, commitments, or obligations of the Transferor of any nature whatsoever (all such other liabilities, contracts, commitments, and obligations, including contingent and off-balance sheet liabilities and particularly including all liabilities or obligations arising or relating to acts, events, or omissions prior to the Closing, being herein collectively referred to as the "Excluded Liabilities"). 5 7 C. EXCLUDED LIABILITIES. Anything to the contrary in Section 2.B. notwithstanding, the Assumed Liabilities shall exclude the following liabilities, contracts, commitments and other obligations of the Transferor (the "Excluded Liabilities"): (1) the Transferor's obligations and any liabilities arising under this Agreement; (2) any obligation for federal, state, local or foreign income liability (including interest and penalties) arising from the Transferor's operation of the Business up to the Closing Date or arising out of the contribution by the Transferor of the Contributed Assets pursuant hereto, including without limitation the liabilities, if any, shown on the Balance Sheet as "Deferred Taxes"; (3) any obligation for any transfer, sales, use or other taxes, fees or levies (including motor vehicle sales taxes) imposed by any state or other governmental entity on or arising out of the contribution of the Contributed Assets pursuant hereto; (4) any obligation or liability, known or unknown, arising in tort, strict liability, or otherwise for damages due to actions or omissions to operation of the Business or the Stores up to the Closing Date, unless expressly listed as an Assumed Liability on Schedule 2.B hereto; (5) any obligation or liability of the Transferor except as listed in Section 2.B. or on Schedule 2.B.; and (6) any liability, contract, commitment or other obligation of the Transferor, known or unknown, fixed or contingent, the existence of which will make any representation or warranty of the Transferor contained in or made pursuant to this Agreement incomplete, inaccurate or untrue. The Transferor shall be responsible for the prompt payment or discharge of all Excluded Liabilities. D. NO EXPANSION OF THIRD PARTY RIGHTS. The assumption by the Transferee of the Assumed Liabilities shall in no way expand the rights or remedies of any third party against the Transferee or the Transferor as compared to the rights and remedies which such third party would have had against the Transferor had the Transferee not assumed such liabilities. Without limiting the generality of the preceding sentence, the assumption by the Transferee of the Assumed Liabilities shall not create any third party beneficiary rights. 6 8 E. ALLOCATION OF THE CONSIDERATION AMONG THE CONTRIBUTED ASSETS. The Consideration shall be allocated among each item or class of the Contributed Assets (e.g., fixtures and equipment, leasehold improvements, goodwill) as reasonably determined by mutual agreement of the parties in compliance with applicable law. In the event the parties do not agree on such an allocation, such reasonable allocation shall be determined by a tax attorney selected by the parties. The Transferor and the Transferee agree that they will prepare and file their federal and any state or local income tax returns based on such allocation of the Contribution. The Transferor and the Transferee agree that they will prepare and file any notices or other filings required pursuant to Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"), and that any such notices or filings will be prepared based on such allocation of the Consideration. F. POST CLOSING ADJUSTMENT OF CONSIDERATION. The Transferee shall have the right, during the sixty (60) day period immediately following the Closing Date, to verify the Contributed Assets Valuations and the Original Net Loss and the Closing Date Net Loss described in Section 2.A. above. The Transferor hereby agrees that the Transferee shall have access to its books and records in order to perform such verification. In the event the Transferee determines within said sixty (60) day period that it disputes the Contributed Assets Valuations, the Original Net Loss calculation, or the Closing Date Net Loss calculation, the Transferee shall notify the Transferor of such dispute (the "Transferee's Notice"). During the (15) day period following the Transferor's receipt of the Transferee's Notice, the Transfer and the Transferee shall endeavor to reach agreement on the Contributed Assets Valuations, the Original Net Loss calculation, and the Closing Date Net Loss calculation. If the parties are unable to reach agreement within such (15) day period, the matter shall be submitted to Arthur Andersen, LLP, a firm of independent certified public accountants, the decision of which shall be final and binding upon the Transferor and the Transferee. The Transferor and the Transferee shall bear equally the expenses of Arthur Andersen, LLP. If it is determined that the Consideration delivered by the Transferee to the Transferor at the Closing was erroneous in light of the foregoing verification, the Transferor and the Transferee agree to appropriately adjust the Consideration at the time of such determination, which adjustment may involve the delivery of cash or return of Exchange Shares to the Transferee. 3. REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR. In order to induce the Transferee to enter into this Agreement and to consummate the transactions contemplated hereunder, the Transferor makes the following representations and warranties: A. ORGANIZATION, POWER AND AUTHORITY OF THE TRANSFEROR. The Transferor is a corporation duly organized and legally existing in good standing under the laws of its state of incorporation and has full corporate power and authority (i) to own or lease its properties and to carry on its business as it is now being conducted, (ii) to enter into this Agreement and to sell, convey, transfer, assign and deliver the Contributed Assets to the Transferee 7 9 as provided herein, and (iii) to carry out the other transactions and agreements contemplated hereby. The Transferor is legally qualified to transact business as a foreign corporation in each of the jurisdictions in which its business or Property is such as to require that it be thus qualified, and it is in good standing in each of the jurisdictions in which it is so qualified. Except as set forth on Schedule 3.A., the Transferor has no subsidiaries and owns no equity interest in any corporation, partnership, joint venture, association or other entity. B. FINANCIAL STATEMENTS OF THE TRANSFEROR. The Transferor has previously furnished to the Transferee: (1) an unaudited balance sheet at January 31, 1995 (the "Balance Sheet") with respect to the Business; and (2) an unaudited statement of income for the year ended January 31, 1995 (the "Income Statement"), including the notes pertaining thereto (the "Financial Statements"), of the Business. The Financial Statements present fairly in accordance with generally accepted accounting principles, the consolidated financial position of the Business at the said balance sheet date and the results of the Transferor's operation of the Business for each of the said periods covered, and have been certified by the Chief Financial Officer of the Transferor to such effect, such certification being attested to by the Secretary of the Transferor and referred to herein as the "CFO Certificate." C. LIABILITIES OF THE TRANSFEROR. The Business has no liabilities or obligations, either accrued, absolute, contingent or otherwise, which are required to be reported under generally accepted accounting principles, except: (i) to the extent reflected or taken into account in determining net worth in the Balance Sheet and not heretofore paid or discharged; (ii) to the extent specifically set forth in any of the schedules attached hereto; and (iii) normal liabilities incurred in the ordinary course of the Transferor's operation of the Business since the date of the Balance Sheet. D. TAX MATTERS. (1) The Transferor has timely filed all tax returns and reports required to be filed by it with respect to the Business, including, without limitation, all federal, state, local and foreign tax returns, and has paid in full or made adequate provision by the establishment of reserves for all taxes and other charges which have become due with respect to the Business. There is no tax deficiency proposed or, to the Transferor's knowledge, threatened against the Transferor with respect to the Business. There are no tax liens upon any property or assets of the Business other than liens for taxes which are not yet due and payable. The Transferor has made all payments of estimated taxes when due in amounts sufficient to avoid the imposition of any penalty with respect to the Business. (2) All taxes and other assessments and levies which the Transferor was required by law to withhold or to collect with respect to the Business have been duly withheld and collected, and have been paid over to the proper governmental entity or 8 10 are being held by the Transferor in separate bank accounts for such payment, and all such withholdings and collection and all other payments due in connection therewith as of the date of the Balance Sheet are duly reflected on the Balance Sheet. (3) The federal and state income tax returns of the Transferor with respect to the Business have been closed by applicable statute or, to the Transferor's knowledge, examined by all appropriate tax authorities. Except as set forth in Schedule 3.D., there are no outstanding agreements or waivers extending the statute of limitations applicable to any federal or state income tax returns of the Transferor for any period with respect to the Business. (4) The Transferor is not currently being audited by, and has not received any notice of intention to audit from, any federal, state or local taxing authority. E. REAL ESTATE OF THE TRANSFEROR. (1) Attached hereto as part of Schedule 3.E. is an accurate and complete list of each lease agreement with respect to the Contributed Leasehold Premises which list sets forth: (i) the lessor and lessee thereof and the date and term of the lease governing such property; and (ii) the location, including address, thereof. The leases covering the Contributed Leasehold Premises are in full force and effect, and the Transferor is not in default or breach under any such lease. To the Transferor's knowledge, no event has occurred which with the passage of time or the giving of notice or both would cause a material breach of or default under any of such leases. There is no breach or, to the Transferor's knowledge, anticipated breach by any other party to any such lease. The Transferor has delivered true, correct and complete copies of each lease agreement covering the Contributed Leasehold Premises to the Transferee. (2) The Transferor has valid leasehold interests in the Contributed Leasehold Premises, such interests being free and clear of all liens, mortgages, pledges, encumbrances, charges, assessments, or unrecorded restrictions, covenants and easements or title defects of any nature whatsoever. (3) The portions of the buildings located on the Contributed Leasehold Premises and Owned Real Property that are used in the Business are each in good operating condition, normal wear and tear excepted, and are in the aggregate sufficient for the Transferor's current normal and reasonably anticipated sales levels and business activities as conducted there. (4) Each parcel of the Contributed Leasehold Premises and the Owned Real Property: (i) has direct access to public roads or access to public roads by means of a perpetual access easement, such access being sufficient to satisfy the current and reasonably anticipated normal transportation requirements of the Business as presently conducted at such parcel; and (ii) is served by all utilities in such quantity and quality 9 11 as are sufficient to satisfy the Transferor's current normal and reasonably anticipated sales levels and business activities as conducted there. (5) The Transferor has not received notice of: (i) any condemnation proceeding with respect to any portion of the Contributed Leasehold Premises or the Owned Real Property or any access thereto, and no proceeding is contemplated by any governmental authority; or (ii) any special assessment which may affect any parcel of the Contributed Leasehold Premises or the Owned Real Property, and, to the Transferor's knowledge, no such special assessment is contemplated by any governmental authority except the County of Orange which is contemplating a number of solutions to its financial situation, including the imposition of a special assessment. F. GOOD TITLE TO AND CONDITION OF THE CONTRIBUTED ASSETS. (1) Except as set forth on Schedules 1.A. and 3.F., the Transferor has good and marketable title to all of the Contributed Assets (other than the Contributed Leasehold Premises), free and clear of all liens, mortgages, pledges, encumbrances or charges of every kind, nature, and description whatsoever. (2) The Contributed Fixed Assets are in good operating condition, normal wear and tear excepted. (3) The Contributed Inventory consists of items of a quality and quantity usable and saleable in the normal course of the Transferor's operation of the Business and at values in the aggregate at least equal to the values at which such items are carried on the Transferor's books. The values of obsolete or slow-moving inventory and inventory of below standard quality, if any, have been written down to the lower of cost or realizable market values or have been written off. The value at which the Contributed Inventory is carried on the Balance Sheet reflects the normal inventory valuation policies of the Transferor, stating inventories at the lower of cost or market on a last-in first-out basis, all determined in accordance with generally accepted accounting principles. G. [INTENTIONALLY OMITTED]. H. LICENSES AND PERMITS OF THE TRANSFEROR. The Transferor possesses all licenses and required governmental or official approvals, permits or authorizations, the failure to possess which would have a material adverse effect on the Business, including, without limitation, the financial condition or results of operations of the Business. All such licenses, approvals, permits and authorizations are in full force and effect, the Transferor is in compliance with their requirements, and no proceeding is pending or, to the Transferor's knowledge, threatened to revoke or amend any of them. Except as indicated on such Schedule 3.H., none of such licenses, approvals, permits and authorizations are or will be 10 12 impaired or in any way affected by the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. I. PROPRIETARY RIGHTS OF THE TRANSFEROR. (1) The Contributed Proprietary Rights include all proprietary rights, the failure to possess which would have a material adverse effect on the Business, including, without limitation, the financial condition or results of operations of the Business. Schedule 3.1. contains a complete list of all of the Contributed Proprietary Rights. (2) Except as set forth on Schedule 3.I.,(i) the Transferor owns all right, title and interest in and to all of the Contributed Proprietary Rights, (ii) there have been no claims made against the Transferor asserting the invalidity, abuse, misuse, or unenforceability of any such rights, and, to the Transferor's knowledge, there are not grounds for the same, (iii) the Transferor has not received a notice of conflict with the asserted rights of others within the last five years, and (iv) to the Transferor's knowledge, the Transferor's conduct of the Business has not infringed any rights of others. J. ADEQUACY OF THE CONTRIBUTED ASSETS AND THE TRANSFEROR'S RELATIONSHIPS WITH ITS CUSTOMERS AND SUPPLIERS. The Contributed Assets constitute, in the aggregate, all of the property necessary or currently utilized for the conduct of the Business in the manner in which and to the extent to which it is currently being conducted. The Transferor knows of no written or oral communication, fact, event or action which exists or has occurred prior to the date of this Agreement, which would tend to indicate that: (1) any current customer of the Business which accounted for over 1% of the total consolidated net revenues of the Business for the year ended January 31, 1995; or (2) any current supplier to the Transferor of items essential to the conduct of the Business, which items cannot be replaced at comparable cost and the loss of which would have a material adverse effect on the Business or operations thereof, will terminate its business relationship with the Transferor. Neither the Transferor nor any of its affiliates (as hereinafter defined) has any direct or indirect interest in any customer, supplier or competitor of the Business, or in any person from whom or to whom the Transferor leases real or personal property related to the Business, or in any person with whom the Transferor is doing business with respect to the Business. Except for that certain Area Development Agreement between Carl Karcher Enterprises and BCI and those certain Franchise Agreements between the Transferor and BCI and this Agreement, all as set forth on Schedule 3.J. hereto, the Transferor is not restricted by agreement from carrying on the Business anywhere in the world. 11 13 K. DOCUMENTS OF AND INFORMATION WITH RESPECT TO THE TRANSFEROR. (1) Schedule 3.K. attached hereto accurately and completely sets forth a true and complete list of the following: (i) each policy of insurance in force with respect to the Business and each of the performance or other surety bonds maintained by the Transferor in the conduct of the Business; (ii) each loan, credit agreement, guarantee, security agreement or similar document or instrument to which the Transferor is a party or by which it is bound and which relates to or otherwise affects the Business; (iii) each lease of personal property to which the Transferor is a party or by which it is bound and which relates to or otherwise affects the Business; (iv) any other agreement, contract or commitment to which the Transferor is a party or by which it is bound which involves a future commitment by the Transferor in excess of $5,000 and which cannot be terminated without liability on 30 days or less notice and which relates to or otherwise affects the Business; (v) the name and current annual salary of each employee of the Business and the profit sharing, bonus or any other form of compensation (other than salary) paid or payable by the Transferor to or for the benefit of each such person for the year ended January 31, 1995, and any employment or other agreement of the Transferor with any of such employees; and (vi) the name of each bank in which the Transferor has an account or safe-deposit box, the name in which the account or box is held and the names of all persons authorized to draw thereon or to have access thereto, provided same relate to or otherwise affect the Business. The Transferor has previously furnished the Transferee with a true and complete copy of each such agreement, contract or commitment listed in Schedule 3.K. There has not been any default in any obligation to be performed by the Transferor which has had or may have a material adverse effect on the Business or the Contributed Assets, or, to the Transferor's knowledge, any other party under any such instrument. (2) The Transferor carries insurance, which is adequate in character and amount, with reputable insurers, covering the Business, and it has provided all required performance or other surety bonds. All premiums and other payments which have become due under the policies of insurance listed in Schedule 3.K. have been paid in full, all of such policies are now in full force and effect and the Transferor has not received notice from any insurer, agent or broker of the cancellation of, or any material increase in premium with respect to, any of such policies or bonds. Except as set forth in Schedule 3.K, the Transferor has not received any notification from any insurer, agent or broker denying or disputing any claim made by the Transferor or denying or disputing any coverage for any such claim or the amount of any claim, with respect to the Business. Except as set forth in Schedule 3.K., the Transferor has no claim against any of its insurers under any of such policies pending or anticipated and, to the Transferor's knowledge, there has been no occurrence of any kind which would give rise to any such claim. 12 14 L. LITIGATION INVOLVING THE TRANSFEROR. Except as set forth in Schedule 3-L., there are no actions, suits, claims, governmental investigations or arbitration proceedings pending or, to the knowledge of the Transferor, threatened against or affecting the Transferor or any of the Contributed Assets and, to the Transferor's knowledge, there is no basis for any of the foregoing with respect to the Contributed Assets. There are no outstanding orders, decrees or stipulations issued by any federal, state, local or foreign judicial or administrative authority in any proceeding to which the Transferor is or was a party. M. THE RECORDS OF THE TRANSFEROR. The Transferor has previously furnished the Transferee with copies of the Transferor's charter and all amendments thereto to date (certified by the Chief Executive Officer of the Transferor with such certification attested to by the Secretary of the Transferor) and of the Transferor's bylaws (certified by the Transferor's Secretary), and such copies are correct and complete in all respects. The Contributed Records are accurate and complete in all material respects and there are no material matters as to which appropriate entries have not been made in such records. A record of all action taken by the shareholders and the board of directors of the Transferor and all minutes of its meetings are contained in the minute books of the Transferor and are accurate and complete. The records, book and stock ledger of the Transferor contain an accurate and complete record of all issuances, transfers and cancellations of shares of capital stock of the Transferor. The books and records of the Transferor properly reflect all transactions, properties, assets and liabilities of the Transferor. N. NO MATERIAL ADVERSE CHANGE. Since the date of the Balance Sheet, there has not been (i) any change in the Business, other than changes occurring in the ordinary course of business which have not had a material adverse effect on the business, properties, financial condition, business prospects or operating results of the Business, or (ii) any overtly threatened or prospective event or condition of any character whatsoever which could adversely affect the Contributed Assets or the business, financial condition or results of operations of the Business. O. ABSENCE OF CERTAIN ACTS OR EVENTS. Except as disclosed in Schedule 3.0., since the date of the Balance Sheet, the Transferor has not: (i) paid any bonus or increased the rate of compensation of any of the employees of the Business; (ii) sold or transferred any of the assets of the Business other than in the ordinary course of business; (iii) made or obligated itself to make capital expenditures with respect to the Business aggregating more than $5,000; (iv) made any payment in respect of the Excluded Liabilities other than in the ordinary course of business; (v) incurred any material obligations or liabilities (including any indebtedness) or entered into any material transaction with respect to the Business, except for this Agreement and the transactions contemplated hereby; (vi) suffered any theft, damage, destruction or casualty loss with respect to the Business in excess of $5,000, or (vii) declared or paid any dividends. 13 15 P. COMPLIANCE WITH LAWS BY THE TRANSFEROR. (1) The Transferor is in compliance with all laws, regulations and orders applicable to it, the Business, or the Contributed Assets, the failure with which to comply would have a material adverse effect on the Business or the Contributed Assets. The Transferor has not received notification of any asserted past or present failure to comply with any laws and, to the Transferor's knowledge, no proceeding with respect to any such violation is contemplated. (2) Neither the Transferor nor any employee of the Transferor, has made any payment of funds in connection with the Business prohibited by law, and no funds have been set aside to be used in connection with the Business for any payment prohibited by law. Q. ENVIRONMENTAL MATTERS. The Transferor has not transported, stored, treated, or disposed of, nor has it allowed or arranged for any third parties to transport, store, handle, treat, or dispose of Hazardous Substances or other waste to or at any location other than a site lawfully permitted to receive such Hazardous Substances or other waste for such purposes, nor has it performed, arranged for, or allowed by any method or procedure such transportation, storage, treatment, or disposal in contravention of any laws or regulations or in any manner giving rise to any liability whatsoever. The Transferor has not stored, handled, treated, or disposed of, or allowed or arranged for any third parties to store, handle, treat, or dispose of Hazardous Substances or other waste upon property owned or leased by it, except as permitted by law. For purposes of this Section 3.Q., the term "Hazardous Substances" shall include: (i) any "Hazardous Substance", "Pollutant" or "Contaminant" as defined in the Comprehensive Environmental Response, Compensation and Liability Act, as amend- ed, 42 U.S.C. Sections 9601 et seq., or the regulations promulgated thereunder ("CERCLA"); (ii) any hazardous waste as that term is defined in applicable state or local law; (iii) any substance containing petroleum, as that term is defined in Section 9001(8) of the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section 6991(8) or in 40 C.F.R. Section 280.1; or (iv) any other substance for which any governmental entity with jurisdiction over the Contributed Leasehold Premises or the Owned Real Property and the Improvements located thereon requires special handling in its generation, handling, use, collection, storage, treatment, or disposal. There has not occurred, nor is there currently occurring, a Release of any Hazardous Substance on, into, or beneath the surface of any parcel of the Contributed Leasehold Premises or the Owned Real Property and the Improvements located thereon. For purposes of this Section 3.Q., the term "Release" shall have the meaning given it in CERCLA. The Transferor has not shipped, transported, or disposed of, nor has it allowed or arranged, by contract, agreement, or otherwise, for any third parties to ship, transport, or dispose of, any Hazardous Substance or other waste to or at a site which, pursuant to CERCLA or any similar state law, (i) has been placed on the National Priorities List or its state equivalent, or (ii) the 14 16 Environmental Protection Agency or the relevant state agency has proposed or is proposing to place on the National Priorities List or its state equivalent. The Transferor has not received notice, nor does it have knowledge of any facts which could give rise to any notice, that the Transferor is a potentially responsible party for a federal or state environmental cleanup site or for corrective action under CERCLA or any other applicable law or regulation. The Transferor has not submitted nor was it required to submit any notice pursuant to Section 103(c) of CERCLA with respect to the Contributed Leasehold Premises or the Owned Real Property and the Improvements located thereon. The Transferor has not received any written or oral request for information in connection with any federal or state environmental cleanup site. The Transferor has not been required to nor has it undertaken any response or remedial actions or clean-up actions of any kind at the request of any federal, state, or local governmental entity, or at the request of any other person or entity. The Transferor does not use, and has not used, any Underground Storage Tanks, and there are not now nor have there ever been any Underground Storage Tanks on the Contributed Leasehold Premises or the Owned Real Property and the Improvements located thereon. For purposes of this Section 3.Q., the term "Underground Storage Tanks" shall have the meaning given it in the Resource Conservation and Recovery Act (42 U.S.C. Sections 6901 et seq.). There is no asbestos in or on any of the Contributed Leasehold Premises or the Owned Real Property and the Improvements located thereon. There are no laws, regulations, ordinances, licenses, permits, or orders relating to environmental or worker safety matters requiring any work, repairs, construction, or capital expenditures with respect to the assets or properties of the Transferor. Schedule 3.Q. identifies: (i) all environmental audits, assessments, or occupational health studies undertaken by the Transferor or its agents or known to be taken by governmental agencies; (ii) the results of any ground, water, soil, air, or asbestos monitoring undertaken with respect to the Contributed Leasehold Premises or the Owned Real Property and the Improvements located thereon; (iii) all written communications between the Transferor and any environmental agencies; and (iv) all citations issued under the Occupational Safety and Health Act (29 U.S.C. Sections 651 et seq.). R. LABOR RELATIONS OF THE TRANSFEROR. The Transferor is not a party to or bound by any collective bargaining agreement or any other agreement with a labor union with respect to the Business and, to the knowledge of the Transferor, there has been no effort by any labor union during the 24 months prior to the date hereof to organize any employees of the Business into one or more collective bargaining units. There is not pending or, to the knowledge of the Transferor, threatened any labor dispute, strike or work stoppage which affects or which may affect the Business or which may interfere with its continued operation. Neither the Transferor nor any agent, representative or employee of the Transferor has within the last 24 months committed any unfair labor practice as defined in the National Labor Relations Act, as amended, and there is not now pending or, to the knowledge of the Transferor threatened any charge or complaint against the Transferor by or with the National 15 17 Labor Relations Board or any representative thereof. There has been no strike, walkout or work stoppage involving any of the employees of the Business during the 24 months prior to the date hereof. The Transferor is not aware that any executive or key employee or group of employees with respect to the Business has any plans to terminate his, her or their employment with the Transferor. S. Employee Benefits. Except as set forth on Schedule 3.S., the Transferor does not maintain or contribute to any "employee pension benefit plan", as such term is defined in Section 3(2) of the Employment Retirement Income Security Act of 1974, as amended ("ERISA") with respect to the Business. Each employee pension benefit plan listed on Schedule 3.S. has complied in all material respects with, and been administered in all material respects in accordance with, the applicable requirements of ERISA, any other applicable law and the terms of such plan. The only "employee welfare benefit plan," as such term is defined in Section 3(1) of ERISA, which the Transferor maintains or to which the Transferor contributes is group health and life insurance. T. Product Liability Claims; - Product Warranties and Indemnities. Schedule 3.T. sets forth all product liability claims which are pending or, to the knowledge of the Transferor, threatened against the Transferor with respect to products sold by the Business. Schedule 3.T. also sets forth, for the last fiscal year of the Transferor, and for the interim period ended on the date hereof, the aggregate amount of product liability claims paid by or on behalf of the Transferor with respect to the Business. The Transferor has not extended to any person any product warranties, indemnities, or guarantees except those imposed by law with respect to the Business. U. Due Authorization; Binding Obligation. The execution, delivery and performance of this Agreement and each of the other agreements contemplated hereby and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action of the Transferor. This Agreement has been duly executed and delivered by the Transferor and is a valid and binding obligation of the Transferor, enforceable in accordance with its terms. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will: (i) conflict with or violate any provision of the Transferor's charter or bylaws, or of any law, ordinance or regulation or any decree or order of any court or administrative or other governmental body which is either applicable to, binding upon or enforceable against the Transferor; (ii) result in any breach of or default under any mortgage, contract, agreement, indenture, will, trust or other instrument which is either binding upon or enforceable against the Transferor or the Contributed Assets; or (iii) violate any legally protected right arising in the operation of the Transferor's business of any individual or entity or give to any individual or entity a right or claim against the Transferee or the Contributed Assets. No consent, approval, or authorization of any governmental authority is required for the execution, delivery and performance of this Agreement by the Transferor. 16 18 V. ACCURACY OF INFORMATION FURNISHED BY THE TRANSFEROR OR THE SHAREHOLDER. No representation, statement or information made or furnished by the Transferor to the Transferee, including those contained in this Agreement and the various schedules attached hereto and the other information and statements referred to herein and previously furnished by the Transferor to the Transferee pursuant hereto, contains or shall contain any untrue statement of a material fact or omits or shall omit any material fact necessary to make the information contained therein not misleading. W. BROKERS AND FINDERS. The Transferor has not engaged or authorized any broker, investment banker or third party to act on the Transferor's behalf, either directly or indirectly, as a broker, finder or advisor in connection with the transaction contemplated hereby. X. INVESTMENT REPRESENTATIONS. The Transferor understands that the Exchange Units have not been registered under the Securities Act of 1933, as amended, or under the securities laws of any state or other jurisdiction in reliance upon exemptions for private offerings. The Transferor represents that the Exchange Units being acquired hereunder are being acquired solely for its own account, for investment and not with a view to or for resale, distribution, subdivision, or fractionalization thereof. The Transferor acknowledges and is aware that there are substantial restrictions on the transferability of the Exchange Units as set forth in the Operating Agreement of the Transferee. The Transferor has such knowledge and experience in financial and business matters, understands the terms of the Operating Agreement, and is capable of evaluating the relative risks and merits of the Exchange Units. 4. REPRESENTATIONS AND WARRANTIES OF THE TRANSFEREE. In order to induce the Transferor to enter into this Agreement and to consummate the transactions contemplated hereunder, the Transferee makes the following representations and warranties: A. Organization, Power and Authority of the Transferee. The Transferee is a limited liability company duly organized and validly existing under the laws of the State of Delaware, with full power and authority to enter into this Agreement and perform its obligations hereunder. B. Due Authorization; Binding Obligation. The execution, delivery and performance of this Agreement and all other agreements contemplated hereby and the consummation of the transactions contemplated hereby have been duly authorized by all necessary action of the Transferee. This Agreement has been duly executed and 17 19 delivered by the Transferee and is a valid and binding obligation of the Transferee, enforceable in accordance with its terms. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will: (i) conflict with or violate any provision of the Operating Agreement of the Transferee, or of any decree or order of any court or administrative or other governmental body which is either applicable to, binding upon or enforceable against the Transferee; or (ii) result in any breach of or default under any material mortgage, contract, agreement, indenture, will, trust or other instrument which is either binding upon or enforceable against the Transferee. 5. ADDITIONAL COVENANTS, AGREEMENTS AND ACKNOWLEDGMENTS OF THE TRANSFEROR. In order to induce the Transferee to enter into this Agreement and to consummate the transactions contemplated hereunder, the Transferor agrees with the Transferee as follows: A. NO OTHER DISCUSSIONS. It will not, prior to the Closing Date, enter into discussions or negotiate with or entertain or accept the unsolicited offer of any other party concerning the potential sale of all or any part of the assets of the Business to, or the merger or consolidation of the Business or Boston Pacific with, any person other than the Transferee, except as may be required by law. B. EFFORTS. It will use its reasonable commercial efforts to cause to be satisfied as soon as practicable and prior to the Closing Date all of the conditions set forth in Section 6 to the obligation of the Transferee to accept the Contributed Assets. C. CONFIDENTIAL INFORMATION The Transferor possesses and may further develop and/or acquire certain confidential and proprietary information and trade secrets including, but not limited to, information, methods, techniques, procedures and knowledge developed or to be developed, by or for the Transferor and the Transferee respecting the Business (the "Confidential Information"). The Transferor acknowledges and agrees that the Confidential Information is confidential to and a valuable asset of the Business, is proprietary, and includes trade secrets. The Transferor hereby agrees, that it: (1) will not use the Confidential Information in any other business or capacity; and (2) will maintain the confidentiality of the Confidential Information; and 18 20 (3) will not make unauthorized copies of any portion of the Confidential Information disclosed in written or other tangible form. Notwithstanding the foregoing, the obligations of the Transferor specified above shall not apply to any Confidential Information which (i) is disclosed or available to the public, or is otherwise in the public domain through no act of the Transferor, its agents or any person or entity which has received such Confidential Information from or through the Transferor, (ii) is approved for release by written authorization of an officer of the Transferee, or (iii) is required to be disclosed by proper order of a court of applicable jurisdiction after adequate notice to the Transferee to seek a protective order therefor, the imposition of which protective order the Transferor agrees to approve and support. The Transferor acknowledges that this Section 5.C is in addition to, and not in replacement of, any obligations of confidentiality under any other agreement. D. RESTRICTIVE COVENANT. The Transferor acknowledges and agrees that the Transferee would be unable to protect the Confidential Information against unauthorized use or disclosure and the Transferee would be unable to realize the benefits of this Agreement if the Transferor were permitted to engage in, hold interests in or perform services for entities, other than the Transferee, conducting a business which (1) offers food products, which are the same as or similar to the Products (defined below) for consumer consumption through on-premises dining, carry-out dining, delivery service, catering service or other distribution channels; or (2) grants or has granted franchises or licenses or establishes or has established joint ventures, for the development and/or operation of a business or enterprise described in the foregoing clause (1) (a "Competitive Business"). For purposes hereof the term "Products" shall mean Products approved or required by BCI from time to time, in its sole discretion, for sale at or from Boston Chicken/Boston Market Units, including, without limitation, rotisserie-roasted chicken, potpies, carved ham, carved turkey, meatloaf, soups, salads, desserts, baked goods and private label packaged goods, provided that the foregoing products are subject to modification or discontinuance in BCI's sole discretion, from time to time, and may include additional or substitute products. The Transferor further acknowledges and agrees that the restrictions contained in this Section 5.E. will not hinder its activities under this Agreement or in general. The Transferor agrees that for a period of two (2) years from the Closing Date, he/it shall not directly or indirectly anywhere in the United States: (1) have any interest as a record or beneficial owner in any Competitive Business provided, however, the Transferor may have an interest in any Competitive Business as a passive investor in such Competitive Business provided such interest does not exceed three percent (3%) of the outstanding equity securities of any company which has a class of securities which is registered under Section 12 of the Securities Exchange Act of 1934, as amended, or traded on a national securities exchange; or (2) perform services as a director, officer, manager, employee, consultant, representative, agent, or otherwise for any Competitive Business; or 19 21 (3) divert or attempt to divert any business or any customers of the Business, or the Transferee to any Competitive Business. The Transferor and the Transferee hereby acknowledge and agree that for purposes hereof, the term "Competitive Business" shall not include Carl's Jr. restaurants provided that such Carl's Jr. restaurants do not offer rotisserie-roasted chicken, carved turkey, carved ham or meatloaf as dinner entrees and provided further, that in no event shall the confidential information of BCI or the Transferee be used in connection with Carl's Jr. restaurants in any manner. The parties hereto hereby acknowledge and agree that BCI is a third party beneficiary of the provisions hereof and shall have the right to seek the enforcement of same. E. REMEDIES; WAIVER; JOINDER. (1) The Transferor agrees that the provisions and restrictions set forth above in Sections 5.C. and 5.D. and in other portions hereof are necessary to protect the Transferee and its successors and assigns in the protection of the Business. The Transferor agrees that damages cannot compensate the Transferee in the event of a violation of the covenants contained in Sections 5.C and 5.D. hereof, and that injunctive relief shall be essential for the protection of the Transferee and its successors and assigns. Accordingly, the Transferor agrees and consents that, in the event it shall violate or breach any of said covenants the Transferee shall be entitled to obtain (and it hereby consents to) such injunctive relief against it, without bond, in addition to such further or other relief as may appertain at equity or law. The exercise or enforcement by the Transferee of any right or remedy hereunder shall not preclude the exercise or enforcement by the Transferee of any other right or remedy hereunder or which the Transferee has the right to enforce under applicable law. (2) Failure by either party to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any right or remedy hereunder at any one or more times be deemed a waiver or relinquishment of such right or remedy at any other time or times. (3) The Transferor agrees that it shall deliver to the Transferee a joinder agreement pursuant to which Carl Karcher Enterprises and CKER each agrees to join in and be bound by the covenants set forth in Sections 5.C and 5.D hereof (the "Joinder Agreement"). F. CONDUCT OF BUSINESS PRIOR TO CLOSING. (1) From the date hereof until the Closing Date, the Transferor shall: (a) conduct the Business in the manner in which it has heretofore been conducted; (b) use reasonable commercial efforts to (i) preserve the Business organization intact 20 22 unless otherwise required by BCI, (ii) keep available the services of its officers, employees, agents, and distributors, and (iii) preserve its relationships with customers, suppliers, and others having dealings with the Transferor; (c) maintain all of the Business properties in customary repair, order and condition, reasonable wear and tear excepted, and maintain insurance of such types and in such amounts upon all of the Business properties and with respect to the conduct of the Business as are in effect on the date of this Agreement. Without the prior written consent of the Transferee, the Transferor shall not: (i) grant any lien, pledge, security interest or other encumbrance upon any of the assets of the Business; (ii) create, incur, assume or guaranty any indebtedness for borrowed money with respect to the Business; (iii) make any capital expenditure with respect to the Business which exceeds, either singly or in the aggregate, Five Thousand Dollars ($5,000.00), except capital expenditures incurred in the ordinary course of business (which the parties agree that for all purposes of this Agreement includes the opening of additional Boston Chicken/Boston Market Stores); (iv) increase the rate of compensation, pay any bonus, incentive or other extraordinary compensation or otherwise materially increase the benefits payable or to become payable to any employee or independent contractor of the Business (other than raises or bonuses made in the ordinary course of business) or make any material changes to the terms of employment of any of said employees; (v) change any accounting policies, procedures or practices employed by it; (vi) sell any of the assets of the Business other than sales of inventory in the ordinary course of business and sales of equipment made in the ordinary course of business because of the replacement or abandonment thereof; (vii) pay or discharge any long-term liability other than in accordance with its terms; or (viii) except in the ordinary course of business enter into any material contract, agreement or lease which would be required to be disclosed hereunder, make any change in any existing contracts, agreements or leases other than in the ordinary course of business (or unless otherwise permitted herein), suffer or permit any defaults to occur 21 23 by the Transferor under any contract or agreement or as tenant under any lease, assign any lease or sublease any Contributed Leasehold Premises. G. ACCESS PENDING CLOSING. From the date hereof to and including the Closing Date, the Transferor shall, permit the Transferee and its accountants and other representatives, to have the right of full and complete access to the books, records, offices, and other facilities of the Transferor during normal business hours, for the purpose of making such investigation of the financial condition and operations of the Business as the Transferee or any such accountant or other representative may reasonably deem necessary. The Transferee and its representatives shall have the right to make and utilize copies or extracts of the Transferor's books, records and other data and information which relates to the Business for its due diligence investigation and other purposes in connection with the transactions contemplated hereby. H. CONSENTS OF THIRD PARTIES. Prior to the Closing on the Closing Date, the Transferor shall obtain or cause to be obtained all consents and other approvals of all lessors, lenders, governmental authorities and other third parties which are required to be obtained as a result of the transactions contemplated by this Agreement, which consents and approvals shall continue each applicable lease, loan or other arrangement related to the Business on substantially identical terms as exist on the date hereof. I. INTERIM FINANCIAL STATEMENTS. From the date hereof to and including the Closing Date, the Transferor shall promptly deliver to the Transferee interim four-week balance accounting period sheets, cash flow and statements of income and retained earnings with respect to the Business, through the end of the four-week accounting period immediately preceding the Closing Date. J. PUBLIC DISCLOSURE. Except for delivery of any memorandum to, and discussions with potential investors in the Transferee and disclosures necessary to effect the transactions contemplated hereby, neither the Transferee nor the Transferor shall provide any information with respect to such transactions to any third parties not involved in the due diligence investigation except after consultation with the other party. Further, neither party shall issue any press release except upon consummation of the transactions contemplated by the Agreement except with the consent of the other party and BCI, which will not be unreasonably withheld or delayed or except as may be required to comply with the Securities Act or applicable state laws. 6. CONDITIONS TO THE OBLIGATION OF THE TRANSFEREE. The obligation of the Transferee to accept the Contributed Assets shall be subject to the 22 24 fulfillment at or prior to the Closing Date of each of the following conditions: A. ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE OBLIGATIONS. The representations and warranties of the Transferor contained in this Agreement shall have been true and correct at and as of the date hereof, and they shall be true and correct at and as of the Closing Date with the same force and effect as though made at and as of that time. The Transferor shall have performed and complied with all of its obligations by this Agreement to be performed or complied with at or prior to the Closing Date. The Transferor shall have delivered to the Transferee a certificate, dated as of the Closing Date, signed by the Transferor's Chief Executive Officer certifying that such representations and warranties are thus true and correct and that all such obligations have been thus performed and complied with (the "CEO Certificate"). B. DELIVERIES. The deliveries of the Transferor described in Section 8.B. shall have been received. C. RECEIPT OF NECESSARY CONSENTS. All necessary consents or approvals of third parties to any of the transactions contemplated hereby, the absence of which would materially affect the Transferee's rights hereunder, shall have been obtained and shown by written evidence satisfactory to the Transferee. The Transferor shall have obtained the consent of all lessors of the Contributed Leasehold Premises to the transactions contemplated hereby and shall have delivered written evidence thereof to the Transferee in form satisfactory to the Transferee. D. DUE DILIGENCE. Transferee shall have been satisfied, in its sole and absolute discretion, with the results of its business, financial, and legal due diligence investigation of the Business and the Contributed Assets. E. BOARD OF DIRECTORS' APPROVAL. The Transferor shall have delivered to the Transferee a certified copy of the resolutions duly adopted by the Board of Directors of the Transferor, authorizing the execution of this Agreement and the consummation of the transactions contemplated hereby. F. BCI LOAN AGREEMENT. The Transferee and BCI shall have executed the Loan Agreement substantially in the form attached as Exhibit A. 23 25 G. BCI DEVELOPMENT AGREEMENT. The Transferee and BCI shall have executed an Area Development Agreement substantially in the form attached as Exhibit D. H. FRANCHISE AGREEMENTS. The Transferee and BCI shall have executed a Franchise Agreement, substantially in the form attached as an exhibit to the Area Development Agreement, with respect to each Store. I. TERMINATION AND GENERAL RELEASE. The Transferor, Boston Pacific, and BCI shall have executed a Termination Agreement and General Release substantially in the form attached as Exhibit E. J. GROUND LEASE AGREEMENTS. The Transferor and the Transferee shall have executed a Ground Lease Agreement, in the form attached hereto as Exhibit B, with respect to each parcel of the Owned Real Property. K. EQUIPMENT LEASE AGREEMENT. The Transferor and the Transferee shall have executed an Equipment Lease Agreement, in the form attached hereto as Exhibit C, with respect to each Store and the Owned Fixed Assets. L. LENDER'S CONSENT. The Transferee shall have received a written consent from Bank of America, lender to CKER, consenting to the transactions contemplated by this Agreement. M. OPERATING AGREEMENT. The Transferor and CKER shall have executed an Amended and Restated Operating Agreement forming the Transferee in form and substance acceptable to BCI. N. AGREEMENT REGARDING OPTIONS TO PURCHASE. The Transferor, CKER, BCI, the Transferee, and BC Real Estate Investments, Inc. ("BCREI"), a wholly-owned subsidiary of BCI, shall have executed an Agreement Regarding Options to Purchase substantially in the form attached hereto as Exhibit H. 7. CONDITIONS TO OBLIGATIONS OF THE TRANSFEROR AND THE SHAREHOLDER. The obligations of the Transferor to contribute the Contributed Assets shall be subject to the 24 26 fulfillment at or prior to the Closing Date of each of the following conditions: A. ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH OBLIGATIONS. The representations and warranties of the Transferee contained in this Agreement shall have been true and correct at and as of the date hereof, and they shall be true and correct at and as of the Closing Date with the same force and effect as though made at and as of that time. The Transferee shall have performed and complied with all of its obligations required by this Agreement to be performed or complied with at or prior to the Closing Date. The Transferee shall have delivered to the Transferor a certificate, dated as of the Closing Date and signed by one of its officers, certifying that such representations and warranties are thus true and correct and that all such obligations have been thus performed and complied with. B. BCI LOAN AGREEMENT. The Transferee and BCI shall have executed the Loan Agreement substantially in the form attached as Exhibit A. C. BCI DEVELOPMENT AGREEMENT. The Transferee and BCI shall have executed an Area Development Agreement substantially in the form attached as Exhibit D. D. FRANCHISE AGREEMENTS. The Transferee and BCI shall have executed a Franchise Agreement, substantially in the form attached as an exhibit to the Area Development Agreement, with respect to each Store. E. TERMINATION AGREEMENT AND GENERAL RELEASE. The Transferor, Boston Pacific, and BCI shall have executed a Termination Agreement and General Release substantially in the form attached as Exhibit E. F. DELIVERIES. The deliveries of the Transferee described in Section 8.C. shall have been received. G. GROUND LEASE AGREEMENTS. The Transferor and the Transferee shall have executed a Ground Lease Agreement, in the form attached hereto as B, with respect to each parcel of the Owned Real Property. 25 27 H. EQUIPMENT LEASE AGREEMENT. The Transferor and the Transferee shall have executed an Equipment Lease Agreement, in the form attached hereto as Exhibit C, with respect to each Store and the Owned Fixed Assets. I. LENDER'S CONSENT. The Transferee shall have received a written consent from Bank of America, lender to CKER, consenting to the transactions contemplated by this Agreement. J. OPERATING AGREEMENT. The Transferor and CKER shall have executed an Amended and Restated Operating Agreement forming the Transferee in form and substance acceptable to BCI. K. AGREEMENT REGARDING OPTIONS TO PURCHASE. The Transferor, CKER, BCI, the Transferee, and BCREI shall have executed an Agreement Regarding Options to Purchase substantially in the form attached hereto as Exhibit H. 8. CLOSING AND CLOSING DELIVERIES. A. CLOSING. The closing of the transaction contemplated hereby ("Closing") shall take place at 10:00 A.M. on April 17, 1995 (the "Closing Date"), at the offices of BCI; provided, however, that notwithstanding the actual date of the Closing, the Closing shall be deemed to have occurred on and be effective as of the close of business on April 16, 1995 (the "Effective Date"); provided, however, that if any of the conditions which are set forth in Section 6 or Section 7 of this Agreement has not been satisfied (or waived) by such date, then the Closing Date shall be on a subsequent date, which shall be determined by the mutual agreement of the parties hereto. B. ACTION TO BE TAKEN BY THE TRANSFEROR. At the Closing, the Transferor shall deliver the following: (1) evidence, in such form as is satisfactory to the Transferee, that each of the conditions to the obligation of the Transferee to accept the Contributed Assets from the Transferor which is set forth in Section 6 of this Agreement has been satisfied; (2) certified copies of the Articles of Incorporation and Bylaws of the Transferor, as amended, to date and certificate of good standing of the Transferor from the State of Delaware dated within five days prior to the Closing Date; 26 28 (3) a copy of the resolutions adopted by the Board of Directors of the Transferor authorizing the Transferor's execution, delivery and performance of this Agreement, certified by the Secretary or Assistant Secretary of the Transferor; (4) such deeds, bills of sale, endorsements, assignments and other instruments, in such form as in each case is satisfactory to the Transferee, as shall be sufficient to vest in the Transferee good and marketable title to the Contributed Assets, free and clear of all liens, claims, mortgages, pledges, encumbrances, and charges of every kind; (5) all consents, waivers, approvals, authorizations or orders required to be obtained, and evidence of the making of all filings required to be made, by the Transferor for its execution and delivery of this Agreement and the consummation of the transactions contemplated hereby; (6) the CFO Certificate, the CEO Certificate, and the Joinder; (7) the results of UCC financing statement searches and tax lien and judgment searches respecting the Transferor in each state and county in which the Business is conducted, which show no liens or encumbrances; (8) opinion of Richard C. Celio, general counsel of CKER and counsel to the Transferor, in form attached as Exhibit F; (9) executed copies of the documents referenced in Section 6 hereof, and (10) a receipt acknowledging the Transferor's receipt of the Consideration. C. ACTION TO BE TAKEN BY THE TRANSFEREE. At the Closing, the Transferee shall deliver the following: (1) evidence, in such form as is satisfactory to the Transferor, that each of the conditions to the obligations of the Transferor to contribute the Contributed Assets to the Transferee which is set forth in Section 7 of this Agreement has been satisfied; (2) evidence that the Transferee has received the proceeds from the Additional Contribution; (3) certified copies of the Certificate of Formation and Operating Agreement of the Transferee and a certificate of good standing of the Transferee from the State of California dated within five days prior to the Closing Date; 27 29 (4) a copy of the resolutions adopted by the managing member of the Transferee authorizing its execution, delivery and performance of this Agreement, certified by the managing member of the Transferee; (5) all consents, waivers, approvals, authorizations or orders required to be obtained, and evidence of the making of all filings required to be made, by the Transferee for its authorization, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby; (6) certificates evidencing the Exchange Units in the name of the Transferor; (7) opinion of McDermott, Will & Emery, counsel to the Transferee, in form attached as Exhibit G; (8) executed copies of the documents referenced in Section 7 hereof; (9) instruments, in such form as are satisfactory to the Transferor, as shall be sufficient to effect the assumption by the Transferee of the Assumed Liabilities; and (10) a receipt acknowledging the Transferee's receipt of the Contributed Assets. D. FORM OF DOCUMENTS. All documents to be furnished at the Closing shall be in form and substance reasonably satisfactory to the Transferor and the Transferee. E. FURTHER ASSURANCES. At any time at or after the Closing, the parties shall execute and deliver such instruments, assignments and other documents as may be reasonably necessary to convey, assign and transfer the Contributed Assets to the Transferee or otherwise carry out the purpose of this Agreement. 9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND COVENANTS. The representations and warranties contained in this Agreement and in any instrument or document delivered pursuant to this Agreement shall survive for a period of three years from the Closing Date notwithstanding any investigation at any time made by or on behalf of the Transferee and thereafter all such representations and warranties shall be extinguished; provided however that (i) the representation and warranty set forth in Section 3D. shall survive until the Statute of Limitations Date (as below defined), and (ii) the representations and warranties set forth in Sections 3.A.; 3.F.; 3.U. and 3.X. shall survive for an indefinite period (the period of such survival being referred to as the ("Survival Period")). For purposes hereof, the Statute of Limitations Date means the last day on which the applicable governmental entity may make an assessment respecting any taxes as provided in the applicable statute or ordinance. Any claim or 28 30 cause of action (including, without limiting the generality of the foregoing, a claim for indemnification pursuant to Section 11 based upon or arising out of any inaccurate representation or warranty made hereunder or in any instrument or document delivered pursuant hereto must be made within the applicable Survival Period or the party against which such claim is made shall have no liability with respect thereto. Nothing contained in this Section shall affect or limit the obligations of either party to perform the obligations to be performed by it hereunder after the Closing Date. 10. CERTAIN ACTIONS AFTER THE CLOSING. A. THE TRANSFEREE TO ACT AS AGENT FOR THE TRANSFEROR. This Agreement shall not constitute an agreement to assign any claim, contract, license, lease, commitment, sales order or purchaser order if any attempted assignment of the same without the consent of the other party thereto would constitute a breach thereof or in any way affect the rights of the Transferor thereunder. If such consent is not obtained or if any attempted assignment would be ineffective or would affect the Transferor's rights thereunder so that the Transferee would not in fact receive all such rights, then subject to the terms and conditions of Section 10.C. hereof the Transferee shall act as the agent for the Transferor in order to obtain for the Transferee the benefits thereunder. B. DELIVERY OF PROPERTY RECEIVED BY THE TRANSFEROR AFTER CLOSING. From and after the Closing the Transferee shall have the right and authority to collect, for the account of the Transferee, all Contributed Receivables and other items which shall be transferred or are intended to be transferred to the Transferee as part of the Contributed Assets as provided in this Agreement, and to endorse with the name of the Transferor any checks or drafts received on account of any such Contributed Receivables or other items of the Contributed Assets. The Transferor agrees that it will transfer or deliver to the Transferee, promptly after the receipt thereof, any cash or other property which the Transferor receives after the Closing Date in respect of any claims, contracts, licenses, leases, commitments, sales orders, purchase orders, receivables of any character or any other items transferred or intended to be transferred to the Transferee as part of the Contributed Assets under this Agreement. C. THE TRANSFEREE APPOINTED ATTORNEY FOR THE TRANSFEROR. Effective at the Closing Date, the Transferor hereby constitutes and appoints the Transferee, its successors and assigns, the true and lawful attorney of the Transferor, in the name of either the Transferee or the Transferor (as the Transferee shall determine in its sole discretion) but for the benefit and at the expense of the Transferee (except as otherwise herein provided), (i) to institute and prosecute all proceedings which the Transferee may deem proper in order to collect, assert or enforce any claim, right or title of any kind in or to the Contributed Assets as provided for in this Agreement; (ii) to defend or compromise any and all actions, suits or proceedings in respect of any of the Contributed Assets, and to do all such acts and things in relation thereto as the Transferee 29 31 shall deem advisable; and (iii) to take all action which the Transferee may reasonably deem proper in order to provide for the Transferee the benefits of the Contributed Assets where any required consent of another party to the sale or assignment thereof to the Transferee pursuant to this Agreement shall not have been obtained. The Transferor acknowledges that the foregoing powers are coupled with an interest and shall be irrevocable. The Transferee shall be entitled to retain for its own account any amounts collected pursuant to the foregoing powers, including any amounts payable as interest in respect thereof. D. EMPLOYMENT BY THE TRANSFEREE OF THE TRANSFEROR'S EMPLOYEES. (1) The Transferor shall use its reasonable best efforts to aid the Transferee in engaging such of the Transferor's employees as are employed by the Business on the Closing Date whom the Transferee desires to engage after the Closing Date. Except with the written consent of the Transferee, neither the Transferor nor any affiliate of the Transferor shall solicit or cause, directly or indirectly, to be solicited, nor attempt to induce, for a period of three years after the Closing Date, any person employed by the Transferor with respect to the Business at or at any time within six months prior to the Closing Date unless such person was either not offered employment by the Transferee or was terminated by the Transferee, (a) not to accept an offer of employment from the Transferee, (b) if an offer is accepted, to terminate his or her employment with the Transferee, or (c) to be employed by or otherwise render services to the Transferor any of its affiliates. As used in this Agreement, the term "affiliate" means, with respect to a specified person, any other person which directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified. (2) The Transferee shall have no obligation to employ any of the persons currently employed by the Transferor or to continue, or institute any replacement or substitution for, any vacation, severance, incentive, bonus, profit sharing, pension or other employee benefit plan or program of the Transferor. E. AGREEMENT REGARDING LEASE LIABILITY. The Transferee shall use reasonable commercial efforts to obtain, from each applicable lessor, a release of liability of the Transferor under any lease agreement or guaranty executed by the Transferor and Boston Pacific, as applicable, and which relates to the Contributed Leasehold Rights. 11. INDEMNIFICATION. The Transferor agrees that it will indemnify, defend and hold the Transferee harmless in respect of the aggregate of all indemnifiable damages (as defined below) of the Transferee. For this purpose, "indemnifiable damages" of the Transferee means the aggregate of all expenses, losses, costs, deficiencies, liabilities and damages (including related counsel fees and expenses) incurred or suffered by the Transferee (i) resulting from any inaccurate representation or warranty 30 32 made by the Transferor in or pursuant to this Agreement or any document delivered in connection herewith; (ii) resulting from any default in the performance of any of the covenants or agreements made by the Transferor in this Agreement or any document delivered in connection herewith; (iii) resulting from the failure of the Transferor to pay, discharge or perform any liability or obligation of the Transferor which is not expressly assumed by the Transferee pursuant to this Agreement or any document delivered in connection herewith or resulting from any dispute concerning any such liability or obligation; (iv) resulting from any claim, suit, cause of action, investigation or proceeding whether instituted prior to or after the Closing Date, arising out of or relating to the conduct of the Business prior to the Closing Date; or (v) resulting from any failure of the Transferor to obtain any necessary consent from any person, entity or governmental authority to any of the transactions contemplated hereby. Without limiting the generality of the foregoing, with respect to the measurement of "indemnifiable damages," the Transferee shall have the right to be put in the same financial position as it would have been in had the events giving rise to the "indemnifiable damages" not occurred. 12. MISCELLANEOUS. A. AMENDMENT AND MODIFICATION. The parties hereto may amend, modify and supplement this Agreement in such manner as may be agreed upon by them in writing. B. TERMINATION. (1) Anything to the contrary herein notwithstanding, this Agreement may be terminated and the transaction contemplated hereby may be abandoned: (a) by the mutual written consent of all of the parties hereto at any time prior to the Closing Date; (b) by the Transferee at any time prior to the Closing Date if there shall be a pending or threatened action or proceeding by or before any court or other governmental body which shall seek to restrain, prohibit or invalidate the contribution of the Contributed Assets to the Transferee or any other transaction contemplated hereby, or which might affect the right of the Transferee to own, operate in their entirety or control the Contributed Assets and which, in the judgment of the Transferee, makes it inadvisable to proceed with the transaction contemplated by this Agreement; (c) by any party in the event of the material breach by any other party of any provision of this Agreement, which breach is not remedied by the breaching party within 30 days after receipt of notice thereof from the terminating party; 31 33 (d) by the Transferee if the Transferee is not satisfied, in its sole and absolute discretion, with the results of its business, financial, and legal due diligence investigation of the Business and the Contributed Assets; or (e) by either party if the Closing Date has not occurred by May 14, 1995. If this Agreement is terminated pursuant to Section 12.B.(1)(a) or (d) no party shall have any liability for any costs, expenses, loss of anticipated profit or any further obligation for breach of warranty or otherwise to any other party to this Agreement. Any termination of this Agreement pursuant to Section 12.B.(1)(b) or (c) shall be without prejudice to any other rights or remedies of the respective parties. (2) The risk of any loss to the properties to be contributed by the Transferor hereunder and all liability with respect to injury and damage occurring in connection therewith until the completion of the Closing shall be the sole responsibility of the Transferor. If any material part of said properties shall be damaged by fire or other casualty prior to the completion of the Closing hereunder, the Transferee shall have the right and option: (a) to terminate this Agreement, without liability to any party thereto; or (b) to proceed with the Closing hereunder, in which event such casualty shall not constitute a breach by the Transferor of any representation, warranty or covenant in this Agreement, and the Transferee shall be entitled to receive and retain the insurance proceeds arising from such casualty and to be reimbursed by the Transferor for any uninsured casualty. C. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns, heirs and legal representatives. D. SEVERABILITY. The parties expressly agree that it is not the intention of any party to violate any public policy, statutory or common laws, rules, regulations, treaties or decisions of any government or agency thereof. If any provision of this Agreement is judicially or administratively interpreted or construed as being so in violation, such provision shall be inoperative and the remainder of this Agreement shall remain binding upon the parties hereto. Further, to the extent any provision hereof is deemed unenforceable by virtue of its scope but may be enforceable by limitations thereon, the parties hereto agree that the same shall be enforceable to the fullest extent permissible under the laws and public policies applied in such jurisdiction in which the enforcement is sought. The parties hereto hereby authorize any court of competent jurisdiction to modify the covenants of 32 34 Section 5.D. and 5.E. to the extent necessary to make the same enforceable. E. ENTIRE AGREEMENT. This instrument and the exhibits and schedules attached hereto contain the entire agreement of the parties hereto with respect to the contribution of the Contributed Assets and the other transactions contemplated herein, and, unless otherwise indicated, supersede all prior understandings and agreements of the parties with respect to the subject matter hereof. Any reference herein to this Agreement shall be deemed to include the schedules and exhibits attached hereto. F. HEADINGS. The descriptive headings in this Agreement are inserted for convenience only and do not constitute a part of this Agreement. G. EXECUTION IN COUNTERPART. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. H. NOTICES. All notices, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or by confirmed electronic transmission. If mailed, first class, certified mail, postage prepaid, or sent by reliable overnight delivery service and addressed as follows, or at such other addresses as the parties hereto may from time to time designate in writing, such notices, requests, demands, and other communications shall be deemed delivered three business days after being so duly posted or the next business day if sent by overnight delivery service: To Transferee: Boston West, L.L.C. 222 South Harbor, Suite 300 Anaheim, CA 92805 Attention: -------------------- Facsimile: -------------------- With a copy to: To Transferor: Boston Pacific, Inc. ------------------------------- ------------------------------- Attention: -------------------- Facsimile: -------------------- With a copy to: 33 35 Any party may change the address to which notices hereunder are to be sent to it by giving written notice of such change of address in the manner herein provided for giving notice. I. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed therein. J. CONSTRUCTION. This Agreement shall not be construed more strictly against one party than against another merely by virtue of the fact that it may have been prepared primarily by counsel for one of the parties, it being recognized that all parties have contributed substantially and materially to the preparation of this Agreement. K. PAYMENT OF EXPENSES. Each party to this Agreement shall pay all of the expenses incurred by it in connection with this Agreement, including, without limitation, its legal and accounting fees and expenses, and the commissions, fees and expenses of any person employed or retained by it to bring about, or to represent it in, the transactions contemplated hereby. L. CONFLICT OF INTEREST WAIVER. The parties to this Agreement acknowledge that the Transferor and the Transferee are represented by McDermott, Will & Emery ("MW&E"). Attorneys of MW&E perform services for the Transferor, the Transferee and certain of the Transferor's affiliates. It is anticipated that MW&E will continue to represent the Transferor, the Transferee and certain of their affiliates in the future. If a dispute arises between the Transferor and the Transferee, either party, or both parties, may request, because of a potential conflict of interest, that MW&E resign as counsel to the other party and that such other party retain separate counsel for such matters. 34 36 IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed as of the day and year first above written. BOSTON WEST, L.L.C., a Delaware limited liability company By: /s/ WILLIAM P. FOLEY, II -------------------------------- Its: William P. Foley, II, Manager BOSTON PACIFIC, INC., a California corporation By: /s/ RICHARD C. CELIO -------------------------------- Its: Vice President, General Counsel Richard C. Celio 35 EX-10.85 8 AMENDED AND RESTATED LIMITED LIABILITY AGREEMENT 1 EXHIBIT 10.85 AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF BOSTON WEST, L.L.C. (A Delaware Limited Liability Company) This Amended and Restated Limited Liability Company Agreement (this "Agreement") of Boston West, L.L.C., a Delaware limited liability company (the "Company"), dated as of April 16, 1995, is adopted and entered into by and among the persons and entities listed on the signature pages hereof as members (each, a "Member" and collectively, the "Members"). WITNESSETH: CKE Restaurants, Inc. and Boston Pacific, Inc. have heretofore formed a limited liability company pursuant to and in accordance with the Delaware Limited Liability Company Act (6 Del. C. Section 18-10, et seq.), as amended from time to time (the "Act"), by entering into a Limited Liability Company Agreement of the Company, dated as of March 29, 1995 (the "Original Limited Liability Company Agreement"), and filing a Certificate of Formation of the Company with the office of the Secretary of State of the State of Delaware on March 29, 1995. The parties hereto desire to continue the Company as a limited liability company under the Delaware Act and to amend and restate the Original Limited Liability Company Agreement of the Company in its entirety. NOW, THEREFORE, in consideration of the premises and the mutual agreements set forth herein, the parties hereby agree as follows: ARTICLE I FORMATION; NAME; TERM 1.1 Formation. The Members have organized the Company pursuant to the provisions of the Act. The Members hereby agree that the Company shall be governed by the terms and conditions of this Agreement. 1.2 Company Name. The name of the Company shall be Boston West, L.L.C. 1.3 Effective Date. This Agreement shall become effective as of the date of this Agreement. 2 1.4 Term. The Company shall dissolve and its affairs shall be wound up in accordance with the Act and this Agreement on the termination or dissolution of the Company in accordance with the terms of this Agreement. 1.5 Purpose. The Company is organized for the purposes of acquiring, constructing, owning, and operating Boston Chicken or Boston Market Stores as an area developer of Boston Chicken, Inc. in the areas defined in the Area Development Agreement, and any other businesses as the Management Committee (as herein after defined) may determine from time to time, and to engage in any lawful business, purpose or activity for which a limited liability company may be organized under the Act, except insurance or banking. 1.6 Offices. The principal office of the Company shall be maintained and established at 222 South Harbor, Suite 300, Anaheim, CA 92805, or at such other or additional place or places as the Management Committee shall determine from time to time. The initial resident agent of the Company in the State of Delaware shall be The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. The Company may have other offices, either within or outside of the State of Delaware, at such place or places as the Management Committee may from time to time designate or the business of the Company may require. 1.7 Filings. The Members promptly shall execute and deliver such documents and perform such acts consistent with the terms of this Agreement as may be necessary to comply with the requirements of law for the formation, qualification and operation of a limited liability company under the laws of each jurisdiction in which the Company shall conduct business. 1.8 Definitions. As used in this Agreement, the following terms shall have the meanings set forth below: "Accumulating Class B Return" shall mean, with respect to any Class B Member, as of any determination date, the excess, if any, of (i) such Member's accumulated Class B Return for the period beginning on the date of this Agreement and ending on the earlier of such determination date or June 30, 1997 over (ii) the sum of the aggregate cash amounts distributed to such Member with respect to such Accumulating Class B Return pursuant to Sections 3.7(a)(ii) and 3.7(b)(ii). "Act" shall mean the Delaware Limited Liability Company Act (6 Del. C. Section 18-10, et seq.). "Agreement" shall means this Limited Liability Company Agreement. "Area Development Agreement" shall mean the area development agreement dated as of April 16, 1995 between Boston Chicken, Inc. and the Company, as it may be amended from time to time. 2 3 "BCI" shall mean Boston Chicken, Inc., a Delaware corporation. "BCI Option" means the Option, as defined in the Secured Loan Agreement. "Book-Up Event" shall mean (a) any capital contribution to the Company made by one or more Members other than in accordance with the Members' Class A Units, (b) any Class B Conversion by the Class B Members pursuant to Section 2.4, or (c) the exercise of the Conversion Right or BCI Option. "Capital Account" shall have the meaning set forth in Section 3.1. "Capital Contributions" shall mean any contribution by a Member to the capital of the Company in cash or property or a promissory note or other obligation to contribute cash or property as specified in Article II. "Certificate" shall mean the Certificate of Formation for the Company filed with the Secretary of State of Delaware. "Class A Members" shall mean those persons listed on Schedule I together with their permitted successors and assigns. "Class A Units" shall mean the measure of a Member's right to certain distributions and allocations, as specified in Article III. "Class B Contribution" shall mean the contributions by the Class B Members pursuant to Sections 2.1 and 2.3. "Class B Members" shall mean those persons listed on Schedule 2 together with their permitted successors and assigns. "Class B Rate" shall mean an annual rate equal to 9%. "Class B Return" shall mean a return on a Member's Unrecovered Class B Contributions at the Class B Rate from the date of this Agreement. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Company" shall mean Boston West, L.L.C., a Delaware limited liability company. "Conversion Right" shall mean the right of BCI to acquire Class A Units under the Secured Loan Agreement and the Senior Secured Convertible Note. "Dissolution Event" shall have the meaning set forth in Section 8.2. 3 4 "Franchise Agreement" shall mean any franchise agreement between BCI and the Company and "Franchise Agreements" means all such agreements from time to time in effect. "Gross Asset Value" shall mean, with respect to any asset, the asset's adjusted basis for federal income tax purposes, except that (i) the Gross Asset Value of any asset contributed to the Company shall be its fair market value on the date of such contribution (which, in the case of property (other than cash) contributed by the Class B Members as their Initial Capital Contribution, shall be the fair market values set forth on Schedule 3 hereto, and which in any other case shall be as determined by the Members), (ii) the Gross Asset Value of any asset distributed in kind to any Member shall be the gross fair market value of such asset, as determined by the Members, on the date of such distribution, (iii) the Gross Asset Values of the Company's assets shall be adjusted, upon any Book-up Event, to equal their fair market values immediately prior to such Book-up Event, and (iv) if the Gross Asset Value of any asset has been determined pursuant to clause (i) or (iii), it shall thereafter be adjusted by the Depreciation taken into account with respect to such asset in determining Net Income or Net Loss. "Interest" shall mean any Class A Unit or Class B Unit and the Member's share of the profits and losses and right to receive distribution of assets associated with each. "IRS" shall mean the Internal Revenue Service. "IRS Regulations" shall mean the rules, regulations, orders, and interpretations of rules, regulations, and orders adopted by the IRS under the Code, as in effect from time to time. "Management Committee" shall have the meaning set forth in Section 6.1. "Managers" shall mean those individuals indicated in Section 6.2 hereof and any other individuals that succeed any of them as a Manager pursuant to this Agreement. "Members" shall have the meaning set forth in the preamble hereto. "Member Majority" shall mean Holders of Class A Units owning more than 50% of the outstanding Class A Units. "Net Income" or "Net Loss" shall mean, with respect to any year, the taxable income or taxable loss of the Company for such year as determined for federal income tax purposes (determined without regard to the items that are specially allocated under Section 3.4), with the following adjustments: (i) Such taxable income or loss shall be increased by the amount, if any, of tax-exempt income received or accrued by the Company; 4 5 (ii) Such taxable income or loss shall be reduced by the amount, if any, of all expenditures of the Company described in Section 705(a)(2)(B) of the Code, including expenditures treated as described therein under IRS Regulation Section 1.704-1(b)(2)(iv)(i); (iii) If the Gross Asset Value of any asset is adjusted pursuant to clause (ii) or (iii) of the definition thereof, the amount of such adjustment shall be taken into account, immediately prior to the event giving rise to such adjustment, as gain or loss from the disposition of such asset for purposes of computing Net Income or Net Loss; (iv) Gain or loss resulting from any disposition of any asset with respect to which gain or loss is recognized for federal income tax purpose shall be computed by reference to the Gross Asset Value of the asset disposed of, notwithstanding that such Gross Asset Value differs from the adjusted tax basis of such asset; and (v) In lieu of any depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or taxable loss, there shall be taken into account an amount of depreciation, amortization, or other cost recovery deduction (the "Depreciation") that is determined in accordance with the methods used for federal income tax purposes and that equals the amount that bears the same ratio to the Gross Asset Value of such asset as the depreciation, amortization, or cost recovery deduction computed for federal income tax purposes bears to its adjusted basis for federal income tax purposes. "Person" shall mean any individual, corporation, company, voluntary association, partnership, joint venture, limited liability company, trust, estate, unincorporated organization, governmental authority or other entity. "Regulatory Allocations" shall have the meaning set forth in Section 3.5. "Secured Loan Agreement" shall mean the Secured Loan Agreement dated as of April 16, 1995 between BCI and the Company, as it may be amended from time to time. "Transfer" shall mean any transfer, sale, assignment, pledge, hypothecation or other disposition of any Interest, whether voluntary or involuntary, including, without limitation, any such disposition by operation of law or otherwise to an heir, successor or assign. "Transferor" and "Transferee" have correlative meanings. "Unrecovered Class B Contributions" shall mean a Member's aggregate Class B Contributions, as determined from time to time, reduced by (i) the amount of all distributions to such Member with respect to such Member's Unrecovered Class B Contributions pursuant to Section 3.7(a) and (ii) $1,000 for each Class B Unit converted pursuant to Section 2.4. "Unpaid Class B Return" shall mean, with respect to any Member, as of any date on or 5 6 after June 30, 1997, the excess, if any, of (i) such Member's cumulative Class B Return for the period beginning on or after June 30, 1997 over (ii) the sum of the aggregate amounts distributed to such Member with respect to such Member's Unpaid Class B Return pursuant to Sections 3.6(a), 3.7(a)(i) and 3.7(b)(i). ARTICLE II CAPITAL CONTRIBUTIONS 2.1 Initial Capital Contribution. Upon execution of this Agreement, (a) each Class A Member shall make an initial capital contribution in cash in such amount as is set forth on Schedule 3 and shall be entitled to one Class A Unit for each $10 of capital contributed, and (b) each Class B Member shall make an initial capital contribution in kind as is set forth on Schedule 3, which shall be designated as a "Class B Contribution"; and shall be entitled to one Class B Unit for each $1000 of capital contributed. These respective contributions shall be the "Initial Capital Contribution" of the Class B Members and the Class A Members. 2.2 (Intentionally Omitted] 2.3 Additional Contributions. At the request of the Management Committee, the Class B Members may, at their option, make additional capital contributions to the Company, which will be designated Class B Contributions, in such amounts, not to exceed the aggregate amount of $15,000,000, as the Management Committee may determine, all in accordance with the provisions of Section 1.11 of the Secured Loan Agreement and that certain Agreement Regarding Options to Purchase of even date therewith. The Class B Members shall be entitled to one Class B Unit for each $1000 of such additional capital contribution made under this Section 2.3. 2.4 Conversion of Class B Units. All Class B Units will be convertible, as a class and not in part, into 86.956 Class A Units of the Company for each Class B Unit then outstanding under the following circumstances (each, a "Class B Conversion"): (i) at the option of the Class B Members in connection with a sale of all or substantially all of the Class A Units or assets of the Company; (ii) at the option of the Class B Members within 45 days after the giving of notice to the Class B Members by the Company of any optional distribution with respect to the Unrecovered Class B Contributions pursuant to Section 3.7(a)(ii); (iii) at the option of the Class B Members at any time after the expiration of the BCI Option and Conversion Right; or 6 7 (iv) at the option of the Company upon the exercise of the BCI Option and/or Conversion Right. Upon the conversion, the Class B Units held by the Class B Members shall be reduced to zero, and the Class B Members shall be entitled to 86.956 Class A Units for each Class B Unit so converted. In case of any reclassification or change of outstanding Class A Units of ownership interest in the Company issuable upon conversion of the Class B Units, or in case of any consolidation or merger of the Company with or into any partnership, corporation, or other entity (other than a merger in which the Company is the surviving corporation and which does not result in any reclassification or change of outstanding Class A Units, other than a change in number of Class A Units issuable upon conversion of the Class B Units) or in case of any sale or conveyance to any partnership, corporation, or other entity of the property of the Company as an entirety or substantially as an entirety, then the holder of the Class B Units shall have the right thereafter to convert the Class B Units into the kind and amount of Class A Units of ownership interest, shares of stock and other securities and property receivable upon such reclassification, change, consolidation, merger, sale, or conveyance by a holder of the number of Class A Units of ownership interest in the Company issuable upon conversion of the Class B Units immediately prior to such reclassification, change, consolidation, merger, sale, or conveyance, subject to adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for herein. 2.5 Admission of BCI and/or its successor and assignees. BCI and/or its successors and assignees shall be admitted to the Company as Class A Members upon the exercise of the Conversion Right or the BCI Option in accordance with the Secured Loan Agreement and without any other or further action on the part of BCI and its Successors and Assignees or any action on the part of the Company or its Members, except as may be required by applicable law. Class A Units acquired by BCI, its successor and assignees as a result of any exercise of the Conversion Right or the BCI Option shall be allocated among BCI and its successors and assignees in the manner in which BCI directs the Company in writing. Notwithstanding anything to the contrary provided in this Agreement, to the extent permitted under the Act, BCI, its successors and assignees shall have the right to transfer Units acquired by them without restrictions and to cause any assignee or transferee thereof to be admitted to the Company as a Class A Member without the consent or approval of, and without any other action on the part of, the Company or its Members. 2.6 Employee Unit Option Plan. Pursuant to the 1995 Employee Unit Option Plan dated of even date herewith (hereinafter called the "Plan"), certain present and future employees of the Company shall have the right to acquire Class A Units in the Company and to become Class A Members of the Company. The terms and provisions of the Plan are incorporated by reference into this Agreement as if stated herein at length; provided, however, that the exercise of an option by the employee shall be conditioned upon the employee becoming a party to this Agreement. 7 8 ARTICLE III CAPITAL ACCOUNTS; ALLOCATIONS; DISTRIBUTIONS 3.1 Capital Accounts. (a) A Capital Account shall be maintained for each Member in accordance with the capital account maintenance rules of IRS Regulation Section 1.704-1(b)(2)(iv) and as provided herein (the "Capital Account"). The Capital Account of each Member shall be increased by (i) the amount of any capital contribution made by such Member to the Company in cash, (ii) the fair market value (net of liabilities that the Company is considered to assume or take subject to under Section 752 of the Code) of any capital contribution made by such Member to the Company in property (other than cash), and (iii) allocations to such Member of Net Income pursuant to Section 3.2. The Capital Account of each Member shall be decreased by (x) the amount of any cash distributed to such Member, (y) the fair market value (net of liabilities that such Member is considered to assume or take subject to under Section 752 of the Code) of any property (other than cash) distributed to such Member, and (z) allocations to such Member of Net Loss (as defined below) pursuant to Section 3.3. (b) Any transferee of a Member's Interest in the Company shall succeed to that portion of the Capital Account of the transferor Member as is equal to the portion of the transferor Member's Interest so transferred. (c) If the number of Class A Units held by the Members varies during any year, then their proportionate shares of Net Income or Net Loss allocated under Sections 3.2(c) and 3.3 shall be appropriately adjusted to reflect such variations. 3.2 Allocations of Net Income. Net Income for each year shall be credited to the Capital Accounts of the Members as follows and in the following order of priority: (a) First, to the Members in proportion to their Class A Units until any deficit balance in the Class A Members' Capital Account is eliminated; (b) Second, to the Class B Members until such Members' Capital Account balance (after taking into account the effect of any cash distributions for such year) equals the sum of such Members' (i) Unrecovered Class B Contributions and (ii) their Accumulating Class B Return; and (c) Thereafter, to the Members in proportion to their Class A Units. 3.3 Allocations of Net Loss. Net Loss for each year shall be charged to the Capital Accounts of the Members in proportion to their Class A Units. 8 9 3.4 Special Allocations. (a) intentionally omitted (b) Notwithstanding the provisions of Sections 3.2 and 3.3, upon a Class B Conversion by the Class B Members, a special allocation shall be made to the Class B Members of items of income, gain, deductions, or losses in such amounts as may be necessary to cause the Class B Members' Capital Account to bear the same ratio to the aggregate balance of all Members' Capital Accounts that the Class B Members' Class A Units (taking into account any additional Class A Units issued upon such Class B Conversion) bear to the aggregate amount of all Members' Class A Units. (c) Notwithstanding the provisions of Sections 3.2 and 3.3, upon the exercise of the BCI Option or Conversion Rights, a special allocation shall be made to BCI or its successors or assignees of items of income, gain, deductions, or losses in such amounts as may be necessary to cause the Capital Account of BCI or its successors or assignees to bear the same ratio to the aggregate balance of all Members' Capital Accounts that the Class A Units of BCI or its successors or assignees (taking into account any additional Class A Units issued upon such conversion) bear to the aggregate amount of all Members' Class A Units. (d) In the event that each of the two preceding subparagraphs are applicable at the same time, the required special allocations shall be made on a proportionate basis. 3.5 Regulatory Allocations. (a) Notwithstanding any other provision of this Agreement to the contrary, if there is a net decrease in the Company's partnership minimum gain (as defined in IRS Regulation Section 1.704-2(b)) during any year, there shall be specially allocated to each Member items of income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member's share of the net decrease in the Company's partnership minimum gain (determined in accordance with IRS Regulation Section 1.704-2(g)). The items to be so allocated shall be determined in accordance with IRS Regulation Section 1.704-2(f)(6). This Section 3.5(a) is intended to comply with the partnership minimum gain chargeback requirement in IRS Regulation Section 1.704-2(f) and shall be interpreted in a manner consistent with such intent. (b) Notwithstanding any other provision of this Agreement to the contrary, if there is a net decrease in the Company's partner nonrecourse debt minimum gain (as defined in IRS Regulation Section 1.704-2(i)) during any year, then each Member shall be specially allocated items of income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member's share if any (determined in accordance with IRS Regulation Section 1.704-2(i)(4)) of the net decrease in the Company's partner nonrecourse debt partnership minimum gain. The items to be so allocated shall be determined in accordance with the provisions of IRS Regulation Section 1.704-2(i)(4). This Section 3.5(b) is intended to comply with the partner minimum gain chargeback requirement in 9 10 IRS Regulation Section 1.704-2(i) and shall be interpreted in a manner consistent with such intent. (c) Notwithstanding any other provision of this Agreement to the contrary, Company losses, deductions, and expenditures described in Section 705(a)(2)(B) of the Code that are attributable (as determined under IRS Regulation Section 1.704-2(b)(1)) to partnership nonrecourse liabilities shall be allocated as Net Loss pursuant to Section 3.3. (d) Notwithstanding any other provision of this Agreement to the contrary, Company losses, deductions, and expenditures described in Section 705(a)(2)(B) of the Code that are attributable (as determined under IRS Regulation Section 1.704-2(i)(2)) to a particular partner nonrecourse liability (as defined in IRS Regulation Section 1.704-2(b)(4)) shall be specially allocated to the Member or Members who bear the economic risk of loss for such liability. This Section 3.5(d) is intended to comply with the allocation provision of IRS Regulation Section 1.704-2(i)(1) and shall be interpreted in a manner consistent with such intent. (e) If any Member unexpectedly receives any adjustment, allocation, or distribution described in IRS Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6) that causes such Member's deficit in its Capital Account to exceed the maximum amount such Member is obligated (or is deemed to be obligated) to restore to the Company upon liquidation as determined in accordance with IRS Regulation Sections 1.704-2(g) and (i), such Member shall be allocated items of income and gain in an amount and manner sufficient to eliminate such excess, as rapidly as possible; provided that allocations pursuant to this Section 3.5(e) shall be made only if and to the extent that such Member's deficit in its Capital Account exceeds such amount after all other allocations pursuant to this Article 3 have been tentatively made as if this Section 3.5(e) were not a part of this Agreement. This Section 3.5(e) is intended to comply with the qualified income offset requirement of IRS Regulations Section 1.704-1(b)(2)(iii)(d) and shall be interpreted in a manner consistent with such intent. (f) The allocations set forth in Sections 3.5(a) through (e) (the "Regulatory Allocations") shall be taken into account in allocating items of income, gain, loss, and deduction among the Members so that, to the extent possible, the net amount of such allocations of other items and the Regulatory Allocations to each Member shall be equal to the net amount that would have been allocated to each such Member if the Regulatory Allocations had not occurred. (g) Solely for federal income tax purposes, income, gain, deduction, and loss of the Company shall be allocated among the Members in accordance with the principles of Section 704(c) of the Code and the "traditional method with curative allocations" set forth in IRS Regulation Section 1.704-3(c) so as to take into account any difference between the Gross Asset Values of the Company's assets and their adjusted bases for federal income tax purposes. 3.6 Distributions. Cash distributions to the Members shall be made as follows: (a) First, on June 30 and December 31 of each year beginning on December 31, 10 11 1997, to the Class B Members until such Members shall have received aggregate distributions pursuant to this Section 3.6(a) equal to such Members' Unpaid Class B Return with respect to their Unrecovered Class B Contributions; and (b) Otherwise, at such times and in such amounts as the Member Majority shall determine, to the Members in proportion to their Class A Units; provided that from and after June 30, 1997, no distribution shall be made unless the Class B Members' Unpaid Class B Return is equal to zero. 3.7 Special Distributions. (a) At the determination of the Management Committee, the Company may give notice to the Class B Members, at any time after the second anniversary of the date of this Agreement, and, 60 days after the giving of such notice, the Company shall make a distribution to the Class B Members in an amount up to the sum of the Class B Members' Unrecovered Class B Contributions, Accumulating Class B Return, and Unpaid Class B Return. Any distribution pursuant to this Section 3.7(a) shall reduce, (i) first, the amount of any Unpaid Class B Return; and (ii) thereafter to the extent of any excess, the Unrecovered Class B Contributions and Accumulating Class B Return, in proportion to the aggregate amount of each. The number of the Class B Members' Class B Units shall be reduced by 1 for each $1,000 of distribution with respect to their Unrecovered Class B Contributions. (b) At any time that the Class B Members are treated as having made a Class B Conversion pursuant to Section 2.4, a distribution shall be made to the Class B Members in an amount equal to the sum of (i) their Unpaid Class B Return and (ii) their Accumulating Class B Return. ARTICLE IV ACCOUNTING, FINANCIAL AND TAX MATTERS 4.1 Books and Records, Reports. (a) The financial officers of the Company shall maintain a system of accounting established and administered in accordance with generally accepted accounting principles, and shall set aside on the books of the Company or otherwise record all such proper reserves as shall be required by generally accepted accounting principles. (b) Within 45 days after the end of each of the first three quarters of each fiscal year of the Company, the financial officers of the Company shall prepare and distribute to each Member quarterly financial statements of the Company including a balance sheet and profit and loss statement. 11 12 (c) Within 90 days after the close of each fiscal year of the Company there shall be prepared and distributed to each Member the following financial statements, accompanied by the audited report thereon of the independent accountants for the Company: (i) a balance sheet of the Company as at the end of such fiscal year; (ii) a statement of profit and loss for such fiscal year; (iii) a statement of the Members' Capital Accounts and changes therein for such fiscal year; (iv) information regarding such Member's distributive share of all tax items of the Company for such year; and (v) a statement of cash flows of the Company for such fiscal year. 4.2 Fiscal Year. The fiscal year of the Company shall be the calendar year unless the Management Committee determines that a Member Majority uses a different year, in which case the Member Majority shall decide whether to change the fiscal year of the Company to conform to the fiscal year of the Member Majority, or unless a different fiscal year is required under the Secured Loan Agreement. 4.3 Compensation. No Member shall receive any compensation for services rendered to the Company except as determined by the Management Committee. The Members shall determine the compensation for the Managers. The Management Committee (or a committee established by the Management Committee) shall make all determinations with respect to compensation, including salaries, bonuses and options of all officers and employees of the Company. 4.4 Bank and Investment Accounts. All funds of the Company shall be deposited in its name, or in such name as may be designated by the Management Committee, in such checking, savings or other accounts, or held in its name in the form of such other investments as shall be designated by the Management Committee. All withdrawals of such deposits or liquidations of such investments by the Company shall be made exclusively upon the signature or signatures of such officer or officers of the Company as the Management Committee may designate. 4.5 Tax Matters Partner. The "tax matters partner" (as such term is defined in Section 6231(a)(7) of the Code) of the Company shall be William P. Foley, or any other Member selected by a majority of the Members to succeed it or any of its successors, who shall be subject to the control of the Management Committee. Each Member, by its execution of this Agreement, consents to such designation of the tax matters partner, and agrees to execute, certify, acknowledge, deliver, swear to, file and record at the appropriate public offices such documents as may be necessary or appropriate to evidence such consent. 4.6 Tax Elections and Accounting Decisions. All determinations as to tax elections shall be made by the tax matters partner. All determinations as to accounting principles shall be made by the Management Committee. 12 13 ARTICLE V MEMBERS 5.1 Members. The names and the business, residence or mailing address of the Members are as set forth on Schedule 4 hereto. As Members are substituted or new Members added from time to time pursuant to Article IX, the Management Committee shall amend this Schedule 4. 5.2 Classes of Members. The Company shall have the following two classes of Members. (a) Holders of Class A Units; and (b) Holders of Class B Units. 5.3 Voting by Members. Only the Class A Members shall have the right to vote, except as otherwise provided by law; provided that in the event the Company is in arrears in distributions to be made pursuant to Section 3.6 by one year (two distributions), the Class B Members, voting as a class, shall be entitled to elect one of the Managers of the Company. 5.4 Meetings of Members. (a) Annual Meetings. The date, time and place of the annual meeting shall be determined by the Management Committee. (b) Special Meetings. Special meetings of Members may be called for any purpose and may be held at such time and place, within or without the State of Delaware, as shall be stated in a notice of meeting or in a duly executed waiver of notice thereof. Such meetings may be called at any time by a Member Majority or by a Manager. (c) Place of Meetings. A Manager may designate any place, either within or without the State of Delaware, as the place of meeting for any annual meeting or for any special meeting called by a Manager. If no designation is made, or if a special meeting is otherwise called, the place of meeting shall be the principal executive office of the Company. 5.5 Notice. Whenever Members are required or permitted to take action at a meeting, written or printed notice stating the place, date, time, and, in the case of special meetings, the purpose or purposes, of such meeting, shall be given to each Member entitled to vote at such meeting and to each Manager not less than 10 nor more than 60 days before the date of the meeting. All such notices shall be delivered, either personally or by mail, by or at the direction of the Managers, and if mailed, such notice shall be deemed to be delivered when deposited in the 13 14 United States mail, postage prepaid, addressed to the Member at his, her or its address as the same appears on the records of the Company. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. 5.6 Quorum. Not less than a Member Majority, present in person or represented by proxy, shall constitute a quorum at all meetings of the Members, except as otherwise provided by the Act or this Agreement. If a quorum is not present, the Members in person or represented by proxy at the meeting, and entitled to vote at the meeting, may adjourn the meeting to another time and/or place. When a quorum is once present to commence a meeting of Members, it is not broken by the subsequent withdrawal of any Members or their proxies. 5.7 Adjourned Meetings. When a meeting is adjourned to another time and place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Company may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjournment meeting, a notice of the adjourned meeting shall be given to each Member of record entitled to vote at the meeting. 5.8 Vote Required. When a quorum is present, the affirmative vote of a Member Majority present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the Members, unless the question is one upon which by express provisions of an applicable law or of this Agreement a different vote is required, in which case such express provisions shall govern and control the decision of such question. 5.9 Proxies. Each Member entitled to vote at a meeting of Members or to express consent or dissent to Company action in writing without a meeting may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. 5.10 Action by Written Consent. Unless otherwise restricted by this Agreement, any action required or permitted to be taken at any Annual or Special Meeting of Members of the Company may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the actions so taken, shall be signed by the Holders of Class A Units having not less than the minimum number of votes that would be necessary to authorize or take such action. 5.11 Action by Members. The Members shall from time to time vote their Interests as may be required in order to cause the Company to comply with this Agreement and shall take all actions reasonably required to cause the Managers designated by them to attend all meetings that are duly called in accordance with this Agreement. 14 15 5.12 Withdrawal. Except as provided by law, no Member shall be entitled to the withdrawal or return of such Member's capital contributions, except to the extent, if any, that distributions made pursuant to this Agreement or upon termination or dissolution of the Company may be considered as such by law, and then only to the extent provided for in this Agreement. 5.13 Certificate of Membership Interest. A membership Interest may be represented by a certificate of membership. The exact contents of a certificate of membership may be determined by action of the Managers but shall be issued substantially in conformity with the following requirements. The certificates of membership shall be respectively numbered serially, as they are issued, shall be impressed with the Company seal, if any, and shall be signed by the Managers or officers of the Company. Each certificate of membership shall state the name of the Company, the fact that the Company is organized under the laws of the State of Delaware as a limited liability company, the name of the person to whom issued, the date of issue, and the membership Interests represented thereby. A statement of the designations, preferences, qualifications, limitations, restrictions, and special or relative rights of the membership Interest, if any, shall be set forth in full or summarized on the face or back of the certificates which the Company shall issue, or in lieu thereof, the certificate may set forth that such a statement or summary will be furnished to any Holder of an Interest upon request without charge. Each certificate of membership shall be otherwise in such form as may be determined by the Managers. 5.14 Cancellation of Certificate. All certificates of membership surrendered to the Company for transfer shall be cancelled and no new certificates of membership shall be issued in lieu thereof until the former certificates for a like number of membership Interests shall have been surrendered and cancelled, except as herein provided with respect to lost, stolen, or destroyed certificates. 5.15 Replacement of Lost, Stolen, or Destroyed Certificate. Any Member claiming that such Member's certificate of membership is lost, stolen, or destroyed may make an affidavit or affirmation of that fact and request a new certificate. Upon the giving of a satisfactory indemnity to the Company as reasonably required by the Managers, a new certificate may be issued of the same tenor and representing the same percentage membership Interest as was represented by the certificate alleged to be lost, stolen, or destroyed. ARTICLE VI MANAGEMENT 6.1 Management. Except as otherwise expressly provided for herein, the business and affairs of the Company shall be managed by and under the direction of a committee of managers established pursuant to, and with the powers and authority set forth in this Article VI (the "Management Committee"). The Management Committee shall have the sole and exclusive responsibility and authority for the management, conduct and operation of the Company's 15 16 business in all respects and in all matters, except to the extent that the Management Committee delegates any such responsibility or authority to any other committee of Members or Managers, officer, employee or agent of the Company. The Management Committee may delegate such general or specific authority to committees of Members or Managers, officers, employees or agents of the Company as the Management Committee considers desirable from time to time, and such committees of Members or Managers, officers, employees or agents of the Company may, subject to any restraints or limitations imposed by the Management Committee, exercise the authority granted to them. 6.2 Number, Tenure and Qualifications of Managers. The Management Committee shall be comprised of six (6) managers (the "Managers"). The Managers shall be selected in the manner set forth in Section 6.6. The names and addresses of the initial individuals selected to serve as the Managers are set forth on Schedule 5 hereto. The number of Managers comprising the Management Committee may be amended from time to time by the vote or written consent of Members holding at least two-thirds of the Class A Units, provided, that from and at all time after the time that the number of Class A Units owned by BCI and its successors and assignees (the "BCI Units") constitutes at least a majority of the then outstanding Class A Units (the "BCI Effective Time"), the number of Managers shall be fixed by the Holders of a Majority of the BCI Units. Each Manager shall hold office until the next annual meeting of the Members or until a successor shall have been elected and qualified. Managers need not be residents of the State of Delaware or Members of the Company. No Manager of the Company may, at the same time, serve as an officer or director of CKE Restaurants, Inc., provided that from time to time one, but only one, Manager may also be an officer or director of CKE Restaurants, Inc. 6.3 Powers of the Managers. (a) Except as set forth in this Agreement, the Management Committee shall have power and authority, on behalf of the Company to (i) purchase, lease or otherwise acquire from, or sell, lease or otherwise dispose of to, any Person any property, (ii) open bank accounts and otherwise invest the funds of the Company, (iii) purchase insurance on the business and assets of the Company, (iv) commence lawsuits and other proceedings, (v) enter into any agreement, instrument or other writing, (vi) retain accountants, attorneys or other agents and (vii) take any other lawful action that the Management Committee consider necessary, convenient or advisable in connection with any business of the Company. (b) The Management Committee shall have the sole power to bind the Company, except and to the extent that such power is expressly delegated to any other Person by the Management Committee. 6.4 Removal and Resignation. Any Manager or all the Managers may be removed at any time, with or without cause, by a Member Majority then entitled to vote at an election of Managers. Any Manager may resign at any time upon written notice to the Company. 16 17 6.5 Meeting of Managers. (a) Meetings and Notice. Regular meetings of the Management Committee may be held on not less than three days' notice at such time and at such place as shall from time to time be determined by the Management Committee. Any Manager may require the Company, by notice given not less than ten days in advance of any regularly scheduled meeting of the Management Committee, to include in the business to be discussed at the meeting any one or more proposals submitted by such Manager. Special meetings of the Management Committee may be called by a Member Majority on at least five days' notice to each Manager, either personally, by telephone, by mail or by telefax. (b) Communications Equipment. Managers may participate in and act at any meeting of the Management Committee through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in the meeting pursuant to this section shall constitute presence in person at the meeting. (c) Waiver of Notice and Presumption of Assent. Any Manager who is present at a meeting shall be conclusively presumed to have waived notice of such meeting except when such Manager attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Such Manager shall be conclusively presumed to have assented to any action taken unless his or her dissent shall be entered in the minutes of the meeting or unless his or her written dissent to such action shall be filed before the adjournment thereof or shall be forwarded by registered mail to the Company immediately after the adjournment of the meeting. Such right to dissent shall not apply to any Manager who voted in favor of such action. (d) Action by Written Consent. Any action required or permitted to be taken at any meeting of the Management Committee may be taken without a meeting if all Managers consent thereto in writing, and the writing or writings are filed with the minutes of the meetings of the Management Committee. (e) Quorum, Required Vote and Adjournment. A majority of the total number of Managers shall constitute a quorum for the transaction of business. The vote of a majority of Managers present at a meeting at which a quorum is present shall be the act of the Management Committee. If a quorum shall not be present at any meeting of the Management Committee, the Managers present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. 6.6 Appointment of Managers. (a) Unless otherwise provided for in Section 5.3, the Managers of the Company will be appointed by a vote of the Member Majority. 17 18 (b) Vacancies by Managers during terms of office shall be filled by the Management Committee. 6.7 Designation of Officers, Term, etc. (a) The Management Committee shall elect officers of the Company, including a Chairperson, a President, a Secretary and a Treasurer of the Company, and may elect or appoint one or more Vice Presidents and such other officers of the Company as the Management Committee may determine. The Management Committee may use descriptive words or phrases to designate the standing, seniority or area of special competence of the officers elected or appointed. Any two or more offices may be held by the same person. All officers as between themselves and the Company shall have such authority and perform such duties in the management of the Company as may be provided in this Section 6.7 or as the Management Committee may from time to time determine, and may act on behalf of the Company in the manner and regarding such matters as is provided for in this Section 6.7 or as may be authorized by the Management Committee. From time to time the Management Committee may establish, increase, reduce or otherwise modify responsibilities of the officers of the Company or may create or eliminate offices as the Company may consider appropriate. The initial officers of the Company are as follows: Chief Executive Officer Daniel D. Lane President Kerry W. Coin Secretary Richard C. Celio Treasurer Robin Downing
(b) Each officer elected by the Management Committee shall serve until his or her successor is duly elected as provided herein or, if earlier, until his or her death, resignation or removal. A vacancy in any office because of death, resignation, removal, or any other cause shall be filled for the unexpired portion of the term in the manner prescribed in this Agreement for the regular election to such office. (c) Any officer may resign at any time by so notifying the Management Committee and the Secretary in writing. Such resignation shall take effect upon receipt of such notice or at such later time as is therein specified, and unless otherwise specified, the acceptance of such resignation shall not be necessary to make it effective. Any officer elected by the Management Committee may be removed with or without cause. The election of an individual as an officer shall not of itself create a right to continued employment with the Company. 6.8 The President. The President shall have such powers and duties as the Management 18 19 Committee assigns to him or her. The President shall, preside at all meetings of the Management Committee. 6.9 Vice President. The Vice President or, if there shall be more than one, the Vice Presidents, if any, in the order of their seniority or in any other order determined by the Management Committee, shall perform, in the absence or disability of the President, the duties and exercise the powers of the President and shall have such other powers and duties as the Management Committee or the President assigns to him or her or to them. 6.10 Secretary. The Secretary, if present, shall act as secretary of all meetings of the Members and of the Management Committee, shall keep the minutes thereof in the proper books or books to be provided for that purpose; shall see that all notices required to be given by the Company or the Management Committee are duly given and served; shall have charge of the books, records and papers of the Company relating to its organization and management and shall see that the reports, statements and other documents required by law are properly kept and filed at the Company's principal office; and shall, in general, perform all the duties as from time to time may be assigned to him or her by the Management Committee or by the President. 6.12 Treasurer. The Treasurer shall have charge and custody of, and be responsible for, all funds, securities and books of the Company; and, in general, perform all the duties as from time to time may be assigned to him or her by the Management Committee or the President. 6.13 Assistant Secretaries and Assistant Treasurers. Assistant Secretaries and Assistant Treasurers shall perform such duties as shall be assigned to them by the Secretary or by the Treasurer, respectively, or by the Management Committee or by the President. ARTICLE VII LIABILITY; EXCULPATION; INDEMNIFICATION 7.1 Liability of Members. The Members shall not have any liability for the obligations or liabilities of the Company except to the extent provided in the Act and other applicable law. A Member shall not be personally liable for any indebtedness, liability or obligation of the Company, except that such Member shall remain personally liable for the payment of the Capital Contribution of such Member and as otherwise set forth in this Agreement, the Act and any other applicable law. 7.2 Exculpation of Managers. A Manager or a Member exercising management powers or responsibilities for or on behalf of the Company shall not have personal liability to the Company or its Members for damages for any breach of duty in such capacity, except for a breach of fiduciary duty. 19 20 7.3 Indemnification. (a) The Company shall indemnify any person (an "Indemnitee") who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding brought by or against the Company or otherwise, whether civil, criminal, administrative or investigative, including, without limitation, an action by or in the right of the Company to procure a judgment in its favor, by reason of the fact that such Indemnitee is or was a Member, Manager, officer, employee or agent of the Company, or that such Indemnitee is or was serving at the request of the Company as a partner, director, officer, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against all expenses, including attorneys' fees and disbursements, judgments, fines and amounts paid in settlement actually and reasonably incurred by such Indemnitee in connection with such action, suit or proceeding. Notwithstanding the foregoing, no indemnification shall be provided to or on behalf of any Indemnitee if a judgment or other final adjudication adverse to such Indemnitee establishes that his or her acts were a breach of fiduciary duty. (b) Any indemnification under subsection (a) of this Section (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination that the indemnification of the Indemnitee is proper under the circumstances because he or she has met the applicable standard of conduct set forth in subsection (a) of this Section 7.3. Such determination shall be made by the Management Committee or, if the Management Committee so directs, by independent legal counsel in a written opinion. (c) The Company will, in the discretion of the Management Committee, pay expenses incurred in defending any action, suit or proceeding described in subsection (a) above in advance of the final disposition of such action, suit or proceeding. (d) The Company may, in the discretion of the Management Committee, purchase and maintain insurance on behalf of any Indemnitee against any liability asserted against him or her, whether or not the Company would have the power by law to indemnify him or her against such liability. (e) The indemnification provided by this Section 7.3 shall not be deemed exclusive of any other rights to indemnification to which those seeking indemnification may be entitled under any agreement, determination of Members or otherwise. The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Section 7.3 shall continue as to an Indemnitee who has ceased to be a Member or officer (or other person indemnified hereunder) and shall inure to the benefit of the executors, administrators, legatees and distributees of such person. (f) The provisions of this Section 7.3 shall be a contract between the Company, on the one hand, and each Indemnitee who served in such capacity at any time while this Section 7.3 is in effect, on the other hand, pursuant to which the Company and each such Indemnitee intend 20 21 to be legally bound. No repeal or modification of this Section 7.3 shall affect any rights or obligations with respect to any state of facts then or theretofore existing or thereafter arising or any proceeding theretofore or thereafter brought or threatened based in whole or in part upon such state of facts. ARTICLE VIII TERMINATION; DISSOLUTION; LIQUIDATION AND WINDING-UP 8.1 Termination of the Company. In the event of the occurrence of a Dissolution Event (as defined herein), the Company shall be terminated on the 90th day after the occurrence of such event unless the remaining Members prior to the close of business on such 90th day elect to continue the business of the Company by the affirmative vote of a majority in Interest of the remaining Members. 8.2 Events of Dissolution. The Company shall be dissolved upon any of the following (each a "Dissolution Event"): (a) the death or bankruptcy of any Member; (b) passage of sixty (60) days after the assignment, sale, transfer or other disposition of all or substantially all of the assets, properties and business of the Company; (c) the affirmative vote of a Member Majority for a dissolution of the Company; or (d) a transfer in violation of Section 9.1(c); 8.3 Liquidation and Winding-Up. If the Company is dissolved pursuant to Section 8.2, the Company shall be liquidated and wound up in accordance with the Act and the following provisions: (a) The financial officers of the Company shall be directed to prepare a balance sheet, income statement, and cash flow statement of the Company in accordance with generally accepted accounting principles as of the date of dissolution, which balance sheet, income statement and cash flow statement shall be reported upon by the Company's independent public accountants. (b) The assets, properties and business of the Company shall be liquidated by the Management Committee as promptly as possible, but in an orderly and businesslike manner so as not to involve undue sacrifice. Notwithstanding the foregoing, if it is determined by the 21 22 Management Committee not to sell all or any portion of the properties and assets of the Company, such properties and assets shall be distributed in kind in the order of priority set forth in subsection (d); provided, however, that the fair market value of such properties and assets shall be used in determining the extent and amount of a distribution in kind of such properties and assets in lieu of actual cash proceeds of any sale or other disposition thereof. (c) Net Income or Net Loss of the Company for the year of liquidation shall be credited or charged to the Capital Accounts of the Members in accordance with the allocation provisions set forth in Sections 3.2 and 3.3. (d) The proceeds of sale of all or substantially all of the properties and assets of the Company and all other properties and assets of the Company not sold, as provided in subsection (b) above, and valued at the fair market value thereof as provided in such subsection (b), shall be applied and distributed as follows, and in the following order or priority: First, to the payment of all debts and liabilities of the Company and the expenses of liquidation not otherwise adequately provided for. Second, to the setting up of any reserves that are reasonably necessary for any contingent unforeseen liabilities or obligations of the Company or of the Members arising out of, or in connection with, the Company. Third, to the Class B Members up to the amount equal to the positive balance of the Capital Accounts of the Class B Members. Fourth, to the Class A Members up to the amount equal to the positive balance of the Capital Accounts of the Class A Members. (e) A Certificate of Cancellation shall be filed with the Secretary of State of Delaware. 8.4 Survival of Rights, Duties and Obligations. Termination, dissolution, liquidation or winding up of the Company for any reason shall not release any party from liability which at the time of such termination, dissolution, liquidation or winding up already had accrued to any other party or which thereafter may accrue in respect to any act or omission prior to such termination, dissolution, liquidation or winding up. 22 23 ARTICLE IX TRANSFER, ASSIGNMENT, ADMISSION OF MEMBERS 9.1 Transfers of Interests. (a) No Member may Transfer all or any portion of such Member's Interest (including any beneficial interest therein), except that any Member may pledge its Interest to the Holders of the Convertible Debt as security for the Convertible Debt, unless the following conditions are met: (i) with respect to a Transfer by a Class A Member, a majority of the Class B Members approves the Transfer and with respect to a Transfer by a Class B Member, a majority of the Class A Members approves the Transfer; provided, however, that upon and after the conversion of the Class B Units into Class A Units pursuant to Section 2.4 above, a Transfer by any Class A Member other than BCI or its successors or assignees shall require the approval of a majority of the non-transferring Class A Members, and (ii) an instrument of Transfer in form and substance satisfactory to the Management Committee, executed by the transferor and the transferee of the Interest, together with such additional instruments and documents as shall be reasonably requested by the Management Committee shall be delivered to the Management Committee; the transferee shall, if so requested, assume the obligations, if any, of the transferor to the Company. (b) Notwithstanding any other provisions of this Section 9.1, no Transfer of a Member's Interest may be made unless in the opinion of counsel to the Company, satisfactory in form and substance to the Management Committee (which opinion may be waived, in whole or in part, at the discretion of the Management Committee): (i) such Transfer, when added to the total of all other Transfers of Interests in the Company within the preceding twelve (12) months, would not result in any federal income tax consequences that may be materially adverse to the Company or any of the Members; (ii) such Transfer would not violate the Securities Act or any state securities or "blue sky" laws applicable to the Company or the Interest to be Transferred; (iii) such Transfer would not cause the Company to lose its status as a partnership for federal income tax purposes; and (iv) such Transfer shall not impose liability or reporting obligations on the Company or any Member thereof in any jurisdiction, whether domestic or foreign, or result in the Company or any Member thereof becoming subject to the jurisdiction of any court or governmental entity anywhere other than New York. (v) Any Person that acquires an Interest pursuant to this Article IX 23 24 shall assume all obligations of the transferring Member. To the extent permitted by law, a transferring Member shall have no liability for amounts required to be paid with respect to its Interest after the transferee of such Interest is admitted as a substituted Member (other than with respect to amounts owed, but not paid, by such transferring Member as an additional capital contribution or otherwise prior to such Transfer). (c) Notwithstanding any other provision of this Section 9.1, at any time when the only Members of the Company are CKE Restaurants, Inc. and Boston Pacific, Inc., neither Member may transfer all or any portion of such Member's Interest. 9.2 Violative Transfers. No Member may make a Transfer or withdraw from the Company in violation of Section 9.1, and any such Transfer or withdrawal shall be null, void and without effect. 9.3 Substituted Members. As a condition to the admission of any Person as a substituted Member, the Person to be admitted shall execute and acknowledge such instruments, in form and substance satisfactory to the Management Committee, as the Management Committee may deem necessary or desirable to effectuate such admission, and shall confirm that the individual's legal representative, committee or other entity to be admitted as such Member, has agreed to be bound by all of the covenants, terms and conditions of this Agreement, as the same shall have been amended. Such Persons shall become Members on the last to occur of (a) their making contributions to the capital of the Company, to the extent required by the Management Committee; (b) their execution of the instrument described in the first sentence of this Section 9.3; (c) the approval of any other Person whose approval thereof may be necessary; (d) the making of all necessary amendments, modifications and restatements of this Agreement as the Management Committee may deem appropriate to reflect a change or modification of the Company or of the respective rights of the Members hereunder; and (e) the filing of an Amendment to the Certificate with the Secretary of State of Delaware if, in the opinion of the Management Committee, such filing is required; and thereupon such Persons shall be included in the definition of Members, and as parties to this Agreement, for all purposes of this Agreement. Anything herein to the contrary notwithstanding, the Company and the Management Committee shall be entitled to treat the transferor of an Interest as the absolute owner thereof in all respects, and shall incur no liability for distributions made in good faith to the transferor, until such time as a Transfer meeting all of the requirements of this Article IX has been made and a written assignment that conforms to the requirements of this Article IX has been received by the Company. ARTICLE X GENERAL PROVISIONS 10.1 Notices. Wherever provision is made in this Agreement for the giving of any notice, such notice shall be in writing and shall be deemed to have been duly given if mailed by first class United States mail, postage prepaid, addressed to the party entitled to receive the same or 24 25 delivered personally to such party at the address specified below, or if delivered personally, telegraphed, telexed, sent by facsimile transmission or sent by overnight courier, if to the Members, to the addresses therefore set forth on Schedule 5, or to such other address, in any such case, as any party hereto shall have last designated by notice to the other party. Notice shall be deemed to have been given on the day that it is so delivered personally, telegraphed, telexed or sent by facsimile transmission and the appropriate answerback received or, if sent by overnight courier, shall be deemed to have been given one day after delivery by the courier company, or if mailed, three days following the date on which such notice was so mailed. 10.2 Power of Attorney. Each Member, at the request of the Management Committee, shall execute such amendment of the Certificate, restated Certificate or other documents or certificates as the Management Committee deems necessary or appropriate to comply with the laws of any jurisdiction in which the Company does business. Each Member appoints the Management Committee, as its true and lawful representative and attorney-in-fact, in its name, place and stead to make, execute, sign and file all instruments, documents and certificates that, from time to time, may be required by the laws of the United States of America, the State of Delaware or any other state in which the Company shall determine to do business, or any political subdivision or agency thereof, and that are consistent with the terms hereof. The Management Committee, as representatives and attorneys-in-fact, however, shall not have any right, power of authority to amend or modify this Agreement when acting in such capacity, which amendment or modification shall only be effected in accordance with the provisions of Section 10.4. 10.3 Entire Agreement, Non-Waiver. This Agreement constitutes the entire agreement of the parties hereto. No delay on the part of any party in exercising any right hereunder shall operate as a waiver thereof, nor shall any waiver, express or implied, by any party of any right hereunder or of any failure to perform or breach hereof by any other party constitute or be deemed a waiver of any other right hereunder or of any other failure to perform or breach hereof by the same or any other Member, whether of a similar or dissimilar nature thereof. 10.4 Amendments. This Agreement may be amended from time to time only upon the approval of a Member Majority, provided that any amendments that would affect any rights of the Holders of Class B Units shall not be effective unless approved by a vote of 50% of Class B Units. The date of adoption of an amendment shall be the date on which the Company shall have received the requisite approvals or such other date approved by the Management Committee. 10.5 Further Assurances. Each of the Members hereby agrees to execute and deliver all such other and additional instruments and documents and to do such other acts and things, at the request of the Management Committee, as may be reasonably necessary or appropriate to carry out the intent and purposes of this Agreement. 10.6 Privacy of Certain Agreements. Notwithstanding anything to the contrary contained herein, the Members acknowledge that the Company is currently and may in the future be subject to certain agreements, including the Secured Loan Agreement, the Area Development 25 26 Agreement and the Franchise Agreements, with terms that are or may be inconsistent with the provisions of this Agreement, and that to the extent that they are not in violation of the Act, the provisions of those agreements shall control in the event of any conflict herewith and may limit or preclude the Members' ability to exercise their rights or realize any benefits otherwise available to them hereunder. The Members further agree that any distribution made or compensation paid in violation of the Secured Loan Agreement, the Area Development Agreement or any Franchise Agreement shall be reimbursed by the recipient thereof upon demand by the Company. 10.7 Applicable Law. This Agreement, the relations, rights and duties of the Members among themselves, and all matters pertaining to the Members and the Company, shall be governed by and construed under and in accordance with the laws of the State of Delaware applicable to agreements entered into and to be performed wholly within such State. 10.8 Severability. In the event that any provision of this Agreement shall be declared to be invalid, illegal or unenforceable, such provision shall survive to the extent it is not so declared, and the validity, legality and enforceability of the other provisions hereof shall not in any way be affected or impaired thereby, unless such action would substantially impair the benefits to either party of the remaining provisions of this Agreement. 10.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 10.10 Usage. Any word or term used in this Agreement in any form shall be masculine, feminine, neuter, singular or plural, as proper reading requires. 10.11 Table of Contents and Headings. The table of contents and headings in this Agreement are solely for convenience of reference and shall not affect the interpretation or construction of any of the provisions hereof. 26 27 IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or caused this Agreement to be executed, by their respective duly authorized officers, on the date first above written. MEMBERS CLASS A MEMBERS BOSTON PACIFIC, INC. By: /s/ ROBIN DOWNING -------------------------------- Name: Robin Downing Title: Chief Financial Officer CKE RESTAURANTS, INC. By: /s/ LOREN PANNIER -------------------------------- Name: Loren Pannier Title: Chief Financial Officer CLASS B MEMBERS BOSTON PACIFIC, INC. By: /s/ ROBIN DOWNING -------------------------------- Name: Robin Downing Title: Chief Financial Officer 27 28 SCHEDULE 1 CLASS A MEMBERS Boston Pacific, Inc. CKE Restaurants, Inc. 29 SCHEDULE 2 CLASS B MEMBERS Boston Pacific, Inc. 30 SCHEDULE 3 INITIAL CAPITAL CONTRIBUTIONS CKE Restaurants, Inc. $20.00 (2 Class A Units) Boston Pacific, Inc. $23,571,241 (62,000 Class A Units and 22,951 Class B Units)
31 SCHEDULE 4 NAMES AND ADDRESSES OF MEMBERS CKE Restaurants, Inc. 1200 North Harbor Boulevard P.O. Box 4349 Anaheim, CA 92803-4349 Boston Pacific, Inc. 1200 North Harbor Boulevard P.O. Box 4349 Anaheim CA 92803-4349 32 SCHEDULE 5 NAMES AND ADDRESSES OF MANAGERS William Foley Daniel (Ron) Lane Tom Thompson 1200 North Harbor Boulevard P.O. Box 4349 Anaheim, CA 92803-4349 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 --------------------------------------------------------- 1995 1994 1993 1992 1991 ------- ------- ------- ------- ------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) PRIMARY EARNINGS PER SHARE: Net income (loss)...................... $ 1,264 $ 3,665 $(5,507) $13,038 $13,036 ======= ======= ======= ======= ======= Weighted average shares outstanding: Common stock outstanding from beginning of year................. 18,677 18,091 17,918 18,017 17,917 Pro-rata shares: Exercise of stock options......... 102 124 116 90 21 Repurchase and retirement of shares.......................... -- (28) -- (208) -- Purchase of treasury shares....... (144) -- -- -- -- Dilutive effect of outstanding stock options........................... 82 66 294(1) 293 229 ------- ------- ------- ------- ------- 18,717 18,253 18,328 18,192 18,167 ======= ======= ======= ======= ======= Primary earnings (loss) per share...... $ .07 $ .20 $ (.30)(1) $ .72 $ .72 ======= ======= ======= ======= =======
FISCAL YEAR ENDED JANUARY 31 --------------------------------------------------------- 1995 1994 1993 1992 1991 ------- ------- ------- ------- ------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) FULLY DILUTED EARNINGS PER SHARE: Net income (loss)...................... $ 1,264 $ 3,665 $(5,507) $13,038 $13,036 ======= ======= ======= ======= ======= Weighted average shares outstanding: Common stock outstanding from beginning of year................. 18,677 18,091 17,918 18,017 17,917 Pro-rata shares: Exercise of stock options......... 102 124 116 90 21 Repurchase and retirement of shares.......................... -- (28) -- (208) -- Purchase of treasury shares....... (144) -- -- -- -- Dilutive effect of outstanding stock options........................... 82 380 334(1) 309 229 ------- ------- ------- ------- ------- 18,717 18,567 18,368 18,208 18,167 ======= ======= ======= ======= ======= Fully diluted earnings (loss) per share................................ $ .07 $ .20 $ (.30)(1) $ .72 $ .72 ======= ======= ======= ======= =======
- --------------- (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 ---------------------------------------------------------- 1995 1994 1993 1992 1991 ------- ------- -------- -------- -------- (AMOUNTS IN THOUSANDS) Debt: Current portion of long-term debt........................... $ 8,168 $13,207 $ 28,467 $ 29,759 $ 30,554 Current portion of capital lease obligations.................... 3,581 3,354 3,158 2,959 2,251 ------- ------- -------- -------- -------- 11,749 16,561 31,625 32,718 32,805 ------- ------- -------- -------- -------- Long-term debt.................... 27,178 17,414 31,742 50,485 58,297 Capital lease obligations......... 42,691 45,886 48,512 51,589 58,840 ------- ------- -------- -------- -------- 69,869 63,300 80,254 102,074 117,137 ------- ------- -------- -------- -------- $81,618 $79,861 $111,879 $134,792 $149,942 ======= ======= ======== ======== ======== Stockholders' equity: Common stock...................... $ 188 $ 186 $ 181 $ 179 $ 180 Additional paid-in capital........ 35,119 33,742 28,612 26,609 27,352 Retained earnings................. 57,725 58,148 55,939 62,891 51,286 Treasury stock.................... (4,558) -- -- -- -- ------- ------- -------- -------- -------- $88,474 $92,076 $ 84,732 $ 89,679 $ 78,818 ======= ======= ======== ======== ======== Ratio of debt to equity............. 0.9x 0.9x 1.3x 1.5x 1.9x ======= ======= ======== ======== ========
EX-21.1 11 SUBSIDIARIES OF REGISTRANT 1 EXHIBIT 21-1 CKE RESTAURANTS, INC. AND SUBSIDIARIES PARENTS AND SUBSIDIARIES William P. Foley II, Chairman of the Board and Chief Executive Officer, owned of record and beneficially, at March 31, 1995, 4,780,752 shares of the Company's Common Stock, representing approximately 26.3 percent of the Company's total shares outstanding and may be considered a "parent" of the company as such term is defined by the rules and regulations of the Securities and Exchange Commission under the Securities Act of 1933, as amended. Set forth below is a list of all the Company's subsidiaries as of January 30, 1995:
CONTROL BY JURISDICTION OF ------------------------- NAME OF SUBSIDIARY INCORPORATION REGISTRANT SUBSIDIARY - -------------------------------- --------------- ---------- ---------- Carl Karcher Enterprises, Inc. California 100% Boston Pacific, Inc. California 100%
EX-23.1 12 CONSENT OF KPMG 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 Statement No. 33-56313 on Form S-8 of CKE Restaurants, Inc. and Subsidiaries of our report dated April 18, 1995, except as to the first and second paragraphs of note 8 to the consolidated financial statements, which are as of April 28, 1995, relating to the consolidated balance sheets of CKE Restaurants, Inc. and Subsidiaries as of January 31, 1995 and 1994 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended January 31, 1995, which report appears in the January 31, 1995 Annual Report on Form 10-K of CKE Restaurants, Inc. and Subsidiaries. Our report on the consolidated financial statements refers to a change in the method used to discount the workers' compensation reserve in fiscal 1994 and the adoption of a new method of accounting for income taxes in fiscal 1993. KPMG Peat Marwick LLP Orange County, California April 28, 1995 EX-27.1 13 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) CKE RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS AS OF AND FOR THE FIFTY-TWO WEEKS ENDED JANUARY 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FORM 10-K FOR THE YEAR ENDED JANUARY 30, 1995. 1,000 YEAR JAN-30-1995 FEB-01-1994 JAN-30-1995 15,156 3,088 29,168 0 5,950 56,806 277,841 144,593 244,343 71,550 0 188 0 0 88,286 244,343 370,045 443,747 306,334 435,145 (2,998) 0 9,202 2,398 1,134 1,264 0 0 0 1,264 .07 .07
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