-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DtB+0qXB861u8IeeEIrEP/bvkCwjDPWv02b0rIgKdQRIO+AzxNrmOd25CemMWooG 3ZKR6Q3eNnVDKwrQhUWPaQ== 0000892569-96-001166.txt : 19960708 0000892569-96-001166.hdr.sgml : 19960708 ACCESSION NUMBER: 0000892569-96-001166 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960520 FILED AS OF DATE: 19960705 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: 0130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11313 FILM NUMBER: 96591505 BUSINESS ADDRESS: STREET 1: 1200 N HARBOR BLVD CITY: ANAHEIM STATE: CA ZIP: 92801 BUSINESS PHONE: 7147745796 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934. For the quarterly period ended May 20, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934. for the transition period from to Commission file number 1-13192 CKE RESTAURANTS, INC. (Exact name of registrant as specified in its charter) DELAWARE (State or Other Jurisdiction of Incorporation or Organization) 33-0602639 (I.R.S. Employer Identification No.) 1200 North Harbor Boulevard, Anaheim, CA 92801 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (714) 774-5796 2639 NOT APPLICABLE Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report. Indicate by checkmark 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 --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. $.01 par value common - 18,658,289 shares as of June 20, 1996 2 CKE RESTAURANTS, INC. INDEX
Page ---- Part I. Financial Information Item 1. Consolidated Financial Statements: Consolidated Balance Sheets as of May 20, 1996 and January 29, 1996............... 3 Consolidated Statements of Income for the sixteen weeks ended May 20, 1996 and May 22, 1995................................................. 4 Consolidated Statements of Cash Flows for the sixteen weeks ended May 20, 1996 and May 22, 1995................................................. 5-6 Notes to Consolidated Financial Statements........................................ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 8-10 Part II. Other Information Item 1. Legal Proceedings ....................................................... 11 Item 6. Exhibits and Reports on Form 8-K ........................................ 11-14
2 3 PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS CKE RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited)
May 20, January 29, 1996 1996 --------- ----------- ASSETS Current assets: Cash and cash equivalents $ 16,712 $ 23,429 Marketable securities 2,507 2,510 Accounts receivable 5,427 8,009 Related party receivables 1,030 977 Inventories 7,208 6,132 Deferred income taxes, net 10,005 10,056 Other current assets and prepaid expenses 6,449 5,656 --------- --------- Total current assets 49,338 56,769 Property and equipment, net 123,305 127,346 Property under capital leases, net 27,662 28,399 Long-term investments 31,386 19,814 Notes receivable 6,319 7,236 Related party notes receivable 900 969 Other assets 7,425 6,226 --------- --------- $ 246,335 $ 246,759 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 7,387 $ 8,575 Current portion of capital lease obligations 3,806 3,745 Accounts payable 15,028 15,824 Other current liabilities 36,479 33,173 --------- --------- Total current liabilities 62,700 61,317 --------- --------- Long-term debt 23,066 30,321 Capital lease obligations 39,369 40,233 Other long-term liabilities 14,645 13,699 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 19,294,985 and 19,200,141 shares 193 192 Additional paid-in capital 39,421 38,713 Retained earnings 72,050 67,393 Treasury stock, at cost; 670,300 shares and 670,300 shares (5,109) (5,109) --------- --------- Total stockholders' equity 106,555 101,189 --------- --------- $ 246,335 $ 246,759 ========= =========
3 4 CKE RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share amounts) (Unaudited)
Sixteen Weeks Ended ------------------------- May 20, May 22, 1996 1995 --------- --------- Revenues: Company-operated restaurants $ 129,510 $ 116,032 Franchised and licensed restaurants 23,424 21,593 --------- --------- Total revenues 152,934 137,625 --------- --------- Operating costs and expenses: Restaurant operations: Food and packaging 39,755 35,889 Payroll and other employee benefits 35,631 33,813 Occupancy and other operating expenses 26,539 25,058 --------- --------- 101,925 94,760 Franchised and licensed restaurants 22,176 20,656 Advertising expenses 7,571 6,263 General and administrative expenses 11,186 10,682 --------- --------- Total operating costs and expenses 142,858 132,361 --------- --------- Operating income 10,076 5,264 Interest expense (2,595) (2,832) Other income, net 1,274 707 --------- --------- Income before income taxes 8,755 3,139 Income tax expense 3,422 1,224 --------- --------- Net income $ 5,333 $ 1,915 ========= ========= Net income per common and common equivalent share $ .28 $ .11 ========= ========= Common and common equivalent shares used in computing per share amounts 19,109 18,199 ========= =========
4 5 CKE RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Sixteen Weeks Ended ------------------------ May 20, May 22, 1996 1995 --------- --------- Net cash flow from operating activities: Net income $ 5,333 $ 1,915 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Noncash franchise income (98) -- Depreciation and amortization 6,384 7,165 Loss on sale of property and equipment 237 32 Reversal of rent subsidy reserves -- (327) Write-off of accounts and notes receivable 47 -- Net noncash investment and dividend income (232) (81) Deferred income taxes 51 78 Noncash increase in reserves 297 -- Write-down of long-lived assets 1,250 -- Net change in receivables, inventories and other current assets (2,479) (2,545) Net change in other assets (1,251) (381) Net change in accounts payable and other current liabilities 4,953 (11,698) -------- -------- Net cash provided by (used in) operating activities 14,492 (5,842) -------- -------- Cash flow from investing activities: Purchases of: Marketable securities (266) -- Property and equipment (7,599) (12,873) Long-term investments (9,103) -- Proceeds from sales of: Marketable securities 388 589 Property and equipment 2,478 21 Collections on leases receivable 46 39 Increases in notes receivable and related party notes receivable -- (70) Collections on notes receivable and related party notes receivable 614 533 -------- -------- Net cash used in investing activities (13,442) (11,761) -------- -------- Cash flow from financing activities: Net change in bank overdraft 1,868 1,546 Short-term borrowings 600 19,460 Repayments of short-term debt (600) (19,210) Long-term borrowings -- 10,937 Repayments of long-term debt (8,432) (1,230) Repayments of capital lease obligations (803) (763) Net change in other long-term liabilities (366) (703) Purchase of treasury stock -- (551) Payment of dividends (743) (728) Exercise of stock options 709 -- -------- -------- Net cash provided by (used in) financing activities (7,767) 8,758 -------- -------- Net decrease in cash and cash equivalents $ (6,717) $ (8,845) ======== ========
5 6 CKE RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Sixteen Weeks Ended --------------------- May 20, May 22, 1996 1995 ------- ------- Supplemental disclosures of cash flow information: Cash paid during period for: Interest (net of amount capitalized) $ 2,499 $ 2,906 Income taxes 128 784 Noncash investing and financing activities: Investing activities: Sale of property and equipment 2,469 -- Increase in long-term investments (2,469) -- Franchise activities and reorganization: Increase in property and equipment (441) -- Decrease in various liabilities (75) -- Decrease in notes receivable and accounts receivable 418 --
6 7 CKE RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 20, 1996 AND MAY 22, 1995 NOTE (A) BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements include the accounts of CKE Restaurants, Inc. and its wholly owned subsidiaries (the "Company" or "CKE") and have been prepared in accordance with the requirements of Form 10-Q and, therefore, do not include all information and footnotes which would be presented were such consolidated financial statements prepared in accordance with generally accepted accounting principles. These statements should be read in conjunction with the audited financial statements presented in the Company's Fiscal 1996 Annual Report to Stockholders. In the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of financial position and results of operations for the interim periods presented have been reflected herein. The results of operations for such interim periods are not necessarily indicative of results to be expected for the full year. NOTE (B) NEW ACCOUNTING PRONOUNCEMENT The Company has adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"). SFAS 121 requires the assessment of certain long-lived assets for possible impairment when events or circumstances indicate their carrying amounts may not be recoverable. The adoption of SFAS 121 resulted in a $1.3 million noncash pretax charge, equivalent to $0.04 per share, to restaurant operations in the first quarter of fiscal 1997. NOTE (C) COMMITMENTS AND CONTINGENCIES In the ordinary course of business, the Company is subject to various claims, lawsuits and other disputes with third parties incidental to its operations. While certain of these matters involve claims for substantial amounts, the Company intends to defend these actions vigorously and it is the opinion of the Company's management, in consultation with its attorneys, that their ultimate resolution will not have a material adverse affect on the Company's consolidated financial statements. NOTE (D) EARNINGS PER SHARE Earnings per share is computed based on the weighted average number of common shares outstanding during the period, after consideration of the dilutive effect of outstanding options. For all periods presented, primary earnings per share approximate fully diluted earnings per share. NOTE (E) RECLASSIFICATIONS Certain prior year amounts in the accompanying financial statements have been reclassified to conform to the fiscal 1997 presentation. 7 8 CKE RESTAURANTS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Consolidated net income for the 16-week period ended May 20, 1996 increased $3.4 million to $5.3 million, or $.28 per share, as compared with the corresponding period of the prior year. During the current period, the Company adopted SFAS 121, resulting in a $1.3 million non-recurring charge to restaurant operations. Net income would have been $6.1 million, or $.32 per share, the highest quarterly net income reported by the Company in eight years, excluding the effect of this adoption. The improved first quarter performance reflects the continued sales growth resulting from the Company's innovative advertising, dual-branding venture, and image enhancement program, as well as its continued efforts to reduce operating costs through improved operating efficiencies. The Company is continuing with the conversion of existing Carl's Jr. locations into Carl's Jr./Green Burrito dual-brand restaurants, pursuant to an agreement with GB Foods Corporation. As of May 20, 1996, there were 33 dual-brand restaurants operating, with sales tracking approximately 25% over year ago same-store sales. As of the quarter end, 27 of the Company-operated Carl's Jr. restaurants have been revitalized with a fresh, contemporary exterior and interior look as part of the Company's image enhancement program. Early sales results in these remodeled restaurants continue to be encouraging. Currently, the Company is remodeling three restaurants per week and anticipates that a total of 160 restaurants will be remodeled this fiscal year. In the current quarter, the Company purchased from Giant Group Ltd. ("Giant"), in settlement of certain litigation, a 15% stake in Rally's Hamburgers, Inc. ("Rally's") for approximately $4.1 million in cash and has options to buy another 7.5% of Rally's stock from Giant over the next two years. Additionally, in an effort to expand the Company's presence in the western United States, the Company and Rally's announced, shortly after the quarter end, that the two companies have entered into an operating agreement whereby 28 Rally's-owned restaurants located in California and Arizona will be operated by the Company as of July 1, 1996. The Company currently is assessing the possibility of converting several of these locations, which contain a double drive-thru feature and generally do not have an interior dining area, into Carl's Jr. restaurants which will offer selected menu items to its customers. Stockholders of Summit Family Restaurants Inc. ("Summit"), will vote on the previously announced proposed merger of Summit with and into the Company (the "Merger") at a special meeting to be held on Friday, July 12, 1996. In the event that Summit stockholders approve the Merger, the Company will acquire Summit for a combination of cash and stock with an aggregate value of approximately $30.9 million, of which $5.0 million was paid in April 1996 in connection with the purchase of Summit's Series A Convertible Preferred Stock. The number of shares of CKE stock to be issued will be determined pursuant to a formula described in the Merger Agreement. This Quarterly Report on Form 10-Q contains forward looking statements, all of which are subject to risks and uncertainties. The Company's actual results may differ significantly from results discussed in the forward looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 1996 and those described in the Company's other filings with the Securities and Exchange Commission. RESULTS OF OPERATIONS Revenues from Company-operated restaurants, comprised mainly of sales from Carl's Jr. restaurants, increased 11.6% for the 16-week period ended May 20, 1996 to $129.5 million as compared with the first quarter of fiscal 1996. On a same-store sales basis, the Company's Carl's Jr. sales, which are calculated using only restaurants open for the full periods being compared, increased 12.7% for the current period as compared with a 0.6% decrease in the comparable prior year period. This quarterly increase is the fourth consecutive quarterly increase and the highest same-store sales increase reported by the Company since the first quarter of fiscal 1990. The increase in revenues from Company-operated restaurants in the current period is primarily the result of the continued momentum in the 8 9 CKE RESTAURANTS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Company's numerous sales enhancement programs which include the image enhancement of its restaurants through a chain-wide remodeling program, the continuation of its conversion of existing Carl's Jr. locations into Carl's Jr./Green Burrito dual-brand restaurants and the continued focus on promoting great tasting new and existing food products through innovative advertising. Also contributing to the rise in revenues for the current period are higher average sales and transaction counts per restaurant and an increase in the weighted average number of Company restaurants operating in fiscal 1997 as compared with fiscal 1996. Revenues from franchised and licensed restaurants for all periods presented include sales of food service products by the Company's distribution centers, rental income, royalties and initial franchise fees. Revenues from franchised and licensed restaurants increased 8.5% to $23.4 million over the same prior year period largely due to increased food purchases and royalties from franchisees as a result of increased franchisee sales, which were partially offset by a decrease in the weighted average number of franchised restaurants in operation as compared to the prior year period. Restaurant-level margins of the Company's restaurant operations increased approximately 3.0% to 21.3% for the current 16-week period as compared with the same period a year ago. Excluding the adoption of SFAS 121 during the current quarter, restaurant-level margins would have been 22.2%. These favorable results in the Company's restaurant-level operating margins reflect the Company's continued commitment to improve the cost structure of its Carl's Jr. restaurants, particularly in the areas of improving labor productivity and reducing workers' compensation costs. As a percentage of revenues from Company-operated restaurants, food and packaging, payroll and other employee benefits and occupancy and other operating expenses have all decreased in the current period as compared with the same period of the prior year. Restaurant-level margins in the prior year 16-week period were unfavorably impacted by the start-up nature of the Company's Boston Market operations. Franchised and licensed restaurant costs have followed a similar pattern during the current quarter as the revenues from franchised and licensed restaurants. These costs have increased in absolute dollars by 7.4% to $22.2 million for the current period as compared with the same period of the prior year, but decreased as a percentage of revenues for franchised and licensed restaurants. The increase is primarily attributable to the increase in food purchases from franchisees offset, in part, by a decrease in the weighted average number of franchised restaurants in operation in the current period as compared with the prior year period. Advertising expenses, as a percentage of Company-operated restaurant revenues, were 5.9% and 5.4% for the first quarter of fiscal 1997 and fiscal 1996, respectively. Advertising expenses have become increasingly important in the current competitive environment and have therefore grown as a percentage of revenues in fiscal 1997. Since the Company started its innovative advertising in May 1995, same-store sales have increased in each consecutive fiscal quarter thereafter. General and administrative expenses for the 16-week period ended May 20, 1996 increased $0.5 million to $11.2 million. These expenses as a percentage of total revenues, however, have decreased 0.5% to 7.3% in the current period as compared with the same period of the prior year. General and administrative expenses in the prior year period were unfavorably impacted by the inclusion of approximately $1.6 million of expenses associated with the Company's Boston Market operations. The increase in general and administrative expenses in the current period is primarily the result of recording incentive compensation accruals for regional restaurant management and selected corporate employees in support of higher revenues from Company-operated restaurants and improved restaurant operating performance, increased amortization expense and increased reserves provided for the Company's accounts and notes receivable. Interest expense for the first quarter of fiscal 1997 decreased 8.4% to $2.6 million as compared with the first quarter of fiscal 1996 as a result of lower levels of borrowings outstanding, the prepayment of certain indebtedness and lower interest rates. 9 10 CKE RESTAURANTS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Other income, net, in the first quarter of both fiscal 1997 and fiscal 1996 was primarily comprised of investment income, interest on notes and leases receivable, gains and losses on sales of restaurants, and other non-recurring income. Other income, increased $0.6 million from the first quarter of fiscal 1996 primarily due to lease income generated from the leasing of certain equipment and real property to Boston West, L.L.C. ("Boston West"), which began in April 1995 when Boston West was formed. FINANCIAL CONDITION For the 16-week period ended May 20, 1996, the Company generated cash flows from operating activities of $14.5 million, compared with the use of $5.8 million in cash for the same period of the prior year. Cash and cash equivalents in the current period decreased $6.7 million from January 29, 1996, as the Company used cash flows from operations to fund purchases of property and equipment of approximately $7.6 million and to repay long-term debt and capital lease obligations of approximately $9.2 million, of which $6.5 million represented the early repayment of certain indebtedness. Also contributing to the decrease in cash and cash equivalents was the purchase of long-term investments in Rally's and Summit of approximately $4.1 million and $5.0 million, respectively. The decrease in cash and cash equivalents was partially offset by the proceeds from the sale of real property of $2.5 million, collections on notes and related party receivables of $0.6 million and the exercise of stock options of $0.7 million. Total cash available to the Company as of May 20, 1996 was $19.2 million, which included $2.5 million of holdings in marketable securities. The Company's primary source of liquidity is its revenues from Company-operated restaurants, which are generated in cash. Future capital needs will arise, principally for the construction of new Carl's Jr. restaurants, the remodeling of existing restaurants, the conversion of certain restaurants to the Carl's Jr./Green Burrito dual-brand concept, the conversion of selected Rally's restaurants to Carl's Jr. restaurants, the payment of lease obligations, the repayment of debt and the anticipated closing of the acquisition of Summit. During fiscal 1997, the Company expects to open 15 new restaurants, to remodel as many as 160 existing restaurants under the Company's image enhancement program and to complete a minimum of 40 dual-brand conversions. In addition, in the current quarter, the Company's Board of Directors elected not to co-fund any future capital requirements of Boston West. The Company believes that cash generated from its Carl's Jr. operations, along with cash and marketable securities on hand as of May 20, 1996, and a combination of proceeds from its 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 capital leases, the further development of its Carl's Jr. operations and other obligations described above. 10 11 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On December 19, 1995, Giant Group, Ltd. ("Giant"), filed an action in the U.S. District court for the Central District of California against the Company, Fidelity National Financial, Inc., William P. Foley II, and certain other individuals. Mr. Foley is the Company's Chairman of the Board and Chief Executive Officer and is also the Chairman of the Board and Chief Executive Officer of Fidelity National Financial, Inc. In its complaint, Giant alleged violations of Section 13(d) of the Exchange Act, fraud, breach of fiduciary duty, conspiracy and breach of contract in connection with purchases of securities of Giant by Fidelity National Financial, Inc. and Mr. Foley. On January 16, 1996, Mr. Foley and Fidelity National Financial, Inc. denied Giant's material allegations and asserted counterclaims against Giant, its directors and certain other individuals for defamation and breaches of fiduciary duty with respect to certain actions taken by Giant, including Giant's adoption of a shareholder rights plan and certain other transactions taken or proposed by Giant. On April 26, 1996, the parties entered into a Settlement Agreement and Release, in which they agreed to settle this litigation and to irrevocably release their respective claims. Under the terms of the Settlement Agreement, the Company acquired from Giant 2,350,432 shares of Rally's common stock (representing approximately 15% of Rally's then outstanding shares) for a cash purchase price of $1.75 per share, and has the option to purchase an additional 7.5% of Rally's stock from Giant over the next two years. Finally, pursuant to the Settlement Agreement, Mr. Foley and Tom Thompson, President and Chief Operating Officer of the Company, were appointed to Rally's Board of Directors. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.42 Settlement Agreement and Release dated as of April 26, 1996, by and between Giant Group, Ltd.; William P. Foley II; CKE Restaurants, Inc.; Fidelity National Financial, Inc.; and other parties. 10.43 Operating Agreement by and between Rally's Hamburgers, Inc. and Carl Karcher Enterprises, Inc. dated May 22, 1996. The schedules to the Operating Agreement are omitted. The Registrant agrees to furnish supplementally any omitted schedule to the Securities and Exchange Commission on request. 10.44 First Amendment to Employment Agreement dated March 31, 1996, by and between Carl Karcher Enterprises, Inc. and C. Thomas Thompson. 10.45 Employment Agreement dated January 24, 1996, by and between CKE Restaurants Inc. and Robert E. Wheaton. 11 Calculation of Earnings Per Share. 27 Financial Data Schedule (included in electronic filing only). (b) Current Reports on Form 8-K: A Current Report on Form 8-K dated April 3, 1996 was filed during the first quarter of the fiscal year to report matters relating to the Company's proposed acquisition of Summit. 11 12 SIGNATURES Pursuant to the requirements 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. --------------------- (Registrant) July 3, 1996 /s/ Joseph N. Stein - ------------ --------------------- Date Senior Vice President, Chief Financial Officer 12 13 EXHIBIT INDEX
Exhibit # Description - --------- ----------- 10.42 Settlement Agreement and Release dated as of April 26, 1996, by and between Giant Group, Ltd.; William P. Foley II; CKE Restaurants, Inc.; Fidelity National Financial, Inc.; and other parties. 10.43 Operating Agreement by and between Rally's Hamburgers, Inc. and Carl Karcher Enterprises, Inc. dated May 22, 1996. The schedules to the Operating Agreement are omitted. The Registrant agrees to furnish supplementally any omitted schedule to the Securities and Exchange Commission on request. 10.44 First Amendment to Employment Agreement dated March 31, 1996, by and between Carl Karcher Enterprises, Inc. and C. Thomas Thompson. 10.45 Employment Agreement dated January 24, 1996, by and between CKE Restaurants, Inc. and Robert E. Wheaton. 11 Calculation of Earnings Per Share. 27 Financial Data Schedule (included in electronic filing only).
13 EX-10.42 2 SETTLEMENT AGREEMENT & RELEASE DATED 4/26/96 1 Exhibit 10.42 SETTLEMENT AGREEMENT AND RELEASE -------------------------------- 1. Effective Date. -------------- This Settlement Agreement and Release (the "Agreement") is made as of the Closing Date pursuant to Paragraph 9 herein. 2. Parties. ------- The parties to this agreement (collectively, the "Parties") are as follows: a. GIANT GROUP, LTD. ("GIANT"); b. Burt Sugarman; c. Terry Christensen; d. Robert Wynn; e. David Gotterer; f. William P. Foley, II; g. Fidelity National Financial, Inc. ("Fidelity"); h. CKE Restaurants, Inc. ("CKE"); i. William Davenport; and j. Robert Martyn. 3. Recitals. -------- This agreement is entered into with reference to the following matters and facts: a. GIANT GROUP, LTD. v. William P. Foley, II; CKE Restaurants, Inc.; Fidelity National Financial, Inc.; William Davenport; and Robert Martin and Related Counterclaims, Case No. SACV 95-1095 LHM (EEx), United States District Court, Central District of California (the "Action"), involves both claims and counterclaims between and among GIANT, Mr. Sugarman, Mr. 1 2 Christensen, Mr. Wynn, Mr. Gotterer, Mr. Foley, Fidelity, CKE, Mr. Davenport and Mr. Martyn. b. GIANT commenced the Action on December 19, 1995 by filing a complaint against Mr. Foley, CKE, Fidelity, Mr. Davenport and Mr. Martyn for violations of section 13(d) of the Securities Exchange Act, fraud, breach of fiduciary duty, conspiracy and breach of contract. GIANT amended the complaint as of right on January 4, 1996 (the "First Amended Complaint"). c. Mr. Foley and Fidelity filed an answer to the First Amended Complaint, denying all material allegations, and asserted counterclaims on January 16, 1996 (the "Counterclaim") against GIANT, and its directors, Mr. Sugarman, Mr. Christensen, Mr. Wynn and Mr. Gotterer (collectively, the "Directors") for defamation and breach of fiduciary duty with respect the GIANT's adoption of a shareholder rights plan on January 4, 1996. Mr. Foley and Fidelity amended the Counterclaim as of right on February 16, 1996 (the "First Amended Counterclaim"), adding additional claims for breach of fiduciary duty with respect to (1) GIANT's adoption of a program to exchange newly issued, non-voting GIANT preferred stock for Rally's Hamburgers, Inc.'s ("Rally's") common stock; (2) GIANT's repurchase of its shares pursuant to a stock repurchase program (the "Stock Repurchases"); and (3) Rally's decision to repurchase from GIANT some of its outstanding debt (the "Debt Buy-Back"). Mr. Foley and Fidelity amended their First Amended Counterclaim with leave of the Court on March 22, 1996 (the "Second Amended Counterclaim"), 2 3 eliminating the claims for breach of fiduciary duty with respect to the Stock Repurchases and the Debt Buy-Back. Although GIANT and the Directors have not answered the Second Amended Counterclaim, they deny all material allegations therein. d. CKE filed an answer to the First Amended Complaint on January 29, 1996, denying all material allegations therein. e. Mr. Davenport and Mr. Martyn filed answers to the First Amended Complaint on January 11, 1996, denying all material allegations therein. f. Each of the Parties considers it to be in his or its best interests, and to his or its advantage, forever to dismiss, settle, adjust and compromise all claims and counterclaims which have been asserted, or which could have been asserted, in the Action; and g. The Agreement effects the compromise and settlement of claims and counterclaims which are denied and contested, and nothing contained herein shall be construed as an admission by any party hereto of any liability of any kind to any other party hereto or to any person whatsoever, all such liability being expressly denied. 4. Dismissals ---------- a. Subject to the satisfaction or waiver of the conditions to closing specified below in Paragraphs 8 and 9 of the Agreement, the Parties will file a stipulated request for dismissal with prejudice of the Action, substantially in the form of Exhibit "A" hereto, and will file same promptly after the 3 4 Closing Date. The Parties hereby authorized their respective counsel of record in the Action to execute all documents necessary to effectuate such dismissal with prejudice. 5. General Release. --------------- a. Effective at and upon the Closing Date of the Agreement, GIANT, Mr. Sugarman, Mr. Christensen, Mr. Gotterer, and Mr. Wynn generally relieves, releases and forever discharges Mr. Foley, CKE, Fidelity, Mr. Davenport and Mr. Martyn and their respective officers, directors, employees, agents, shareholders, subsidiaries, affiliates, successors, assigns, personal representatives, predecessors, parent entities, affiliated organizations, divisions, attorneys, and their heirs, executors, trustees, administrators, successors and assigns or any such persons, entities, and each of them, of and from any and all claims, debts, liabilities, demands, judgments, accounts, obligations, promises, acts, agreements, costs, expenses (including but not limited to attorneys' fees), damages, actions and causes of action, of any kind or nature, whether known or unknown, suspected or unsuspected (collectively, the "Claims") based on, arising out of, relating to, or in connection with the Action and the transactions contemplated by or effected pursuant to the Agreement or the Purchase and Standstill Agreement, dated as of April 26, 1996, (the "Purchase Agreement") among GIANT, Fidelity and CKE. b. Effective at and upon the Closing Date of the Agreement Mr. Foley, CKE, Fidelity, Mr. Davenport and Mr. Martyn 4 5 generally relieve, release and forever discharge GIANT, Mr. Sugarman, Mr. Christensen, Mr. Wynn and Mr. Gotterer and their respective officers, directors, employees, agents, shareholders, subsidiaries, affiliates, successors, assigns, personal representative, predecessors, parent entities, affiliated organizations, divisions, attorneys, and their heirs, executors, trustees, administrators, successors and assigns or any such persons, entities, and each of them, of and from any Claims based on, arising out of, relating to, or in connection with the Action and the transactions contemplated by or effected pursuant to the Agreement or the Purchase Agreement. c. Notwithstanding the foregoing, nothing contained herein constitutes a release of any Claim that might arise in the future based on (i) any continuing obligation(s) owing by one party to any other party pursuant to the Agreement or the Purchase Agreement or any other agreement referred to herein or therein or contemplated hereby or thereby, or (ii) the breach by any party of any representations, warranties, covenants or agreements contained in the Agreement, the Purchase Agreement or any other agreement referred to herein or therein or contemplated hereby or thereby. 6. Waiver Under Section 1542 of the California Civil Code. ------------------------------------------------------ The Parties each understand, agree and do hereby waive any and all rights each may have under Section 1542 of the California Civil Code, which provides as follows: 5 6 A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. In connection with this waiver and relinquishment, the Parties acknowledge that they are aware that they may subsequently discover Claims presently unknown or unsuspected, or facts in addition to or different from those which they now know or believe to be true, with respect to the matters released herein. Nevertheless, it is their intention, through the Agreement, to fully, finally and forever settle and release all such matters, and all Claims relative thereto. 7. Execution of Additional Documents. --------------------------------- The Parties covenant and agree to execute and deliver such additional documents and do all such acts and things as may be reasonably necessary or requisite to carry out the full intent and meaning of the Agreement, including but not limited to execution of documentation necessary to effectuate a dismissal of the Action with prejudice. 8. Conditions to Closing. --------------------- The following conditions must be satisfied on or prior to the Closing Date, unless waived in writing by all Parties: a. Execution of the purchase and standstill agreement by and among Fidelity, CKE and GIANT (the "Purchase Agreement"), 6 7 a true and correct copy of which is attached hereto as Exhibit "B," on or before April 26, 1996. 9. Closing. ------- a. The closing pursuant to the Agreement shall occur at 10:00 a.m on April 26, 1996 (the "Closing Date"), at the offices of Christensen, White, Miller, Fink, Jacobs, Glaser & Shapiro, LLP, 2121 Avenue of the Stars, 18th Floor, Los Angeles, California 90067. b. The following items must be delivered at closing: i) Executed Settlement Agreement and Release; ii) Executed Purchase Agreement and all items required to be delivered at the closing pursuant thereto; and iii) Executed request for dismissal of the Action. 10. Representations and Warranties. ------------------------------ The Parties, and each of them, represent and warrant to each other and agree with each other as follows: a. Each of the Parties has carefully read and reviewed the Agreement and understands it fully, and each of the Parties has reviewed the terms of the Agreement with an attorney of the Parties' choice prior to executing the Agreement, or has had a full opportunity to obtain an attorney for this purpose and has expressly elected not to do so with full knowledge of the consequences. b. Each of the Parties specifically does not rely upon any statement, representation, legal opinion, accounting opinion, or promise of any other party or any person representing 7 8 them, in executing the Agreement, or in making the settlement provided for herein, except as expressly stated in the Agreement. c. There have been and are no other agreements or understandings between the Parties relating to the matters settled or released herein, except as stated in the Agreement. d. Each of the Parties has made such an investigation of the law and the facts pertaining to this settlement and the Agreement and of all matters pertaining thereto as it deems necessary. The Agreement has been carefully read by, the contents hereof are known and understood by, and it is signed freely by, each person executing the Agreement. e. The Agreement is the result of protracted, arms' length negotiation between the Parties. f. Each of the Parties agrees that, absent and subject to an order from a court of competent jurisdiction or similar compulsion of law, such party will not, either directly or indirectly, take any action which would interfere with the performance of the Agreement by any party hereto, or which would adversely affect any of the rights provided for herein. g. Each of the Parties hereto hereby covenants and agrees not to bring any claim, action, suit or proceeding against any other party hereto, directly or indirectly, regarding or related in any manner to the matters settled and released hereby, except as provided in the Agreement. h. Each of the Parties hereto represents and warrants to every other party hereto that he or it is the sole and lawful 8 9 owner of all right, title and interest in and to every claim and other matter which he or it releases herein, and that he or it has not otherwise heretofore assigned or transferred, or purported to assign or transfer, to any person or entity, any claim or other matter which he or it releases herein. i. Each of the Parties executing the Agreement warrants that he or it has the authority to execute the Agreement from the party on whose behalf said person is purporting to execute it. 11. Integration. ----------- The Agreement and all of its exhibits constitute a single integrated, written contract expressing the entire agreement of the Parties relative to the subject matter hereof. No recitals, covenants, agreements, representations or warranties of any kind whatsoever have been made and/or relied upon by any of the Parties except as specifically set forth in the Agreement. All prior discussions and negotiations have been or are merged and integrated into, and are superseded by, the Agreement. 12. Joint Negotiation. ----------------- The Agreement has been jointly negotiated and drafted. The language the Agreement shall be construed as a whole according to its fair meaning and not strictly for or against any party, and it is agreed that no provision hereof shall be construed against any party hereto by virtue of the activities of that party or such party's attorneys. 9 10 13. Severability. ------------ The Parties covenant and agree that in the event that any provision of the Agreement should be held by a court of competent jurisdiction to be void, voidable, illegal or unenforceable in any respect, the remaining portions thereof and provisions hereof shall nevertheless remain in full force and effect as if such void, voidable, illegal or unenforceable provision had never been contained herein. 14. Governing Law. ------------- The Agreement shall be construed in accordance with, and governed by, the laws of the State of California, and each party hereto consents to the jurisdiction of any court of competent subject matter jurisdiction located in the State of California, County of Los Angeles, for the purpose of an action, suit or proceeding arising out of or based on the Agreement or any provision hereof, in accordance with Paragraph 16 herein. 15. Execution in Counterparts. ------------------------- The Agreement may be executed and delivered in two or more counterparts, each of which, when so executed and delivered, shall be an original. 16. Dispute Resolution. ------------------ a. Any controversy or claim arising out of or relating to the Agreement, or any breach thereof, shall be settled by the appointment of a retired judge of the Superior or Appellate Courts of California who shall act pursuant to Section 638.1 of the California Code of Civil Procedure "to try any and 10 11 all of the issues in an action or proceeding, whether of fact or of law, and to report a state of decision thereon." The Parties stipulate to the use of the reference procedure and agree that the Superior Court of Los Angeles County of the State of California may issue such orders as are necessary to implement the Parties' intent that any such controversy or claim shall be resolved through the use of the reference procedure. b. In accordance with the foregoing paragraph, the Parties shall be entitled to discovery as provided in the California Code of Civil Procedure. However, the referee may regulate the extent and scope of such discovery based upon the nature of the controversy, the amounts involved and the expected benefits from any discovery. c. If the Parties are unable to agree on the appointment of a retired judge to serve as a referee, then the court shall appoint a retired judge to act as the referee. d. The referee shall apply applicable substantive law and the rules of evidence set forth in the California Evidence Code and applicable case authority. The Parties shall not be required to file formal pleadings and shall take other steps as may be appropriate and necessary to assure that any controversy be resolved as efficiently and expeditiously as possible. e. The decision reached by the referee shall be entered as a judgment of the Superior Court appointing the referee and such decision shall be fully appealable. 11 12 f. All fees and expenses of the referee shall be initially borne on a pro rata basis by the Parties, but shall be recoverable by the prevailing party. 17. Cost of Suit. ------------ If, suit, action or arbitration is brought to enforce or interpret any provision of the Agreement, or the rights or obligations of any party hereto, the prevailing party shall be entitled to recover, as an element of such party's costs of suit, action or arbitration and not as damages, all reasonable costs and expenses incurred or sustained by such prevailing party in connection with such suit, action or arbitration, including, without limitation, legal fees and court costs. 18. Notices. ------- Any notice or communication by or between the Parties to the Agreement is duly given if in writing and delivered in person, mailed by registered or certified mail, postage prepaid, return receipt requested or delivered by telecopier or overnight air courier guaranteeing next day delivery to the other's address: If to GIANT, Mr. Sugarman, Mr. Christensen, Mr. Wynn or Mr. Gotterer: GIANT GROUP, LTD. 150 El Camino Drive, Suite 303 Beverly Hills, CA 90212 Attn: Burt Sugarman 12 13 With a copy to: Eric Landau Christensen, White, Miller, Fink, Jacobs, Glaser & Shapiro, LLP 2121 Avenue of the Stars, 18th Floor Los Angeles, CA 90067 Telephone: (310) 553-3000 Telecopier: (310) 553-2920 If to Mr. Foley or Fidelity: Fidelity National Title Insurance 17911 Von Karman Avenue Irvine, CA 92714 Attn: Andrew Puzder With a copy to: Stephen Howard Milbank, Tweed, Hadley & McCloy 601 S. Figueroa Street, 30th Floor Los Angeles, CA 90017-5735 Telephone: (213) 892-4000 Telecopier: (213) 629-5063 If to CKE: CKE Restaurants, Inc. 1200 N. Harbor Boulevard Anaheim, CA 92801 Attn: Thomas Thompson With a copy to: Richard Goodman Stradling Yocca Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, CA 92660 Telephone: (714) 725-4000 Telecopier (714) 725-4100 If to Mr. Davenport: PaineWebber, Inc. 610 Newport Center Drive, 13th Floor Newport Beach, CA 92660 13 14 With a copy to: Milford Dahl, Jr. Rutan & Tucker 611 Anton Boulevard, 14th Floor Cosa Mesa, CA 92626 Telephone: (714) 641-5100 Telecopier: (714) 546-9035 If to Mr. Martyn: Burns Pauli Mahoney Co 7733 Forsyth Boulevard, Suite 2000 St. Louis, Missouri 63105 With a copy to: Milford Dahl, Jr. Rutan & Tucker 611 Anton Boulevard, 14th Floor Cosa Mesa, CA 92626 Telephone: (714) 641-5100 Telecopier: (714) 546-9035 Any party by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications shall be deemed to have been duly given at the time delivered by hand, if personally served; the date receipt is acknowledged, if mailed by registered or certified mail; when confirmation is received, if telecopied; and the next business day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. 14 15 IN WITNESS WHEREOF, the Parties each have approved and executed the Agreement effective as of the date first set forth hereinabove. GIANT GROUP, LTD. BURT SUGARMAN Dated: Dated: ------------------ --------------------- By: --------------------- ---------------------- Burt Sugarman Its: -------------------- TERRY CHRISTENSEN ROBERT WYNN Dated: 04/26/96 Dated: 04/26/96 ------------------ ---------------------- /s/ TERRY CHRISTENSEN /s/ ROBERT WYNN - ------------------------- ----------------------------- Terry Christensen Robert Wynn DAVID GOTTERER WILLIAM P. FOLEY, II Dated: Dated: ------------------ --------------------- - ------------------------- ---------------------------- David Gotterer William P. Foley, II CKE RESTAURANTS, INC. FIDELITY NATIONAL FINANCIAL, INC. Dated: Dated: ----------------- --------------------- By: By: --------------------- ------------------------ Its: Its: -------------------- ----------------------- WILLIAM DAVENPORT ROBERT MARTYN Dated: Dated: ------------------ --------------------- - ------------------------- ---------------------------- William Davenport Robert Martyn 15 16 IN WITNESS WHEREOF, the Parties each have approved and executed the Agreement effective as of the date first set forth hereinabove. GIANT GROUP, LTD. BURT SUGARMAN Dated: 04/26/96 Dated: 04/26/96 ------------------ --------------------- By: /s/ BURT SUGARMAN /s/ BURT SUGARMAN --------------------- ---------------------- Burt Sugarman Its: CEO -------------------- TERRY CHRISTENSEN ROBERT WYNN Dated: Dated: ------------------ ---------------------- - ------------------------- ----------------------------- Terry Christensen Robert Wynn DAVID GOTTERER WILLIAM P. FOLEY, II Dated: Dated: ------------------ --------------------- - ------------------------- ---------------------------- David Gotterer William P. Foley, II CKE RESTAURANTS, INC. FIDELITY NATIONAL FINANCIAL, INC. Dated: Dated: ----------------- --------------------- By: By: --------------------- ------------------------ Its: Its: -------------------- ----------------------- WILLIAM DAVENPORT ROBERT MARTYN Dated: Dated: ------------------ --------------------- - ------------------------- ---------------------------- William Davenport Robert Martyn 15 17 IN WITNESS WHEREOF, the Parties each have approved and executed the Agreement effective as of the date first set forth hereinabove. GIANT GROUP, LTD. BURT SUGARMAN Dated: Dated: ------------------ --------------------- By: --------------------- ---------------------- Burt Sugarman Its: -------------------- TERRY CHRISTENSEN ROBERT WYNN Dated: Dated: ------------------ ---------------------- - ------------------------- ----------------------------- Terry Christensen Robert Wynn DAVID GOTTERER WILLIAM P. FOLEY, II Dated: Dated: 04/26/96 ------------------ --------------------- /s/ WILLIAM P. FOLEY, II - ------------------------- ---------------------------- David Gotterer William P. Foley, II CKE RESTAURANTS, INC. FIDELITY NATIONAL FINANCIAL, INC. Dated: 04/26/96 Dated: 04/26/96 ----------------- --------------------- By: /s/ WILLIAM P. FOLEY, II By: /s/ WILLIAM P. FOLEY, II ------------------------ ------------------------ Its: CEO & CHAIRMAN Its: CEO & CHAIRMAN -------------------- ----------------------- WILLIAM DAVENPORT ROBERT MARTYN Dated: Dated: ------------------ --------------------- - ------------------------- ---------------------------- William Davenport Robert Martyn 15 18 IN WITNESS WHEREOF, the Parties each have approved and executed the Agreement effective as of the date first set forth hereinabove. GIANT GROUP, LTD. BURT SUGARMAN Dated: Dated: ------------------ --------------------- By: --------------------- ---------------------- Burt Sugarman Its: -------------------- TERRY CHRISTENSEN ROBERT WYNN Dated: Dated: ------------------ ---------------------- - ------------------------- ----------------------------- Terry Christensen Robert Wynn DAVID GOTTERER WILLIAM P. FOLEY, II Dated: 04/26/96 Dated: ------------------ --------------------- /s/ DAVID GOTTERER - ------------------------- ---------------------------- David Gotterer William P. Foley, II CKE RESTAURANTS, INC. FIDELITY NATIONAL FINANCIAL, INC. Dated: Dated: ----------------- --------------------- By: By: --------------------- ------------------------ Its: Its: -------------------- ----------------------- WILLIAM DAVENPORT ROBERT MARTYN Dated: Dated: ------------------ --------------------- - ------------------------- ---------------------------- William Davenport Robert Martyn 15 19 PURCHASE AND STANDSTILL AGREEMENT This PURCHASE AND STANDSTILL AGREEMENT ("Agreement") is made as of April 26, 1996 by and among GIANT GROUP, LTD., a Delaware corporation ("GIANT"), Fidelity National Financial, Inc., a Delaware corporation ("Fidelity"), and CKE Restaurants Inc., a Delaware corporation ("CKE"). R E C I T A L S - - - - - - - - This Agreement is made with reference to the following facts and objectives: A. GIANT, Fidelity, CKE and certain other persons are parties to that certain action entitled GIANT GROUP, LTD. v. William P. Foley, II; CKE Restaurants, Inc.; Fidelity National Financial, Inc.; William Davenport and Robert Martyn (and related counterclaims), currently pending in the United States District Court for the Central District of California (Case No. SACV 95-1095 LHM (EEx)) (the "Civil Action"). B. GIANT and its wholly owned subsidiary KCC Delaware Company, a Delaware corporation ("KCC"), are the owners of an aggregate of 7,430,302 shares of the outstanding common stock, par value $.10 per share (the "Rally's Stock"), of Rally's Hamburgers, Inc., a Delaware corporation ("Rally's"). C. Fidelity is the beneficial owner of 705,489 shares of the outstanding common stock, par value $.01 per share (the "GIANT Stock"), of GIANT. D. GIANT, Fidelity and CKE are parties to a Settlement Agreement and Release (the "Settlement Agreement") pursuant to which the Civil Action will be dismissed. E. The obligations of the parties to the Settlement Agreement are conditioned upon the execution by GIANT, Fidelity and CKE of this Agreement. A G R E E M E N T - - - - - - - - - NOW, THEREFORE, in consideration of the foregoing, and the representations, warranties, covenants and agreements contained herein, the parties agree as follows: 1. Sale of Stock. ------------- a. Fidelity hereby agrees to sell to GIANT, and GIANT hereby agrees to purchase from Fidelity, 705,489 shares of GIANT Stock for a purchase price of $8.625 per share, payable in cash. 20 b. GIANT hereby agrees to sell, or cause KCC to sell, to CKE, and CKE hereby agrees to purchase from GIANT or KCC, as applicable, 2,350,432 shares of Rally's Stock for a price of $1.75 per share, payable in cash. c. GIANT hereby agrees to sell, or cause KCC to sell, to Fidelity, and Fidelity hereby agrees to purchase from GIANT or KCC, as applicable, 767,807 shares of Rally's Stock for an aggregate purchase price of $638,172.38, payable in cash. 2. Closing. ------- a. The closing of the purchase and sale of the Rally's Stock (the "Closing") shall take place on May 3, 1996 at 5:00 p.m., Los Angeles time, at the offices of Christensen, White, Miller, Fink, Jacobs, Glaser & Shapiro, LLP ("Christensen, White"), 2121 Avenue of the Stars, 18th Floor, Los Angeles, California 90067, provided, however, that GIANT may in its sole discretion elect to have the Closing take place on May 6, 1996 at 10:00 a.m., Los Angeles time, at the offices of Christensen, White. b. At the Closing: (i) Fidelity shall deliver to GIANT stock certificate(s), duly endorsed for transfer or accompanied by separate stock transfer powers, representing an aggregate of 705,489 shares of GIANT Stock and $638,172.38 in cash; and (ii) GIANT shall deliver to Fidelity stock certificate(s) duly endorsed for transfer or accompanied by separate stock transfer powers, representing an aggregate of 767,807 shares of Rally's Stock and $6,084,842.63 in cash. c. At the Closing, GIANT shall deliver to CKE stock certificate(s), duly endorsed for transfer or accompanied by separate stock transfer powers, representing an aggregate of 2,350,432 shares of Rally's Stock and CKE shall deliver to GIANT $4,113,256.00 in cash. 3. Grant of Options. ---------------- a. Subject to paragraph c. of this Section 3, GIANT hereby grants to (i) Fidelity an irrevocable option (the "Fidelity First Option") to purchase from GIANT, on the terms and conditions set forth herein, 587,607 shares of Rally's Stock for an exercise price of $3.00 per share and (ii) CKE an irrevocable option (the "CKE First Option" and together with the Fidelity First Option, the "First Options") to purchase from GIANT, on the terms and conditions set forth herein 587,607 shares of Rally's Stock for an exercise price of $3.00 per share. b. Subject to paragraph c. of this Section 3, GIANT hereby grants to (i) Fidelity an irrevocable option (the "Fidelity Second Option") to purchase from GIANT, on the terms and conditions set forth herein, 587,607 shares of Rally's Stock for an exercise price of $4.00 per share and (ii) CKE an irrevocable option (the "CKE Second Option" and together with the Fidelity Second Option, the "Second Options") to - 2 - 21 purchase from GIANT, on the terms and conditions set forth herein 587,607 shares of Rally's Stock for an exercise price of $4.00 per share. c. In the event of any change in the Rally's Stock by reason of any stock dividend, recapitalization, reorganization, merger, consolidation, split-up, combination, or exchange of shares, or of any similar change affecting the Rally's Stock (a "Recapitalization Event"), the number and class of shares or other consideration which thereafter may be acquired upon exercise of the First Options and the Second Options and the exercise price of such options following the Recapitalization Event, shall be appropriately adjusted consistent with such change such that Fidelity and CKE shall upon exercise of the First Options and Second Options after such Recapitalization Event, to the extent such options are exercisable, receive the same securities and other consideration as they would have received had they exercised the First Options and Second Options immediately prior to the Recapitalization Event. d. In the event that Fidelity or CKE shall not purchase the Rally's Stock pursuant to Section 7 hereof, then the First Options and the Second Options shall be void. 4. Exercise of the Options. ----------------------- a. Unless earlier terminated pursuant to Section 5 hereof and subject to the requirements of Section 9 hereof, the Fidelity First Option and the CKE First Option may be exercised by Fidelity and CKE, respectively, in whole or in part at any time after the date hereof until 5:00 p.m., Los Angeles time, on the first anniversary of the date hereof, provided, however, that if CKE shall not have exercised the CKE First Option on or before April 21, 1997 then thereafter until the first anniversary of the date hereof either Fidelity or CKE may exercise the CKE First Option (but GIANT shall not be obligated to sell more than 587,607 shares of Rally's Stock pursuant to the CKE First Option). Thereafter the First Options may not be exercised. b. Unless earlier terminated pursuant to Section 5 hereof and subject to the requirements of Section 9 hereof, the Fidelity Second Option and the CKE Second Option may be exercised by Fidelity and CKE, respectively, in whole or in part at any time after the date hereof until 5:00 p.m., Los Angeles time, on the second anniversary of the date hereof, provided, however, that if CKE shall not have exercised the CKE Second Option on or before April 20, 1998 then thereafter until the second anniversary of the date hereof either Fidelity or CKE may exercise the CKE Second Option (but GIANT shall not be obligated to sell more than 587,607 shares of Rally's Stock pursuant to the CKE Second Option). Thereafter the Second Options may not be exercised. c. Fidelity and CKE may exercise the First Options and/or the Second Options, as applicable, by delivering written notice (the "Exercise Notice") to GIANT at - 3 - 22 the address set forth in Section 15 hereof. The Exercise Notice shall set forth which of the options are being exercised and the number of Rally's Shares to be purchased. d. The closing of the purchase and sale of the Rally's Stock pursuant to the First Options and/or the Second Options (a "First Option Closing" and a "Second Option Closing," respectively) shall occur three (3) business days following receipt by GIANT of the applicable Exercise Notice. e. At each First Option Closing and Second Option Closing, if the First Options and the Second Options, respectively, are exercised GIANT will deliver to Fidelity and/or CKE, as applicable, stock certificate(s), duly endorsed for transfer or accompanied by separate stock transfer powers, representing the number of shares of Rally's Stock to be purchased and Fidelity and/or CKE, as applicable, shall deliver to GIANT the purchase price for the Rally's Stock to be purchased. Such purchase price shall be paid in cash. 5. Rights of First Refusal on Sales of Rally's Stock by Fidelity ------------------------------------------------------------- or CKE. ------ a. If, prior to the tenth (10th) anniversary of the date hereof, Fidelity or CKE proposes to sell shares of Rally's Stock, Fidelity or CKE, as applicable, shall give notice to GIANT (the "Fidelity/CKE Sale Notice") of their intent to sell such shares of Rally's Stock. A Fidelity/CKE Sale Notice shall set forth the number of shares of Rally's Stock proposed to be sold and the proposed sales price of such shares. A Fidelity/CKE Sale Notice shall constitute an offer by Fidelity or CKE, as applicable, to sell the Rally's Stock described therein to GIANT for the price set forth in the Fidelity/CKE Sale Notice. b. If GIANT elects to purchase the shares of Rally's Stock described in the Fidelity/CKE Sale Notice: (i) GIANT shall give written notice to Fidelity or CKE, as applicable, of such election within four (4) business days after receipt of the Fidelity/CKE Sale Notice; and (ii) the closing of such purchase shall take place at 10:00 a.m., Los Angeles time, on the sixth (6th) business day following receipt by GIANT of the Fidelity/CKE Sale Notice at the offices of Christensen, White, 2121 Avenue of the Stars, 18th Floor, Los Angeles, California 90067. If GIANT elects not to purchase the Rally's Stock described in the Fidelity/CKE Sale Notice or shall not respond to the Fidelity/CKE Sale Notice within the time specified herein, Fidelity or CKE, as applicable, shall be entitled to sell the Rally's Stock described in the Fidelity/CKE Sale Notice for a price per share no less than that specified in the Fidelity/CKE Sale Notice, provided however, that if such sale is not consummated within thirty (30) days of the date of the Fidelity/CKE Sale Notice then Fidelity and CKE may not sell such shares without renewed compliance with the provisions of this Section 5. - 4 - 23 6. Early Termination of Options; Rights of First Refusal on Sales -------------------------------------------------------------- of Rally's Stock by GIANT. ------------------------- a. If, prior to the tenth (10th) anniversary of the date hereof, GIANT proposes to sell shares of Rally's Stock, GIANT shall give notice to Fidelity and CKE (the "GIANT Sale Notice") of its intent to sell such shares of Rally's Stock. A GIANT Sale Notice shall set forth the number of shares of Rally's Stock proposed to be sold and the proposed sales price of such shares. b. A GIANT Sale Notice delivered on or prior to December 31, 1996 or after the period the First Options and Second Options are exercisable, shall constitute an offer to Fidelity and CKE to sell the Rally's Stock described in the GIANT Sale Notice to them (in equal amounts unless otherwise agreed between them) for the price set forth in the GIANT Sale Notice. c. A GIANT Sale Notice delivered after December 31, 1996 and during the period the First Options and the Second Options are exercisable shall constitute an offer to Fidelity and CKE to sell the Rally's Stock described in the GIANT Sale Notice for the lower of (i) the price set forth in the GIANT Sale Notice and (ii) the exercise price of the First Options to the extent exercisable or the Second Options to the extent exercisable. In the event that following such sale GIANT would not own a sufficient number of shares of Rally's Stock to permit the exercise in full of the First Options and the Second Options, the number of shares of Rally's Stock subject to the First Options and Second Options shall be reduced by the number of shares of Rally's Stock which are subject to a GIANT Sale Notice delivered after December 31, 1996 and during the period the First Options and the Second Options are exercisable and only to the extent the Rally's Stock GIANT owns following such sale is below the amount needed to satisfy GIANT's obligations under the First Options and the Second Options, whether or not such shares are purchased by Fidelity and/or CKE. Such reduction shall apply first equally to the First Options until no shares of Rally's Stock are subject to the First Options and then equally to the Second Options. d. If Fidelity and/or CKE elects to purchase the shares of Rally's Stock described in a GIANT Sale Notice: (i) Fidelity and/or CKE, as applicable, shall give written notice to GIANT of such election within three (3) business days after receipt of the Sale Notice, provided, however, that if CKE shall not elect to purchase the shares of Rally's Stock within such time period, then Fidelity may elect to purchase such shares by giving written notice to GIANT of such election within four (4) business days after receipt of the GIANT Sale Notice; and (ii) the closing of such purchase shall take place at 10:00 a.m., Los Angeles time, on the sixth (6th) business day following receipt by Fidelity and CKE of the GIANT Sale Notice at the offices of Christensen, White, 2121 Avenue of the Stars, 18th Floor, Los Angeles, California 90067. If Fidelity and CKE elect not to purchase the Rally's Stock described in the GIANT Sale Notice or shall not respond to the GIANT Sale Notice within the time specified herein, GIANT shall be - 5 - 24 entitled to sell the Rally's Stock described in the GIANT Sale Notice, for a price per share no less than that specified in the GIANT Sale Notice, provided however, that if such sale is not consummated within thirty (30) days of the date of the GIANT Sale Notice then GIANT may not sell such shares without renewed compliance with the provisions of this Section 6. 7. Due Diligence. From the date hereof through 11:00 a.m. Los ------------- Angeles time on May 3, 1996, CKE and Fidelity may conduct such due diligence investigation of the operations, books and records of Rally's as they determine to be advisable. At any time through and including 11:00 a.m. Los Angeles time, on May 3, 1996, Fidelity and/or CKE may notify GIANT of its intent not to purchase the Rally's Stock as provided in Sections 1.b. and 1.c. hereof, in which case they shall not be obligated to purchase such shares. 8. Standstill Provisions. --------------------- a. From the date hereof through and including the tenth (10th) anniversary of the date hereof Fidelity agrees that, without GIANT's prior written consent, Fidelity will not: (i) acquire, announce an intention to acquire, offer or propose to acquire, or agree to acquire, directly or indirectly, by purchase or otherwise beneficial ownership of any GIANT Stock or other voting securities of GIANT (collectively with the GIANT Stock, the "Voting Securities") or direct or indirect rights or options to acquire (through purchase, exchange, conversion or otherwise) any Voting Securities if immediately after such acquisition, Fidelity would own Voting Securities representing more than 0.5% of the total voting power of all outstanding Voting Securities (after giving effect to the transactions provided for in Section 1.a.); (ii) make, or in any way participate, directly or indirectly, in any "solicitation" of "proxies" (as such terms are defined in Rule 14a-1 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) to vote any Voting Securities, seek to advise, encourage or influence any person or entity with respect to the voting of any Voting Securities, initiate or propose any shareholder proposal or induce or attempt to induce any other person to initiate any shareholder proposal; (iii) make any statement or proposal, whether written or oral, to the Board of Directors of GIANT, or to any director, officer or agent of GIANT, or make any public announcement or proposal whatsoever with respect to a merger or other business combination, sale or transfer of assets, recapitalization, dividend, share repurchase, liquidation or other extraordinary corporate transaction with GIANT or any other transaction which could result in a change - 6 - 25 of control, or solicit or encourage any other person to make such statement or proposal; (iv) after consummation of the transactions described in Sections 1.a. and 1.b. hereof, form, join or in any way participate in a "group" (within the meaning of Section 13(d)(3) of the Exchange Act) with respect to any securities of GIANT; (v) otherwise act, alone or in concert with others, to seek to exercise any control over the management, Board of Directors or policies of GIANT; (vi) make a public request to GIANT (or its directors, officers, shareholder's employees or agents) to amend or waive any provisions of this Agreement, the Certificate of Incorporation or By-Laws of GIANT, the GIANT Stockholders Rights Plan or Rights issued pursuant thereto, including without limitation any public request to permit Fidelity or any other person to take any action not permitted by this Section 8.a.; (vii) take any action which might require GIANT to make a public announcement regarding the possibility of any transaction referred to in paragraph (iii) above or similar transaction or, advise, assist or encourage any other persons in connection with the foregoing; or (viii) disclose any intention, plan or arrangement inconsistent with the foregoing. b. For purposes of this Section 8 the term "Fidelity" shall include Fidelity, its officers, directors, affiliates and associates and their respective family members. 9. Future Acquisitions of Rally's Stock by Fidelity and CKE. -------------------------------------------------------- For so long as the 9 7/8% Senior Notes (the "Senior Notes") issued by Rally's are outstanding, Fidelity and CKE each agree that neither they nor their affiliates will, individually or as part of a group of persons, take any action that would cause them to become the beneficial owner (within the meaning of Rule 13d-3 of the Exchange Act), whether pursuant to the exercise of the First Options or the Second Options or otherwise, of 35% or more of the combined voting power of the then outstanding voting stock of Rally's without first obtaining (i) approval of the Board of Directors of Rally's, and (ii) a waiver from the holders of the Senior Notes of the provisions of Section 4.14 of the Indenture pursuant to which the Senior Notes were issued. - 7 - 26 10. Future Acquisitions of Rally's Stock by GIANT --------------------------------------------- a. In the event that GIANT or its affiliates (other than Rally's) shall purchase additional shares of Rally's Stock (other than on exercise of a first refusal right pursuant to Section 5 hereof), GIANT shall give notice to Fidelity and CKE (the "Purchase Notice") of such purchase. The Purchase Notice shall set forth the number of shares of Rally's Stock purchased and the average purchase price of such shares. Fidelity and CKE may, upon written request to GIANT received within three (3) business days after receipt of the Purchase Notice, purchase from GIANT, for the same average price set forth in the Purchase Notice, a portion of the shares of Rally's Stock described in the Purchase Notice such that following such purchases the proportional ownership of Rally's Stock among GIANT, Fidelity and CKE shall be the same as immediately prior to such purchases (without giving effect to the First Options and Second Options to the extent not exercised); provided, however, that if Fidelity or CKE shall not elect to purchase shares of Rally's Stock pursuant to a Purchase Notice, the other party may purchase all the shares of Rally's Stock described in the Purchase Notice. If Fidelity and/or CKE elects to purchase the shares of Rally's Stock described in the Purchase Notice the closing of such purchase shall take place at 10:00 a.m. on the sixth (6th) business day following receipt by Fidelity and CKE of the Purchase Notice at the offices of Christensen, White, 2121 Avenue of the Stars, 18th Floor, Los Angeles, California 90067. b. GIANT agrees that neither it nor its affiliates will individually or as part of a group of persons, become the beneficial owner (within the meaning of Rule 13d-3 of the Exchange Act) of 35%, or more of the combined voting power of Rally's without the consent of Fidelity and CKE. c. In the event that GIANT on the one hand, and Fidelity and CKE on the other hand, shall each own at least 34.0% of the outstanding Rally's Stock (without giving effect to the First Options and Second Options to the extent not exercised), the parties agree that at each election of directors of Rally's, GIANT may nominate up to one-half of the number of directors to be elected and Fidelity and CKE may nominate up to one-half of the number of directors to be elected. The parties further agree that they will vote all shares of Rally's Stock owned by them in favor of the election of the nominees of the other parties. In addition, if one, but not both, of GIANT on the one hand, and Fidelity and CKE on the other hand, own at least 34.0% of the outstanding Rally's Stock (without giving effect to the First Options and Second Options to the extent not exercised), the parties agree that at each election of directors the party(ies) owning at least 34.0% of the outstanding Rally's Stock may nominate up to one-half of the number of directors to be elected and the other party(ies) will vote all shares of Rally's Stock owned by them in favor of such nominees. d. The provisions of this Section 10 shall expire and be of no further force or effect on the tenth (10th) anniversary of the date hereof. - 8 - 27 e. In the event that Fidelity or CKE shall elect not to purchase the Rally's Stock pursuant to Section 7 hereof, then this Section 10 shall be of no force or effect. 11. Conditions to CKE's Obligation to Purchase Rally's Stock. -------------------------------------------------------- The obligation of CKE to purchase the Rally's Stock shall be conditioned upon, in addition to any other conditions contained herein, (i) the approval by the Board of Directors of Rally's of CKE as an Interested Stockholder (as defined in Section 203 of the General Corporation Law of the State of Delaware) (ii) the election of two (2) persons designated by CKE to the Board of Directors of Rally's conditioned upon the occurrence of the Closing, and (iii) CKE shall not have notified GIANT in accordance with Section 7 hereof of CKE's election not to purchase the Rally's Stock. 12. Representation and Warranties of Fidelity and CKE. Fidelity ------------------------------------------------- and CKE, severally and not jointly, hereby represent and warrant to GIANT as follows: a. Fidelity and CKE are each purchasing the Rally's Stock (including the Rally's Stock to be purchased upon exercise of the First Option and the Second Option) for their own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof. Fidelity and CKE acknowledge that the Rally's Stock acquired from GIANT will be "restricted securities" under the Securities Act of 1933, as amended. Fidelity and CKE further acknowledge that the certificates representing the Rally's Stock acquired by them from GIANT will contain appropriate legends to indicate that such Rally's Stock are "restricted securities." Fidelity and CKE agree that they will not, directly or indirectly, offer, transfer, sell, pledge, hypothecate or otherwise dispose of any of the Rally's Stock in violation of applicable securities laws. b. Fidelity and CKE each has such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of the investment in the Rally's Stock. c. This Agreement has been duly and validly authorized, executed and delivered by Fidelity and CKE, and constitutes a valid and binding agreement of each of them, enforceable against them in accordance with its terms. d. Fidelity and its wholly owned subsidiary Fidelity National Title Insurance Company of Pennsylvania are the sole record and beneficial owners of the shares of GIANT Stock to be sold to GIANT pursuant to this Agreement and upon payment therefor and delivery thereof at the Closing as provided herein, GIANT will own the shares of GIANT Stock purchased free and clear of all claims, liens and encumbrances other than those created by GIANT. - 9 - 28 e. The execution and delivery of this Agreement by Fidelity and CKE do not, and the performance by them of their obligations hereunder will not, violate, conflict with or result in a breach of any agreement to which Fidelity or CKE is a party which would cause a material adverse effect on the business or assets of Fidelity or CKE. 13. Representations and Warranties of GIANT. GIANT hereby --------------------------------------- represents, warrants and covenants to Fidelity and CKE as follows: a. GIANT and KCC are the sole record and beneficial owners of the shares of Rally's Stock to be sold to Fidelity and CKE pursuant to this Agreement and upon payment therefor and delivery thereof at the Closing, the First Option Closing and/or the Second Option Closing, as applicable, Fidelity and CKE will own the shares of Rally's Stock purchased free and clear of all claims, liens and encumbrances other than those created by GIANT. b. This Agreement has been duly and validly authorized, executed and delivered by GIANT and constitutes a valid and binding agreement of it, enforceable against it in accordance with its terms. c. The Form 10-K of Rally's for the year ended December 31, 1995 (the "Form 10-K") and any filings made by Rally's with the Securities and Exchange Commission since December 31, 1995 comply in all material respects with applicable securities laws and regulations. None of such filings contain any misstatements of material fact or fail to state all material facts necessary to make the statements therein not misleading. The capitalization of Rally's is as set forth in the Form 10-K. d. GIANT agrees that until the tenth (10th) anniversary of the date hereof it shall not, without the consent of Fidelity and CKE, take any action to increase the size of the Board of Directors of Rally's and shall vote its shares in favor of the two persons designated by CKE pursuant to Section 11 hereof (and their successors). e. The execution and delivery of this Agreement by GIANT does not, and the performance by it of its obligations hereunder will not, violate, conflict with or result in a breach of any agreement to which GIANT or Rally's is a party which would cause a material adverse effect on the business or assets of GIANT or Rally's. 14. Entire Agreement. This Agreement, together with the ---------------- Settlement Agreement and any exhibits attached hereto and thereto shall be deemed to be the complete and entire agreement among the parties hereto with respect to the subject matter hereof and supersedes any and all prior negotiations, correspondence, understandings or other agreements or statements between the parties and/or their representatives. - 10 - 29 15. Notices. Any and all notices and demands by any party hereto ------- to any other party, required or desired to be given hereunder, shall be in writing and shall be validly given or made only if (i) sent by United States mail, express, certified or registered, postage prepaid, return receipt requested, (ii) made by Federal Express or other similar delivery service keeping records of deliveries and attempted deliveries, or (iii) sent by telecopy. The parties may change their address for the purpose of receiving notices or demands as herein provided by a written notice given in the manner aforesaid to the other. Notices sent by United States mail, express, certified or registered or by Federal Express or other similar delivery service shall be deemed received upon receipt or attempted delivery. Notices sent by telecopy shall be deemed received upon electronic confirmation of transmission. Notices shall be sent to the parties as follows: To GIANT: GIANT GROUP, LTD. 150 El Camino Drive, Suite 303 Beverly Hills, California 90212 Attention: Chief Executive Officer Fax: (310) 273-5249 with a copy to: Gary N. Jacobs, Esq. Christensen, White, Miller, Fink, Jacobs, Glaser & Shapiro, LLP 2121 Avenue of the Stars, 18th Floor Los Angeles, California 90067 Fax: (310) 556-2920 To Fidelity: Fidelity National Financial, Inc. 17911 Von Karman Avenue, Suite 500 Irvine, California 92714 Attention: Andrew Puzder, Esq. Fax: (714) 622-4116 with a copy to: Lawrence Lederman, Esq. Milbank, Tweed, Hadley & McCloy One Chase Manhattan Plaza New York, New York 10005 Fax: (212) 530-5219 To CKE: CKE Restaurants, Inc. 1200 N. Harbor Anaheim, California 92801 Attention: Chief Executive Officer Fax: (714) 490-3965 - 11 - 30 with a copy to: Richard Goodman, Esq. Stradling Yocca, Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, California 92660 Fax: (714) 725-4100 16. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of California, without regard to conflicts of laws principles. The parties agree that the sole forum for any action relating to this Agreement shall be the appropriate state or federal court in Los Angeles County, California. Each party hereto consents to personal jurisdiction in such courts and waives all rights to contest the venue of any action brought in such courts relating to this Agreement. 17. Specific Performance. The parties hereto acknowledge and -------------------- agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, it is agreed that, in addition to any other remedies which they may have, the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction. 18. Further Assurances. Each party to this Agreement shall ------------------ execute all instruments and documents and take all actions as may reasonably be necessary in order to effectuate this Agreement. 19. Amendments. This Agreement may be amended or modified only ---------- in a writing executed by the party(ies) to this Agreement against whom enforcement of such amendment or modification is sought. 20. Construction. Each party to this Agreement and its counsel ------------ have reviewed and revised this Agreement. The rule of construction that any ambiguity shall be resolved against the drafting party shall not be employed in the interpretation of this Agreement. 21. Survival. All representations, warranties and agreements -------- contained herein shall survive the execution of this Agreement and the closing of the transactions contemplated hereby. 22. Successors and Assigns; Assignment. All of the terms, ---------------------------------- covenants and conditions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. No party hereto shall be permitted to assign its rights under this Agreement other than to a wholly-owned subsidiary. No assignment or transfer permitted hereunder shall relieve any such assignor or transferor of any of its obligations hereunder and any assignee or transferee - 12 - 31 shall assume in writing all of the undertakings of assignor or transferor under this Agreement. 23. Attorneys' Fees. Should an action be instituted by either of --------------- the parties hereto in any court of law or equity pertaining to the enforcement of any of the provisions of this Agreement, the prevailing party shall be entitled to recover, in addition to any judgment or decree rendered therein, all court costs and reasonable attorneys' fees and expenses. 24. Headings. All of the section headings herein are inserted for -------- convenience only and shall have no meaning for purposes of this Agreement. 25. Counterparts. This Agreement may be executed in any number of ------------ counterparts, which when so executed and delivered shall be deemed an original, and such counterparts shall constitute one and the same Agreement. [remainder of page intentionally left blank] - 13 - 32 IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of the date first above written. GIANT GROUP, LTD., a Delaware corporation by: /s/ BURT SUGARMAN ---------------------------- name: Burt Sugarman title: CEO Fidelity National Financial, Inc., a Delaware corporation by: ---------------------------- name: title: CKE Restaurants, Inc., a Delaware corporation by: ----------------------------- name: title: 33 IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of the date first above written. GIANT GROUP, LTD., a Delaware corporation by: ---------------------------- name: title: Fidelity National Financial, Inc., a Delaware corporation by: /s/ WILLIAM P. FOLEY, II ---------------------------- name: William P. Foley, II title: CEO & Chairman CKE Restaurants, Inc., a Delaware corporation by: /s/ WILLIAM P. FOLEY, II ---------------------------- name: William P. Foley, II title: CEO & Chairman EX-10.43 3 OPERATING AGREEMENT BETWEEN RALLY'S & CARL KARCHER 1 Exhibit 10.43 -------------------------------------- OPERATING AGREEMENT BY AND BETWEEN RALLY'S HAMBURGERS, INC. AND CARL KARCHER ENTERPRISES -------------------------------------- May 22, 1996 2 TABLE OF CONTENTS ARTICLE 1 DEFINITIONS.......................................................................................... 1 ARTICLE 2 ENGAGEMENT AND TERM.................................................................................. 7 Section 2.1 Engagement.......................................................... 7 Section 2.2 Term................................................................ 8 Section 2.3 Inspection.......................................................... 8 ARTICLE 3 RIGHTS OF OWNER...................................................................................... 8 Section 3.1 Audit Rights........................................................ 8 Section 3.2 Approval Rights..................................................... 9 ARTICLE 4 RIGHTS AND RESPONSIBILITIES OF OPERATOR.............................................................. 9 Section 4.1 Scope of Operator's Responsibilities................................ 9 Section 4.2 Funding............................................................. 10 Section 4.3 No Assumption of Liabilities........................................ 10 Section 4.4 Operator Obligations................................................ 10 Section 4.5 Use of Name......................................................... 11 Section 4.6 Payment of Taxes and Utilities...................................... 12 Section 4.7 Records, Financial Statements and Tax Returns............................................................. 13 Section 4.8 Management Meetings................................................. 13 Section 4.9 Converted Stores.................................................... 13 Section 4.10 Closure of Stores................................................... 13 Section 4.11 Unused Equipment.................................................... 14 ARTICLE 5 COVENANTS............................................................................................ 14 Section 5.1 Lease Agreements.................................................... 14 Section 5.2 Non-Disturbance..................................................... 15 Section 5.3 Sales, Marketing and Advertising.................................... 15 Section 5.4 Insurance........................................................... 15 Section 5.5 No Sale of Stores................................................... 15 Section 5.6 Green Burrito....................................................... 16 Section 5.7 Lease Agreement Extensions.......................................... 16 ARTICLE 6 COMPENSATION......................................................................................... 16 Section 6.1 Owner Fee and Owner Advertising Fee................................. 16 Section 6.2 Wire Transfer Instructions.......................................... 17 Section 6.3 Compensation to Operator............................................ 17 ARTICLE 7 REPRESENTATIONS AND WARRANTIES....................................................................... 17 Section 7.1 Owner Representations and Warranties................................ 17 Section 7.2 Operator Representations and Warranties............................. 19 ARTICLE 8 DAMAGE; DESTRUCTION OR CONDEMNATION.................................................................. 20 Section 8.1 Application of Insurance Proceeds................................... 20 ARTICLE 9 INDEMNIFICATION...................................................................................... 21 Section 9.1 Indemnification by Owner............................................ 21 Section 9.2 Indemnification by Operator......................................... 21
(i) 3 ARTICLE 10 DEFAULT............................................................................................. 22 Section 10.1 Events of Operator Default....................................................... 22 Section 10.2 Owner Remedies................................................................... 23 Section 10.3 Events of Owner Default.......................................................... 23 Section 10.4 Operator Remedies................................................................ 24 ARTICLE 11 TERMINATION......................................................................................... 24 Section 11.1 Termination For Cause by Owner................................................... 24 Section 11.2 Termination For Cause by Operator................................................ 24 Section 11.3 Termination Without Cause by Operator............................................ 24 Section 11.4 Termination with Respect to a Specific Store....................................................................... 25 Section 11.5 Cessation of Activities by Operator upon Termination................................................................. 25 Section 11.6 Other Rights Upon Termination.................................................... 25 ARTICLE 12 MISCELLANEOUS PROVISIONS............................................................................ 26 Section 12.1 Binding Arbitration......................................................... 26 Section 12.2 No Joint Venture; Independent Entity........................................ 26 Section 12.3 Inquiry..................................................................... 27 Section 12.4 Affiliates.................................................................. 27 Section 12.5 Expense..................................................................... 27 Section 12.6 Confidentiality............................................................. 27 Section 12.7 Assignment.................................................................. 28 Section 12.8 Notices..................................................................... 28 Section 12.9 Incorporation of Schedules.................................................. 29 Section 12.10 Complete Agreement.......................................................... 29 Section 12.11 Amendment of Agreement...................................................... 29 Section 12.12 Attorneys' Fees............................................................. 29 Section 12.13 Third-Party Beneficiaries................................................... 29 Section 12.14 Successors and Assigns...................................................... 29 Section 12.15 Governing Law............................................................... 29 Section 12.16 Severability................................................................ 30 Section 12.17 Captions.................................................................... 30 Section 12.18 References to Articles and Sections......................................... 30 Section 12.19 Counterparts................................................................ 30 Section 12.20 Execution of Other Documents................................................ 30 Section 12.21 Due Dates................................................................... 30
SCHEDULES Schedule A - Stores Schedule B-1 - Approved Sources (The suppliers and vendors currently used by Owner in the operation of the Stores) (ii) 4 Schedule B-2 - Approved Sources (Those suppliers and vendors used by Operator from time to time which are approved by Owner for use by Operator) Schedule C - Consumables (by category) Schedules D-1 - Existing Assets Schedules E-1 - Lease Agreements through E-28 Schedule F - Consumables (by quantity and cost) Schedule G - Insurance Coverage Schedule H - Existing Contracts Schedule I - Liabilities Schedule J - Taxes (iii) 5 OPERATING AGREEMENT BY AND BETWEEN RALLY'S HAMBURGERS, INC. AND CARL KARCHER ENTERPRISES THIS OPERATING AGREEMENT (this "AGREEMENT") is entered into as of May 22, 1996, by and between Rally's Hamburgers, Inc., a Delaware corporation ("OWNER"), and Carl Karcher Enterprises, a California corporation ("OPERATOR"). RECITALS WHEREAS, Owner owns and operates certain Rally's Hamburgers restaurants located in California and Arizona, as set forth on SCHEDULE A attached hereto (collectively, the "STORES"); and WHEREAS, Owner desires to hire Operator, and Operator desires to be hired by Owner, to manage and operate each of the Stores either as a Rally's Hamburgers restaurant (a "RALLY'S STORE") or as a restaurant which has been converted, in Operator's sole and absolute discretion, into a Carl's Jr. restaurant (a "CONVERTED STORE"), upon the terms and conditions set forth in this Agreement. AGREEMENT NOW, THEREFORE, in consideration of the premises, mutual covenants, representations and warranties set forth in this Agreement, Owner and Operator hereby agree as follows: ARTICLE 1 DEFINITIONS For purposes of this Agreement, the following terms shall have the meanings specified: "AFFILIATE" shall mean any person or entity that directly or indirectly controls, is controlled by or is under common control with Owner or Operator, as the case may be. For purposes of determining the existence of an Affiliate, "control" shall mean ownership of fifty percent (50%) or more of the ownership interests in an entity in question or the possession of direct or indirect power to direct or cause the direction of the management and policies of such entity, whether through the ownership of voting securities or by contract or otherwise. 1 6 "APPROVED SOURCES" shall mean (i) the suppliers and vendors currently used by Owner in the operation of the Stores as listed on SCHEDULE B-1 attached hereto (which Schedule shall be amended from time to time by Owner to reflect additions and deletions of suppliers and vendors), and (ii) those suppliers and vendors used by Operator from time to time which are approved by Owner for use by Operator (which approval shall not be unreasonably withheld or delayed) including, without limitation, the suppliers and vendors listed on SCHEDULE B-2 attached hereto. "BASIS" means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or could form the basis for any specified consequence. "CLASS A STORES" shall mean those Stores identified under the heading "Class A Stores" on SCHEDULE A attached hereto. "CLASS B STORES" shall mean those Stores identified under the heading "Class B Stores" on SCHEDULE A attached hereto. "CLOSING COSTS" shall mean all Losses related to the closing of a Store including but not limited to all payments required under any Lease Agreements. "CLOSURE DATE" shall have the meaning set forth in SECTION 4.10(a). "CONSUMABLES" shall mean paper supplies, cleaning materials, eating utensils, restaurant supplies, food and beverage inventories, office inventories and all other consumables, as described on SCHEDULE C attached hereto . "CONVERTED STORES" shall have the meaning set forth in the Recitals above. "DEMAND DATE" shall have the meaning set forth in SECTION 4.10(a). "ENVIRONMENTAL LIABILITY OF OPERATOR" shall mean any and all Liabilities arising out of (i) environmental conditions, including, without limitation, the presence of any Hazardous Substances at, on, in or under the Stores; (ii) the release or threat of release of Hazardous Substances at the Stores whether into the air, soil, ground or surface waters on or off-site; (iii) any violation of any federal, state, regional or local environmental law, regulation, rule, order, ordinance or notice arising from or relating to the acts or omissions of, or permitted by, Operator; or (iv) the use, possession, handling, generation, treatment, storage, recycling, transportation or disposal by Operator of Hazardous Substance on the Stores, where 2 7 the events or conditions in clauses (i), (ii), (iii) or (iv) arise out of or are caused (directly and indirectly) by acts or omissions of Operator or Operator's employees or agents after the Implementation Date including, without limitation, any and all fines, penalties, obligations, injunctive or other equitable relief, awards, costs and expenses (including reasonable attorneys' fees and disbursements and court costs) for personal injury, death, natural resource damages, property damage and the costs of environmental investigation or studies, clean-up or remediation, including, without limitation, any liabilities under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601, et seq. ("CERCLA"); the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq. ("HMTA"); the Resource Conservation and Recovery Act, 42 U.S.C. Section6901, et seq. ("RCRA"); the Clean Water Act 33 U.S.C. Section 1251, et seq. ("CWA"); the Clean Air Act, 42 U.S.C. Section7401, et seq. ("CAA"); the Occupational Safety and Health Act, 84 Stat. 1590 ("OSHA"); and the California Health and Safety Code ("CHSC"); and any rules and regulation promulgated under any of the foregoing. "ENVIRONMENTAL LIABILITY OF OWNER" shall mean any and all liabilities arising out of (i) environmental conditions, including, without limitation, the presence of any Hazardous Substances at, on, in or under the Stores; (ii) the release or threat of release of Hazardous Substances at the Stores whether into the air, soil, ground or surface waters on- or off-site; (iii) any violation of any federal, state, regional or local environmental law, regulation, rule, order, ordinance or notice arising from or relating to the acts or omissions of, or permitted by, Owner; or (iv) the use, possession, handling, generation, treatment, storage, recycling, transportation or disposal by Owner of Hazardous Substances on the Stores, where the events or conditions in clauses (i), (ii), (iii), or (iv) arise out of or are caused (directly or indirectly) by acts or omissions of Owner or Owner's employees or agents prior to the Implementation Date including, without limitation, any and all fines, penalties, obligations, injunctive or other equitable relief, awards, costs, and expenses (including reasonable attorneys' fees and disbursements and court costs) for personal injury, death, natural resource damages, property damage and the cost of environmental investigation or studies, clean-up or remediation, including, without limitation, any liabilities under CERCLA, HMTA, RCRA, CWA, CAA, OSHA and CHSC and any rules and regulations promulgated under any of the foregoing. "EXISTING ASSETS" shall mean the values of all the tangible and intangible assets (other than Consumables) located at each of the Stores on the Implementation Date, as contemplated by SCHEDULE D-1 attached hereto. In addition, it is further understood and agreed that at the Implementation Date, each Store's Total Net Book Value (as described in Schedule D-1) which 3 8 has an asterisk to the left of the address of each Store shall have its Total Net Book Value restated to $100,000, reduced by $5,000 per year (or portion thereof) from the initial opening date of the Store by Owner (i.e. not the Implementation Date) to the date of valuation. Otherwise, Existing Assets will be valued at Owner's net book set forth on the financial statements of Owner (which have been prepared in accordance with GAAP) as of the date of valuation. "FINANCIAL STATEMENTS" shall mean statements calculating the amount of Net Sales of each Store (i.e. specifying gross sales and permitted deductions therefrom) and the value of the New Assets (specifying a Significant Operating Expense) purchased for each Store during a Fiscal Period or Fiscal Year. "FISCAL PERIOD" shall mean each of the thirteen (13) four (4) week fiscal periods of Operator during a Fiscal Year commencing and ending after the Implementation Date; provided, that the initial Fiscal Period shall commence on the Implementation Date and shall end on the last day of that fiscal period. "FISCAL YEAR" shall mean each fiscal year of Operator commencing and ending after the Implementation Date; provided, that the initial Fiscal Year shall commence on the Implementation Date and shall end on the last day of that fiscal year. "GAAP" shall mean generally accepted accounting principles. "HAZARDOUS SUBSTANCE" shall mean, without limitation, all substances and waste materials covered by CERCLA, HMTA, RCRA, CWA, CAA, OSHA and CHSC and any rules and regulations promulgated under any of the foregoing. "IMPLEMENTATION DATE" shall mean July 1, 1996. "INTELLECTUAL PROPERTY" shall mean (i) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof, (ii) all trademarks, service marks, trade dress, logos, trade names, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith, (iii) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, (iv) all mask works and all applications, registrations, and renewals in connection therewith, (v) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, recipes and 4 9 unique food formulas) compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals), (vi) all computer software (including data and related documentation), (vii) all other proprietary rights, and (viii) all copies and tangible embodiments thereof (in whatever form or medium). "LEASE AGREEMENTS" shall mean those certain Lease Agreements entered into by Owner with respect to Owner's lease of the property underlying the Stores and the improvements thereon, as set forth on SCHEDULE E-1 through SCHEDULE E-28 attached hereto. "LIABILITY" means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due). "LOSSES" shall mean all claims, demands, losses, actions, causes of action (whether legal, equitable, or administrative), costs, expenses, obligations, Liabilities, damages (whether actual, punitive or otherwise), remedies, judgments and penalties, including interest, penalties and reasonable attorneys' fees and expenses. "NET SALES" shall mean all revenue from the sale of all food, merchandise, or services sold or rendered by the Store including, without limitation, catering and sales and services where orders originate or are accepted by Operator in the Store by delivery or performance thereof is made from or at any place other than the Store or which are pursuant to telephone or other similar orders received or filled at or in the Store, whether for cash or credit and regardless of collection in the case of credit, and income of every kind and nature related to the Store business, deducting or excluding therefrom (i) receipts from refunds to customers and non-food vending items, (ii) any sales taxes or other taxes collected from customers by Operator for transmittal to the appropriate taxing authority, (iii) any sales of Existing Assets or New Assets, (iv) non-food promotional items sold at no profit to Operator, (v) the amount of discount on sales to employees, and (vi) the amount of discount on coupon sales. "NEW ASSETS" shall mean all of the tangible assets (other than Consumables) located at each of the Stores which are purchased by Operator after the Implementation Date and shall include all Significant Operating Expenses. The New Assets shall be valued at Operator's net book value set forth on the financial statements of Operator (which have been prepared in accordance with GAAP) determined on the date of such valuation. 5 10 "OPERATOR" shall mean Carl Karcher Enterprises, a California corporation. "OPERATOR DEFAULT" shall have the meaning set forth in SECTION 10.1. "OPERATOR DISTRIBUTION PERCENTAGE" shall mean the quotient of (a) the value of New Assets divided by (b) the sum of the value of the Existing Assets and the value of the New Assets. "OPERATOR INDEMNITEES" shall mean Operator and its Affiliates, and each of their employees, agents, legal representatives, officers, directors and shareholders. "OWNER" shall mean Rally's Hamburgers, Inc., a Delaware corporation. "OWNER ADVERTISING FEE" shall have the meaning set forth in SECTION 6.1. "OWNER CHANGE OF CONTROL" shall mean (i) any transaction or series of related transactions in which fifty percent (50%) or more of Owner's outstanding voting stock is transferred to holders different from those who held the stock immediately prior to such transactions; (ii) a merger or consolidation in which Owner is not the surviving entity, other than a merger in which the principal purpose is to change the state of incorporation of Owner, (iii) the sale, transfer or other disposition of all or substantially all of the assets of Owner; or (iv) any reverse merger in which Owner is the surviving entity but in which fifty percent (50%) or more of Owner's outstanding voting stock is transferred to holders different from those who held the stock immediately prior to such merger. "OPERATOR DEFAULT" shall have the meaning set forth in SECTION 10.3. "OWNER DISTRIBUTION PERCENTAGE" shall mean the quotient of (a) the value of the Existing Assets divided by (b) the sum of the value of the Existing Assets and the value of the New Assets. "OWNER FEE" shall have the meaning set forth in SECTION 6.1. "OWNER INDEMNITEES" shall mean Operator and its Affiliates, and each of their employees, agents, legal representatives, officers, directors and shareholders. "OWNER OPERATIONAL STANDARDS" shall mean Owner's current standards for operating a Rally's Store as set forth in Owner's current Operations Manual previously provided to Operator and the other standards and policies of operation of Owner (including, without limitation, (i) all menu changes proposed by Operator 6 11 (which changes shall be made only with the consent of Owner, which consent shall not be unreasonably withheld or delayed) and (ii) Operator's use of the Approved Sources), all as may be amended or modified from time to time by Owner with the consent of the Operator, which consent shall not be unreasonably withheld. "RALLY'S STORE" shall have the meaning set forth in the Recitals above. "REASONABLY UNFORESEEABLE CIRCUMSTANCES" shall mean the occurrence of reasonably unforeseeable events including, but not limited to, (i) expropriation or confiscations of property or facilities in any eminent domain, condemnation, compulsory acquisition or like proceeding by any competent authority for any public or quasi-public use or purpose, or (ii) acts of nature including, fires, floods and earthquakes. Any dispute between Owner and Operator which relates to the existence of Reasonably Unforeseeable Circumstances shall be resolved by binding arbitration pursuant to the provisions of SECTION 12.1. "SIGNIFICANT OPERATING EXPENSE" shall mean the aggregate repair or maintenance costs of any individual New Asset or Existing Asset which are capitalized on the financial statements of Operator (which have been prepared in accordance with GAAP). In no event shall any single such cost item which is less than Five Hundred Dollars ($500) be capitalized. "STORES" shall have the meaning set forth in the Recitals above. "TAX" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. ARTICLE 2 ENGAGEMENT AND TERM SECTION 2.1 ENGAGEMENT. (a) Owner hereby hires Operator as an independent contractor, and Operator hereby accepts such engagement to operate and perform or have performed all of the day-to-day operations of the Stores upon the terms, conditions and covenants and other provisions set forth in this Agreement. Subject to 7 12 such terms, conditions, covenants and other provisions, Operator shall have the right to determine operating policy, standards of operation, quality of service and any other matters affecting customer relations or efficient management and operation of the Stores. Owner and Operator agree that Operator shall operate the Rally's Stores substantially in accordance with the Owner Operational Standards. Owner and Operator agree further that each will cooperate with and assist the other in every reasonable and proper way to permit Operator to carry out its duties hereunder. (b) On the Implementation Date, Operator shall purchase from Owner each Store's then-current Consumables, as listed on SCHEDULE F attached hereto, and all cash on hand at each Store for a purchase price (paid pursuant to a wire transfer on the Implementation Date in accordance with SECTION 6.2) equal to the sum of (i) Owner's actual cost of such Consumables and (ii) the amount of such cash. SECTION 2.2 TERM. Subject to SECTION 2.3 below, the term of this Agreement shall commence upon the Implementation Date and, subject to earlier termination pursuant to the provisions of ARTICLE 11, shall expire ten (10) years from the Implementation Date. Notwithstanding the foregoing, Operator shall have the right to extend the term of this Agreement for at least two (2) renewal periods of five (5) years each, the first to commence on the day following the expiration of the term of this Agreement and the second to commence on the day following the expiration of the first renewal term, provided Operator gives Owner written notice of Operator's election to extend the term of this Agreement at least ninety (90) days prior to a renewal period. SECTION 2.3 INSPECTION. It shall be a condition to the commencement of the term of this Agreement and the obligations of Owner and Operator under this Agreement, that a joint inspection of the Stores be conducted prior to the Implementation Date and upon the Implementation Date, that there be a mutually executed written list of required repairs at the Stores. The reasonable cost of such repairs shall not exceed One Thousand Dollars ($1,000) per Store (i.e. maximum of Twenty-Eight Thousand Dollars ($28,000) and shall be an offset against the Owner Fee. ARTICLE 3 RIGHTS OF OWNER SECTION 3.1 AUDIT RIGHTS. Throughout the term of this Agreement, Owner and its authorized representatives shall have the right to examine the books, records and receipts relating to the operations of the Stores for the purpose of determining the accuracy of any (i) payment received by Owner hereunder, and (ii) the amount of any purchase of New Assets or incurrence of a 8 13 Significant Operating Expense. Each examination shall take place at the offices of Operator at such times as are reasonably convenient to Owner and Operator after at least thirty (30) days prior written notice to Operator requesting such examination. Owner may, within thirty (30) days after completion of its examination, give notice to Operator of any amount alleged to be owing to Owner and/or the amount disputed of any item appearing in or excluded from the Financial Statements delivered to Owner. If Owner and Operator do not resolve any such dispute item within thirty (30) days after Owner gives notice to Operator of a disputed item, the dispute shall be determined by an audit by an accounting firm mutually acceptable to Owner and Operator. Upon the conclusion of such audit, the amount of any previous underpayment to Owner, if any, shall be paid to Owner. The costs of the audit shall be paid by Owner; provided, however, if the amount of such underpayments during a Fiscal Year is greater than four percent (4%) of the total payments due Owner hereunder in such Fiscal Year, the reasonable costs of such audit shall be paid by Operator. SECTION 3.2 APPROVAL RIGHTS. Owner shall have the right to pre-approve in writing (i) the form and content of all press releases and other items of general publicity relating to any Rally's Store; (ii) the encumbering of any of the Stores or any portion thereof by any mechanics', laborers', materialmen's, contractors', subcontractors' or any other liens or encumbrances or charges, except for each Converted Store where Operator has assumed the Lease Agreement applicable to such Converted Store pursuant to SECTION 4.9; and (iii) the use of Owner's name or the name "Rally's" and the accompanying text included in any advertising (other than local advertising for which there is no pre-approval right) or any document intended for public, semipublic or governmental disclosure (other than documents prepared by Operator pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934); provided, that upon receipt from Operator of a request seeking Owner's approval of the name use and accompanying text, Owner shall have five (5) business days within which to notify Operator either verbally or in writing of its approval or denial thereof, and in the event that Operator fails to receive such notice from Owner within such five (5) business-day period, Owner shall be deemed conclusively to have failed to so notify Operator and to have approved such request. ARTICLE 4 RIGHTS AND RESPONSIBILITIES OF OPERATOR SECTION 4.1 SCOPE OF OPERATOR'S RESPONSIBILITIES. In performance of its duties pursuant to this Agreement, Operator shall act solely as an independent contractor of Owner. All licenses, permits and approvals including, without limitation, 9 14 liquor licenses and business permits, shall be obtained by Operator; provided, that in the event that such government authorities prohibit Operator from obtaining such licenses, permits and approvals, Operator shall notify Owner of such prohibition and shall first attempt to obtain such licenses, permits and approvals in the name of Owner and Operator (or their respective designees) jointly, and if such joint holding is prohibited by the proper government authorities, Operator may obtain such licenses, permits and approvals in the name of Owner or its designees. Upon termination of this Agreement, Operator and its respective designees shall cooperate with Owner to transfer all such licenses, permits and approvals to the name of Owner or Owner's designees alone; provided, however, if Operator has assumed the Lease Agreement applicable to a Converted Store pursuant to SECTION 4.9, (i) Operator shall not be required to transfer such licenses, permits and approvals with respect to such Converted Store to the name of Owner or Owner's designees and (ii) Owner and its respective designees shall cooperate with Operator to transfer all such licenses, permits and approvals to the name of Operator or Operator's designees alone. SECTION 4.2 FUNDING. Operator agrees to provide all funds, throughout the term of this Agreement, as shall be necessary to perform and satisfy Operator's responsibilities under this Agreement. SECTION 4.3 NO ASSUMPTION OF LIABILITIES. Except as specifically agreed to by Owner and Operator pursuant to SECTION 4.9 with respect to the permitted assumption by Operator of one or more Lease Agreements and as to two (2) agreements relating to billboard advertising (in Los Angeles and Bakersfield) which Operator hereby agrees to assume as of the Implementation Date; Operator does not agree to assume or become responsible for any Liabilities of Owner. SECTION 4.4 OPERATOR OBLIGATIONS. Following the Implementation Date and thereafter during the term of this Agreement, Operator shall operate and perform all day-to-day operations of the Stores, including, without limitation, the obligations set forth below, in a manner consistent with the terms, conditions, covenants and other provisions of this Agreement: (a) Manage, operate and maintain the Stores including, without limitation, the payment of all operating and maintenance costs to third parties (including but not limited to all payments required under the Lease Agreements). In connection therewith, Operator shall have uninterrupted control over the operation of the Stores and Owner shall not interfere with or involve itself in any way with the day-to-day operation of the Stores by Operator. 10 15 (b) Hire, promote, discharge, direct, train and supervise and determine the compensation, other benefits and terms of employment of all employees of the Stores and use its reasonable efforts to comply with all employee related laws and regulations (including the provision of worker's compensation insurance benefits to Stores employees). In the exercise of its reasonable discretion Operator is to be the sole and absolute judge of the fitness and qualifications of such employees and, except to the extent provided in this Agreement, is vested with absolute discretion in hiring, promoting, discharging, directing, training and supervising and determining the compensation, other benefits and terms of employment of such personnel. It is expressly understood and agreed that all of such employees are in the sole employ of Operator. Owner shall not interfere with or give orders or instructions to any personnel employed at the Stores. Operator shall have the option, but shall not be required, to continue the employment of, hire, maintain, or give any preferential treatment to, current or future employees of Owner or the Stores. (c) Subject to SECTION 4.1, use its reasonable efforts to maintain all licenses and permits required for the operation of the Stores (including liquor and restaurant licenses). (d) Purchase all Consumables. With respect to Rally's Stores, such purchases shall be made exclusively from Approved Sources. (e) Replace all furniture fixtures and equipment of the Stores as necessary to maintain the Stores. In connection therewith, Operator shall make or cause to be made all repairs, replacements, corrections and maintenance items as shall be required in the normal and ordinary course of operation of the Stores. (f) Subject to SECTION 5.3, initiate and carry out local promotional and advertising programs. (g) Enforce all Stores rules and regulations. (h) Use reasonable efforts to comply with all federal, state, regional or local environmental laws, regulations, rules, orders, ordinances or notices arising relating to the operation of the Stores. (i) Fulfill Operator's other obligations pursuant to this Agreement. SECTION 4.5 USE OF NAME. (a) Throughout the term of this Agreement, Operator shall have the non-exclusive right and license to use the name 11 16 "Rally's" in connection with marketing, advertising and describing the operation of the Rally's Stores to third parties. In the event of termination of this Agreement, Operator shall not use the name "Rally's." (b) Owner and Operator hereby agree that in the event Owner and/or Operator is (are) the subject of any litigation or action brought by any party seeking to restrain the use, for or with respect to the Stores, by Owner and/or Operator of the name "Rally's," any such litigation or action shall be defended entirely at the expense of Owner, notwithstanding that Operator may or may not be named as a party thereto. In the event Owner desires to bring suit against any user of such name, then such suit shall be brought at the expense of Owner notwithstanding that such user may be a prior or subsequent user. In all cases, the conduct of any suit (whether brought by Owner or instituted against Owner and/or Operator) shall be under the absolute control of counsel to be nominated by Owner notwithstanding that Operator may not be a party to such suit and that Owner may be responsible for all costs of such counsel as provided herein. Owner hereby agrees and covenants to hold Operator harmless from and to indemnify Operator against any Losses which Operator is required to pay and/or pays arising from the use of the name "Rally's" or names or similar rights or registrations for or on the Stores in accordance with the terms of this Agreement. SECTION 4.6 PAYMENT OF TAXES AND UTILITIES. After the Implementation Date and throughout the term of this Agreement, Operator shall determine and pay out of Stores operations all utilities, Taxes, assessments, excises, levies and other charges of any kind upon the Stores that may be charged or levied by any proper authority after the Implementation Date. Owner shall be responsible for paying its pro rata share of such charges which were incurred or relate to any period of time prior to the Implementation Date. Owner shall indemnify, defend and hold harmless the Operator from and against any and Losses that such person or persons shall incur or suffer relating to or arising out of the failure of Owner to pay, in accordance with this SECTION 4.6, its pro rata share of such charges. In case any action or proceeding is brought against any such Operator by reason of any such Loss, Owner, upon notice from Operator, shall defend the same at Owner's expense by counsel reasonably satisfactory to Operator. Operator shall indemnify, defend and hold harmless the Owner from and against any and Losses that such person or persons shall incur or suffer relating to or arising out of the failure of Operator to pay, in accordance with this SECTION 4.6, its pro rata share of such charges. In case any action or proceeding is brought against any such Owner by reason of any such Loss, Operator upon notice from Owner, shall defend the same at Operator's expense by counsel reasonably satisfactory to Owner. 12 17 SECTION 4.7 RECORDS, FINANCIAL STATEMENTS AND TAX RETURNS. Operator shall cause complete and accurate accounts of all transactions reflected on the Financial Statements to be kept in proper books to be made available for inspection by Owner at all reasonable times as set forth in SECTION 3.1. As soon as practicable, but in no event later than twenty (20) days after the close of each Fiscal Period, Operator shall furnish to Owner the Financial Statements for the preceding Fiscal Period. As soon as practicable, but in no event later than forty-five (45) days following the close of each Fiscal Year, Operator shall furnish to Owner final Financial Statements for the preceding Fiscal Year. SECTION 4.8 MANAGEMENT MEETINGS. Representatives of Operator shall meet with representatives of Owner at least once per fiscal quarter at a specific time and place to be agreed upon by Owner and Operator, for the purpose of discussing the performance of the Stores. SECTION 4.9 CONVERTED STORES. Operator shall have the right, at any time during the term of this Agreement, to convert any of the Rally's Stores to a Converted Store. The costs of such conversion shall be at the sole expense of Operator. Upon such conversion, Operator shall have the right, but not the obligation, to assume the Lease Agreement applicable to such Converted Store. In connection therewith, upon the request of Operator, Owner shall use its best efforts to obtain all consents and renewals with respect to such Lease Agreement necessary or desirable for Operator to continue the operation of such Store as a Converted Store. Upon Operator's assumption of such Lease Agreement, Operator shall reimburse to Owner the actual amount of any security deposit previously paid by Owner pursuant to the provisions of such Lease Agreement. If Operator terminates this Agreement pursuant to SECTION 11.3, Operator shall assume the Lease Agreements applicable to each Converted Store and Owner shall use its best efforts to obtain all consents and renewals with respect to such Lease Agreement necessary or desirable for Operator to continue the operation of such Store as a Converted Store. SECTION 4.10 CLOSURE OF STORES. (a) Operator shall have the right, in its sole and absolute discretion, to effect the closure of (i) the three Class B Stores specified in Schedule A at the expiration of the term of their respective Lease Agreements; and, (ii) the Class A Stores sixty (60) months or more after the Implementation Date. Notice of any closure of a Store shall be delivered to Operator by Owner within sixty (60) days prior to the effective date of such Closure (the "CLOSURE DATE"). Notwithstanding the foregoing, if Owner demands in writing to Operator, within thirty (30) days prior to the Closure Date (the "DEMAND DATE"), that a closure of 13 18 a Store not be effected, then such Store shall not be closed and Operator shall continue to operate such Store in accordance with the provisions of this Agreement; provided, however, (i) in no event shall any of the Operator or its Affiliates be liable or responsible for any continuing direct or indirect operational loss from such Store or any Losses resulting from Operator's operation of the Store after the Demand Date and (ii) Owner shall indemnify, defend and hold harmless the Operator and its Affiliates from and against any such operational loss and Losses that such person or persons shall incur or suffer after the Demand Date. In case any action or proceeding is brought against any such Operator and its Affiliate by reason of any such Loss, Owner, upon notice from Operator, shall defend the same at Owner's expense by counsel reasonably satisfactory to Operator. (b) Upon the closure of a Store, all Existing Assets, New Assets and Consumables of such Store shall be liquidated and the proceeds therefrom shall be used to pay such Store's Closing Costs. If there are excess proceeds from the liquidation of the Existing Assets, New Assets and Consumables after payment of such Closing Costs, then such excess proceeds shall be distributed pro rata to Owner and Operator in accordance with the Owner Distribution Percentage and Operator Distribution Percentage, respectively. All remaining Closing Costs with respect to the closure of a Store, if any, shall be at the sole expense of Owner. (c) In the event of any Rally's Store closure, Owner has the right to repossess such Rally's Store and its operations upon a payment to Operator equal to the value of New Assets in such Store. (d) In the event of any Converted Store closure, Operator shall pay all Closing Costs. SECTION 4.11 UNUSED EQUIPMENT. If Operator elects not to use any of the Existing Assets at any Store (e.g. grills), it shall notify Owner who shall have the right (at its sole expense) to remove any such Existing Asset. ARTICLE 5 COVENANTS SECTION 5.1 LEASE AGREEMENTS. Subject to Operator's compliance with SECTION 4.4, Owner shall maintain the Lease Agreements in full force and effect through the term of this Agreement; provided, however, Owner shall have no such obligation to maintain a Lease Agreement applicable to a Converted Store after the assumption of such Lease Agreement by Operator has been fully consummated pursuant to SECTION 4.9. Owner shall obtain 14 19 all consents and approvals required by landlords for the Stores prior to the Implementation Date. SECTION 5.2 NON-DISTURBANCE. Owner covenants that during the term hereof Operator shall and may peaceably and quietly operate the Stores in accordance with the terms of this Agreement, free from molestation, eviction or disturbance by Owner or by any other person whom Owner shall derive its right to occupy and use the Stores or by any other person or persons claiming by, through or under Owner. Owner further covenants and agrees, at Owner's own expense, to undertake and prosecute all appropriate actions, judicial or otherwise, required to assure such quiet and peaceable operation by Operator. During the term of this Agreement, upon Operator's request, Owner agrees to furnish Operator copies of all documents by and through which Owner has the right of possession to the Stores and consequently the ability to enter into this Agreement. SECTION 5.3 SALES, MARKETING AND ADVERTISING. Operator shall advertise and promote the business of the Stores and shall institute and supervise a sales and marketing program and, with respect to Rally's Stores, coordinate and cooperate with the sales and marketing programs of Owner. In its sole and absolute discretion, Operator may cause the Stores to participate in sales and promotional campaigns and activities involving complimentary food and beverages where such is in furtherance of the profitability of the Stores' business. Owner shall use the Owner Advertising Fee received by Owner to fund the National Fund (as defined in Owner's current franchise agreement) for uses including point of purchase advertising and menu slats and otherwise as other contributions to the National Fund are utilized. Operator shall apply three and one-half percent (3.5%) of the Net Sales from the operation of each Rally's Store exclusively towards local advertising for the Rally's Stores as determined by Operator in its sole and absolute discretion. SECTION 5.4 INSURANCE. Throughout the term of this Agreement, Operator shall, at Operator's sole cost and expense, obtain, maintain, and account for the insurance coverage described in SCHEDULE G attached hereto, which insurance (except as to Converted Stores) shall name Owner as an additional insured. Such insurance shall be effected by policies issued by insurance companies of good reputation and of sound financial responsibility as determined in the sole and absolute discretion of Operator. SECTION 5.5 NO SALE OF STORES. Owner shall not sale, lease or otherwise transfer any of the Stores or the Existing Assets to any third parties; provided Owner shall be entitled to consummate a sale/lease back transaction with respect to a Store or Existing Assets without the prior written consent of Operator provided that (i) such transaction does effect any adverse 15 20 economic impact (and will not effect any impact if the Lease Agreement applicable to such Store is assumed by Operator pursuant to SECTION 4.9) to Operator as determined by Operator in its sole and absolute discretion and (ii) the documents evidencing such transaction specifically acknowledge the fact such transaction will not effect such adverse economic impact. SECTION 5.6 GREEN BURRITO. On or promptly following the Implementation Date, Owner shall (at its sole cost and expense) terminate any or all existing franchise agreements with GB Foods, Inc. (aka "Green Burrito") with respect to the Stores. SECTION 5.7 LEASE AGREEMENT EXTENSIONS. In the event that a term for a Lease Agreement for a Class A Store expires prior to July 2, 2001, then Owner and Operator shall use their best reasonable efforts to extend the terms of the Lease Agreements (or longer as mutually agreed) to July 2, 2001. If a Lease Agreement can only be extended beyond July 2, 2001, then Owner can elect (i) not to extend the term in which case the Store will be closed when the term expires; or (ii) extend the term beyond July 2, 2001, which extension will not change Operator's rights under Section 4.10(a)(ii). ARTICLE 6 COMPENSATION SECTION 6.1 OWNER FEE AND OWNER ADVERTISING FEE. Owner shall be entitled to receive from the operations of the Stores the following fees (the "OWNER FEE"): (a) From the operations of each Rally's Store, five percent (5.0%) of the Net Sales of such Rally's Store during a Fiscal Period, payable within fifteen (15) days following such Fiscal Period; and, (b) From the operations of each Converted Store, five percent (5.0%) of the Net Sales of such Converted Store during a Fiscal Period, payable within fifteen (15) days following such Fiscal Period. Upon the Implementation Date, Operator shall prepay Seventy-Five Thousand Dollars ($75,000) of the Owner Fee. This sum may be repaid by Owner at any time and shall be repaid not later than July 2, 1997 or Operator may offset the sum against remaining Owner Fees. In addition, Owner shall be entitled to receive from the operations of each Rally's Stores one-half of one percent (0.5%) of the Net Sales of such Rally's Store during a Fiscal Period, payable within fifteen (15) days following such Fiscal Period (the "OWNER ADVERTISING FEE"). 16 21 SECTION 6.2 WIRE TRANSFER INSTRUCTIONS. Set forth below are the wire transfer instructions for all payments to be made by Operator to Owner pursuant to SECTION 6.1 which shall be followed until such time as Owner notifies Operator in writing of a change therein: Account Number: 30-9555-6688 Account Name: Rally's Hamburgers, Inc. ABA Number: PNC Bank, Kentucky, Inc. SECTION 6.3 COMPENSATION TO OPERATOR. For its services hereunder, Operator shall be entitled to receive all income and profits from the operations of the Stores (after payment of the Owner Fee and Owner Advertising Fee), payable to Operator from time to time as determined in the sole and absolute discretion of Operator. Operator shall also be entitled to retain all direct and indirect benefits from contracts or obligations it is paying for in connection with Store operations, including, but not limited to, the National Value Pouring Level and Local Store Marketing Allowance provided by the Coca Cola Company (or its affiliates). ARTICLE 7 REPRESENTATIONS AND WARRANTIES SECTION 7.1 OWNER REPRESENTATIONS AND WARRANTIES. Owner makes the following representations and warranties to Operator, which shall survive the execution and delivery of this Agreement and, to the extent events or conditions occur which cause such representations and warranties to no longer remain true, Owner shall give Operator written notice of such fact as soon as is practicable following Owner's knowledge of such fact: (a) Owner is a corporation duly organized, validly existing and in good standing under the laws of the State of California with full corporate power to enter into this Agreement and execute all documents required hereunder. (b) The making, execution, delivery and performance of this Agreement by Owner has been duly authorized and approved by all requisite corporate action, and this Agreement has been duly executed and delivered by Owner and constitutes the valid and binding obligations of Owner, enforceable against Owner in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency and other similar laws affecting creditors' rights generally and general equitable principles. (c) Neither the execution and delivery of this Agreement by Owner nor Owner's performance of its obligations hereunder will result in a violation or breach of any material 17 22 term or provision of, or constitute a material default or accelerate the performance required under, any other material agreement or document to which Owner is a party or by which Owner is otherwise bound and will not constitute a violation of any law, ruling, regulation or order to which Owner is subject. (d) Owner has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which Owner or Operator could become liable or obligated. (e) Owner owns or leases all buildings, machinery, equipment, and other assets necessary for the conduct of the Stores as presently conducted and as presently proposed to be conducted. Except as disclosed in writing as contemplated by Section 2.3, each such asset is free from defects (patent and latent), has been maintained in accordance with normal industry practice, is in good operating condition and repair (subject to normal wear and tear), and is suitable for the purposes for which it presently is used and presently is proposed to be used. All Consumables currently located in the Stores are merchantable and fit for the purpose for which they were procured. (f) Set forth on SCHEDULE H attached hereto is a list of the existing contracts, commitments or obligations directly or indirectly related to a Store to which Owner or the Stores are or may become subject. (g) Owner is not presently aware of any fact or condition which would result in the termination of the (i) current access to the Stores from existing roads or (ii) current access to existing utility services. (h) Owner does not have any Liability (and there is no Basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against any of them giving rise to any Liability) with respect to any of the Stores, except for lease obligations with respect to each Store and for Liabilities set forth on SCHEDULE I attached hereto (none of which results from, arises out of, relates to, is in the nature of, or was caused by any breach of contract, breach of warranty, tort, infringement, or violation of law). (i) There are no existing or, to Owner's knowledge, pending actions, suits, litigation, claims, proceedings or governmental investigations with respect to any aspect of the Stores, which would have a material adverse affect on the ability of Operator to perform its obligations pursuant to this Agreement, nor, to the knowledge of Owner, have any such actions, suits, litigation, claims, proceedings or governmental investigations been threatened or asserted. 18 23 (j) Except as set forth on SCHEDULE J attached hereto, (i) all Taxes owed by Owner have been paid; (ii) Owner has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party, (iii) to the best of Owner's knowledge, no director or officer (or employee responsible for Tax matters) of Owner expects any authority to assess any additional Taxes for any period prior to the Implementation Date, (iv) there is no dispute or claim concerning any Tax Liability of Owner either claimed or raised by any authority. (k) Owner has complied fully with the requirements of all laws, rules, regulations and orders applicable to the Stores, including, but not limited to, all applicable environmental laws and regulations. (l) Owner is the owner of the registered trademark "Rally's Hamburgers" and any derivative thereof necessary to operate a Rally's Store. Owner owns or has the right to use pursuant to license, sublicense, agreement, or permission all Intellectual Property necessary or desirable for the operation of the Stores as presently conducted and as presently proposed to be conducted. To the best of Owner's knowledge, each item of such Intellectual Property owned or used by Owner immediately prior to the Implementation Date will be available for use by Operator on identical terms and conditions immediately subsequent to the Implementation Date. Owner has taken and will continue to take all necessary and desirable action to maintain and protect each item of such Intellectual Property that it owns or uses. (m) To the best of Owner's knowledge, Owner has not interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of third parties, and none of the directors and officers (and employees with responsibility for Intellectual Property matters) of Owner has ever received any charge, complaint, claim, demand, or notice alleging any such interference, infringement, misappropriation, or violation (including any claim that Owner must license or refrain from using any Intellectual Property rights of any third party). (n) The representations and warranties of Owner contained in this SECTION 7.1 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this SECTION 7.1 not misleading. SECTION 7.2 OPERATOR REPRESENTATIONS AND WARRANTIES. Operator makes the following representations and warranties to Owner, which shall survive the execution and delivery of this Agreement and, to the extent events or conditions occur which 19 24 cause such representations and warranties to no longer remain true, Operator shall give Owner written notice of such fact as soon as is practicable following Operator's knowledge of such fact: (a) Operator is a corporation duly organized, validly existing and in good standing under the laws of the State of California with full corporate power to enter into this Agreement and execute all documents required hereunder. (b) The making, execution, delivery and performance of this Agreement by Operator has been duly authorized and approved by all requisite corporate action, and this Agreement has been duly executed and delivered by Operator and constitutes valid and binding obligations of Operator, enforceable against Operator in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency and other similar laws affecting creditors' rights generally and general equitable principles. (c) Neither the execution and delivery of this Agreement by Operator nor Operator's performance of its obligations hereunder will result in a violation or breach of any material term or provision of, or constitute a material default or accelerate the performance required under, any other material agreement or document to which Operator is a party or by which Operator is otherwise bound and will not constitute a violation of any law, ruling, regulation or order to which Operator is subject. (d) Operator has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which Operator or Owner could become liable or obligated. (e) The representations and warranties of Operator contained in this SECTION 7.2 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this SECTION 7.2 not misleading. ARTICLE 8 DAMAGE; DESTRUCTION OR CONDEMNATION SECTION 8.1 APPLICATION OF INSURANCE PROCEEDS. (a) Owner shall have the right to approve in writing (which approval shall not be unreasonably withheld or delayed) all settlements of insurance claims with respect to all insurance maintained by Operator pursuant to the terms of this Agreement. If all or any portion of a Store shall be damaged, destroyed, taken or condemned at any time during the term of this Agreement 20 25 as a result of Reasonably Unforeseeable Circumstances, the proceeds of any such insurance maintained by Operator or the proceeds from such taking shall be turned over to Owner and Owner may terminate this Agreement by giving written notice thereof to Operator, unless Operator shall request in writing (delivered to Owner within ten (10) days after Operator receipt of such written notice from Owner) that Owner use such proceeds to restore or reconfigure such Store. If such Store is to be restored or reconfigured in accordance with this SECTION 8.1(a) following any such casualty, taking or condemnation, upon the request of Operator, Owner shall diligently restore or reconfigure the Store in accordance with plans and specifications reasonably acceptable to Operator. Notwithstanding the foregoing, if Operator has assumed the Lease Agreement with respect to a Converted Store, then the proceeds of any such insurance maintained by Operator or the proceeds from such taking shall be turned over to Operator and Operator may terminate this Agreement with respect to a Converted Store in accordance with SECTION 11.4 or Operator may use such proceeds to restore or reconfigure such Converted Store. (b) If the proceeds of any such insurance maintained by Operator or the proceeds from such taking shall not be used to restore or reconfigure a Store pursuant to SECTION 8.1(a), such Store shall be closed and such proceeds shall be used to pay such Store's Closing Costs. If there are excess proceeds after payment of such Closing Costs, then such excess proceeds shall be distributed pro rata to Owner and Operator in accordance with the Owner Distribution Percentage and Operator Distribution Percentage, respectively. All remaining Closing Costs with respect to the closure of such Store shall be at the sole expense of Owner. This Article shall not apply with respect to Lease Agreements assumed by Operator pursuant to SECTION 4.9. ARTICLE 9 INDEMNIFICATION SECTION 9.1 INDEMNIFICATION BY OWNER. Owner shall indemnify, defend and hold harmless the Operator Indemnitees from and against any and all Losses that such person or persons shall incur or suffer relating to or arising out of (i) any breach of any agreement, covenant, representation or warranty made by Owner in this Agreement, or (ii) any Environmental Liability of Owner. In case any action or proceeding is brought against such person or persons by reason of any such Losses, Owner, upon notice from Operator, shall defend the same at Owner's expense by counsel reasonably satisfactory to Operator. SECTION 9.2 INDEMNIFICATION BY OPERATOR. Operator shall indemnify, defend and hold harmless the Owner Indemnitees from 21 26 and against any and all Losses that such person or persons shall incur or suffer relating to or arising out of (i) any breach of any agreement, covenant, representation or warranty made by Operator in this Agreement; or (ii) any Environmental Liability of Operator. In case any action or proceeding is brought against such person or persons by reason of any such Losses, Operator, upon notice from Owner, shall defend the same at Operator's expense by counsel reasonably satisfactory to Owner. ARTICLE 10 DEFAULT SECTION 10.1 EVENTS OF OPERATOR DEFAULT. The occurrence of any one or more of the following events which is not cured in the time permitted, if any, shall constitute a default by Operator under this Agreement (a "OPERATOR DEFAULT"): (a) If Operator shall fail to pay, when due, the Owner Fee or the Owner Advertising Fee and such failure shall continue for a period of three (3) business days after receipt of written notice thereof from Owner. (b) If Operator shall fail to pay any expenses and debts incurred in the operation of the Stores (e.g. including without limitation payments under the Lease Agreements) when due and such failure shall continue for a period of thirty (30) days after written notice from Owner unless Operator is in good faith contesting the payment of such expense or debt. (c) If Operator is grossly negligent in the performance of any of its obligations under this Agreement (other than the obligations of Operator set forth in (a) and (b) above) and such failure shall continue for a period of thirty (30) days after written notice thereof from the Owner specifying the nature of such failure with reasonable detail; provided, that if such failure is not one that is susceptible of being cured within thirty (30) days, then no Operator Default shall be deemed to have occurred so long as Operator initiates such cure within such thirty (30)-day period and thereafter diligently pursues to complete such cure as soon as is reasonably possible. (d) If Operator shall file a voluntary petition in bankruptcy, or shall be adjudicated bankrupt or insolvent, or shall file any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or any future federal bankruptcy act or any other present or future applicable federal or state statute or law, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of itself or of all or any substantial portion of its assets. 22 27 (e) If within sixty (60) days after the commencement of any proceeding against Operator seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or any future federal bankruptcy act or any other present or future applicable federal or state statute or law, such proceeding shall not have been dismissed; or if within sixty (60) days after the appointment, without the consent or acquiescence of Operator of any trustee, receiver or liquidator of such party or of all or any substantial portion of its properties, such appointment shall not have been vacated or stayed on appeal or otherwise; or if within sixty (60) days after the expiration of any such stay, such appointment shall not have been vacated. (f) If Operator fails to comply with provisions of the Lease Agreements for the Stores (other than obtaining required consents or approvals for the transfers contemplated by this Agreement). SECTION 10.2 OWNER REMEDIES. Upon the occurrence of any Operator Default, Owner shall be entitled to all remedies hereunder, now or hereafter existing at law, in equity or by statute and no remedy is intended to be exclusive of any other remedy. No delay or omission of Owner to exercise any right, power or remedy accruing upon an Operator Default shall impair the exercise of any other right, power or remedy or shall be construed to be a waiver thereof. SECTION 10.3 EVENTS OF OWNER DEFAULT. The occurrence of any one or more of the following events which is not cured in the time permitted, if any, shall constitute a default by owner under this Agreement (an "OWNER DEFAULT"): (a) If Owner fails to perform any of its material obligations under this agreement and such failure shall continue for a period of thirty (30) days after receipt of written notice thereof from Operator specifying the nature of such failure with reasonable detail; provided, that if such failure is not one that is susceptible of being cured within thirty (30) days, then no default shall be deemed to have occurred so long as Owner initiates such cure as soon within such thirty (30)-day period and thereafter diligently pursues to complete such cure as soon as is reasonably possible. (b) If Owner shall file a voluntary petition in bankruptcy, or shall be adjudicated bankrupt or insolvent, or shall file any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or any future federal bankruptcy act or any other present or future applicable federal or state statute or law, or shall seek or consent to or acquiesce 23 28 in the appointment of any trustee, receiver or liquidator of itself or of all or any substantial portion of its assets. (c) If within sixty (60) days after the commencement of any proceeding against Owner seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or any future federal bankruptcy act or any other present or future applicable federal or state statute or law, such proceeding shall not have been dismissed; or if within sixty (60) days after the appointment, without the consent or acquiescence of Owner of any trustee, receiver or liquidator of such party or of all or any substantial portion of its properties, such appointment shall not have been vacated or stayed on appeal or otherwise; or if within sixty (60) days after the expiration of any such stay, such appointment shall not have been vacated. SECTION 10.4 OPERATOR REMEDIES. Upon the occurrence of any Owner Default, Operator shall be entitled to all remedies hereunder, now or hereafter existing at law, in equity or by statute and no remedy is intended to be exclusive of any other remedy. No delay or omission of Operator to exercise any right, power or remedy accruing upon an Operator Default shall impair the exercise of any other right, power or remedy or shall be construed to be a waiver thereof. ARTICLE 11 TERMINATION SECTION 11.1 TERMINATION FOR CAUSE BY OWNER. Owner may terminate this Agreement at any time during its term upon the occurrence of any Operator Default, and such termination shall be effective immediately upon the delivery of a written notice of termination to Operator. SECTION 11.2 TERMINATION FOR CAUSE BY OPERATOR. Operator may terminate this Agreement at any time during its term upon the occurrence of any Owner Default or upon the consummation of an Owner Change of Control, and such termination shall be effective immediately upon the delivery of a written notice of termination to Owner. SECTION 11.3 TERMINATION WITHOUT CAUSE BY OPERATOR. Notwithstanding any other provision contained in this Agreement, at any time on or after the fifth (5th) anniversary of the Implementation Date, Operator shall have the right to terminate this Agreement, in Operator's sole and absolute discretion, upon delivery of written notice of termination to Owner at least forty-five (45) days prior to the effective date of such termination. 24 29 SECTION 11.4 TERMINATION WITH RESPECT TO A SPECIFIC STORE. Subject to Sections 4.10 and 5.7 above, this Agreement shall automatically terminate with respect to a specific Store when the Lease Agreement applicable to such Store (i) is terminated; (ii) is terminable by lessee as a result of an occurrence at such Store (e.g. damage, destruction or condemnation); or (iii) otherwise expires pursuant to the terms thereof. Upon any such termination of this Agreement with respect to a specific Store, such Store shall be closed and all Existing Assets, New Assets and Consumables of such Store shall be liquidated and the proceeds therefrom shall be used to pay such Store's Closing Costs. If there are excess proceeds from the liquidation of the Existing Assets, New Assets and Consumables after payment of such Closing Costs, then such excess proceeds shall be distributed pro rata to Owner and Operator in accordance with the Owner Distribution Percentage and Operator Distribution Percentage, respectively. All remaining Closing Costs, if any, with respect to the closure of a Store shall be at the sole expense of Owner. In the event of any Rally's Store closure, Owner has the right to repossess such Rally's Store and its operations upon a payment to Operator equal to the value of New Assets in such Store. SECTION 11.5 CESSATION OF ACTIVITIES BY OPERATOR UPON TERMINATION. Upon any termination of this Agreement, each of the Rally's Stores shall be closed and all Existing Assets, New Assets and Consumables of each such Store shall be liquidated and the proceeds therefrom shall be used to pay each such Store's Closing Costs. If there are excess proceeds from the liquidation of the Existing Assets, New Assets and Consumables after payment of such Closing Costs, then such excess proceeds shall be distributed pro rata to Owner and Operator in accordance with the Owner Distribution Percentage and Operator Distribution Percentage, respectively. All remaining Closing Costs, if any, with respect to the closure of a Store shall be at the sole expense of Owner. SECTION 11.6 OTHER RIGHTS UPON TERMINATION. Upon any termination of this Agreement, Owner and Operator shall be relieved of further performance pursuant to this Agreement; provided, that no termination of this Agreement shall in any way effect Owner's or Operator's indemnity obligations or other legal liability provided for in this Agreement or invalidate, reduce or restrict the rights of Owner or Operator to pursue remedies for any Operator Default or Owner Default, as the case may be, under this Agreement or wrongful act, error or omission occurring prior to such termination, regardless whether such Operator Default, Owner Default, act, error or omission was known by the aggrieved party at the time of termination. Notwithstanding anything to 25 30 the contrary contained in this Agreement, in the event of any Rally's Store closure, Owner has the right to repossess such Rally's Store from Operator and its operations upon a payment to Operator equal to the value of New Assets in such Store. ARTICLE 12 MISCELLANEOUS PROVISIONS SECTION 12.1 BINDING ARBITRATION. Any controversy involving a claim by either of the parties against the other in connection with any dispute that may arise from this Agreement shall be finally settled by arbitration in Orange County, California, if commenced by Owner and in Los Angeles County, California, if commenced by Operator in accordance with the then-current rules for arbitration as established by Judicial Arbitration Mediation Services, Inc. ("JAMS"), and judgment upon the award rendered by such arbitration may be entered in any court having jurisdiction thereof. Such arbitration shall be conducted by one (1) arbitrator mutually agreed to by Owner and Operator from the JAMS panel of retired judges, or an arbitrator appointed by JAMS in the event that no such mutual agreement is reached. SECTION 12.2 NO JOINT VENTURE; INDEPENDENT ENTITY. Nothing herein contained shall be construed to place the parties in the relationship of partners, joint venturers, or principal and agent and neither shall have any power to obligate or bind the other with respect to third parties in any matter whatsoever. Owner recognizes and acknowledges that Operator is an independent corporation, adequately capitalized and chartered under the laws of California, to which Owner will solely look and which is solely responsible for the obligations and liabilities of Operator recited herein (but only to the extent provided by law), arising hereunder, or in any manner related to the transactions contemplated hereby, and Owner further recognizes and acknowledges that no other entities, including (i) any parent corporation of Operator, (ii) any individual, (iii) any corporation Affiliated with Operator which may supply services to or take actions on behalf of or for the benefit of Operator with respect to the transactions contemplated herein (it being agreed among the parties thereto that such parents of and/or the Affiliated corporations may form, organize, provide services to, provide loans and funds to, negotiate for, provide personnel to, make representations on behalf of and, from time to time take actions on behalf of or for the benefit of Operator by direct dealings with Operator or those acting for Operator) is in any manner liable or responsible for the obligations and Liabilities of Operator, whether recited herein, arising hereunder, or in any manner related to the transactions contemplated hereby. 26 31 SECTION 12.3 INQUIRY. Owner warrants and represents that it has made such inquiry investigation as it deems appropriate as to the financial ability of Operator to perform all of its respective obligations, duties, Liabilities and undertakings contemplated by the transactions from which this Agreement arises and that it has no further inquiry it desires to make. Owner further warrants and represents that it is not relying on any other entity to contribute the financial wherewithal to Operator to carry out its obligations, duties, Liabilities and undertakings, and that no oral representations have been made as to other financial support of Operator by any party or entity. Owner is thus solely relying on the financial ability of Operator. SECTION 12.4 AFFILIATES. It is agreed and understood among and between the parties hereto that the Affiliates of Operator may provide services for a fee to Operator and that the provision of such services for a fee and the actions taken in providing such services shall in no manner be construed to constitute the undertaking by such Affiliate of any obligation, duty, or Liability of Operator or Owner under the terms of this Agreement or any other relationship existing between Operator and Owner, unless specifically set forth in a document executed by the party to be charged with such obligation, duty, or Liability. SECTION 12.5 EXPENSE. Operator and Owner shall be responsible for the payment of their respective legal, financial advisor and accounting fees, and any other expenses incurred by them in connection with this Agreement and the transactions contemplated thereby. SECTION 12.6 CONFIDENTIALITY. Operator and Owner shall each keep all information and reports obtained from the other or relating to the Stores, this Agreement, the other's Intellectual Property and the transactions contemplated hereby confidential and will not disclose any such confidential information to any other person or entity without obtaining the prior written consent of the party from whom the confidential information was obtained; provided, that either party may disclose such information (i) to its legal counsel banks and bank appraisers, employees or Affiliates, but only to the extent such persons are bound to maintain the confidentiality thereof and (ii) as may be required by law. Each party hereto acknowledges the value and goodwill associated with the other's Intellectual Property and agrees that each parties' Intellectual Property and all rights therein and the good will pertaining thereto belong exclusively to the respective party. Each party also agrees that its every use of the other's Intellectual Property shall inure to the benefit of the owner of such Intellectual Property and that neither party shall acquire nor claim any rights in the Intellectual Property of the other party by virtue of any such 27 32 use. The Agreements set forth in this SECTION 12.6 shall survive the termination of this Agreement. SECTION 12.7 ASSIGNMENT. The obligations, rights and interests of Owner under this Agreement may only be assigned with the prior written consent of Operator. The obligations, rights and interests of Operator under this Agreement may only be assigned with the prior written consent of Owner, which consent may not be unreasonably withheld or delayed; provided, however, Operator may assign this Agreement to an Affiliate of Operator without any consent of Owner. SECTION 12.8 NOTICES. Any notice, request, demand, waiver, consent, approvals or other communication which is required or permitted to be given to any party hereunder shall be in writing and shall be deemed given only if delivered to the party personally or sent to the party by telecopy, telegram (followed by hard copy sent by registered or certified mail) or by registered, certified or overnight mail or courier service (return receipt requested) with postage and registration or certification fees thereon prepaid, addressed to the party at its address set forth below: Operator: Carl Karcher Enterprises, Inc. 1200 North Harbor Boulevard P.O. Box 4349 Anaheim, California 92803-4349 Attn: Robert A. Wilson, Esq. Fax No.: (714) 520-4485 with a copy to: McDermott, Will & Emery 1301 Dove Street, Suite 500 Newport Beach, California 92660 Attn: John B. Miles, Esq. Fax No.: (714) 851-9348 Owner: Rally's Hamburgers, Inc. 10002 Shelbyville Road Louisville, Kentucky 40223 Attn: Mr. Evan Hughes Fax No.: (502) 254-5232 with a copy to: Christensen, White, Miller, Fink & Jacobs 2121 Avenue of the Stars, 18th Floor Los Angeles, California 90067 Attn: Roger H. Howard, Esq. Fax No.: (310) 556-2920 Any such notice sent by registered or certified mail shall be deemed to have been duly give three (3) business days after it is 28 33 so addressed and mailed with postage prepaid. Any such notice personally delivered or sent by telecopy or telegram shall be deemed to have been duly given on the day such notice is sent. Any notice sent by any other manner shall be effective only upon actual receipt thereof. Any party may change its address for the purposes of this Agreement by giving notice to the other party as provided in this SECTION 12.8. SECTION 12.9 INCORPORATION OF SCHEDULES. Each of the Schedules referred to in the Agreement is incorporated into this Agreement by this reference. In the event of inconsistency between the text of this Agreement and the Schedules, the text of this Agreement shall control. SECTION 12.10 COMPLETE AGREEMENT. This Agreement contains all of the agreements and understandings of the parties hereto with respect to the subject matter hereof, and all prior or contemporaneous agreements, prior negotiations or discussions, representations or understandings, oral or written, shall be merged into this Agreement. SECTION 12.11 AMENDMENT OF AGREEMENT. This Agreement may not be renewed or extended, and no provision of this Agreement may be amended or supplemented, except by an agreement in writing signed by the parties hereto or their respective successors in interest and expressly stating that it is a renewal, extension or amendment of this Agreement, as the case may be. SECTION 12.12 ATTORNEYS' FEES. In any proceeding (arbitration or otherwise) or action between Owner and Operator seeking enforcement of any term or provision of this Agreement, the prevailing party in such action or proceeding shall be awarded its reasonable costs and expenses, including, without limitation, reasonable attorneys' fees, court costs and disbursements, in addition to any other relief that may be granted. SECTION 12.13 THIRD-PARTY BENEFICIARIES. This Agreement and each provision of this Agreement is for the exclusive benefit of the parties to this Agreement and not for the benefit of any third party. SECTION 12.14 SUCCESSORS AND ASSIGNS. Every provision of this Agreement shall inure to the benefit of and shall be binding upon the permitted successors and assigns of Owner and Operator. SECTION 12.15 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of California without regard to the conflicts of laws provisions thereof. 29 34 SECTION 12.16 SEVERABILITY. If any provision of this Agreement is held illegal, invalid or unenforceable by a court of competent jurisdiction, that provision will be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect and enforceable. Should any provision of this Agreement require judicial interpretation, it is agreed that the court interpreting or considering same shall not apply the presumption that the terms hereof shall be more strictly construed against a party by reason of the rule or conclusion that a document should be construed more strictly against the party who itself or through its agent prepared the same. It is agreed and stipulated that all parties hereto have participated equally in the preparation of this Agreement and that legal counsel was consulted by each party before the execution of this Agreement. SECTION 12.17 CAPTIONS. The captions used in this Agreement are for convenience only and are not a part of this Agreement and do not in any way limit, amplify or explain any of the provisions of this Agreement. SECTION 12.18 REFERENCES TO ARTICLES AND SECTIONS. All uses of the words "Article" and "Section" in this Agreement are references to an article and section of this Agreement, unless otherwise specified. SECTION 12.19 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be an original but all of which shall constitute one and the same instrument. SECTION 12.20 EXECUTION OF OTHER DOCUMENTS. To the extent necessary to carry out the intent of this Agreement, Owner and Operator agree to execute any and all other documents as reasonably necessary to facilitate the orderly operation of the Stores by Operator. SECTION 12.21 DUE DATES. In the event that the due date hereunder for the delivery of any document and/or payment falls on a weekend day or a holiday, such document and/or payment shall be delivered on the immediately succeeding business day. [SIGNATURE PAGE FOLLOWS] 30 35 IN WITNESS WHEREOF, Owner and Operator have executed this Operating Agreement as of the date first written above. "OWNER" RALLY'S HAMBURGERS, INC., a Delaware corporation By: /s/ Donald E. Doyle ---------------------------- Its: President and CEO ------------------------ "OPERATOR" CARL KARCHER ENTERPRISES, INC., a California corporation By: /s/ Joseph N. Stein --------------------------- Its: CFO ----------------------- 31 EX-10.44 4 1ST AMENDMENT TO EMPLOYMENT AGREEMENT DATE 3/31/96 1 EXHIBIT 10.44 AMENDMENT TO EMPLOYMENT AGREEMENT This First Amendment to Employment Agreement ("First Amendment"), dated as of March 31, 1996, by and between CARL KARCHER ENTERPRISES, INC., a California corporation (the "Company") and C. THOMAS THOMPSON (the "Executive"). WITNESSETH: WHEREAS, the parties hereto made and entered into a written Employment Agreement, dated November 8, 1994 ("Agreement"); WHEREAS, the parties hereto desire, and it is in the best interests of each party, to amend the Agreement; NOW, THEREFORE, in consideration of the promises and the mutual covenants and obligations hereinafter set forth, the parties agree as follows: 1. Paragraph 3, EMPLOYMENT TERM, is amended to extend the Employment Term from October 31, 1996 until the close of business on March 31, 1999. 2. Paragraph 4, COMPENSATION, is amended as follows: a. BASE COMPENSATION. Commencing April 1, 1996, and subject to the other provisions of this First Amendment, the Company shall pay the Executive an annual base salary as compensation for his services hereunder of $285,000 ("Base Salary"), payable in equal installments not less often than once in each calendar month. The Base Salary shall be increased to $325,000 for the fiscal year ending January 26, 1998 if the Executive earns a bonus of $150,000 or greater for the fiscal year ending January 27, 1997. The Base Salary shall be increased to $350,000 for the fiscal year ending January 25, 1999 if the Executive earns a bonus of $150,000 or greater for the fiscal year ending January 26, 1998. b. BONUS. In addition to the current bonus for the Second Year provided for under the Agreement, Executive shall be entitled to a one time cash bonus based on performance criteria specified by the Company's Compensation Committee. During the extended Employment Term, Company also shall pay Executive, as additional compensation, an annual bonus based on performance criteria specified by the Company's Compensation Committee. c. VACATION. During each of the remaining calendar years of the Employment Term, the Executive shall be entitled to four (4) weeks of paid vacation time. 2 3. Paragraph 5, REIMBURSEMENT OF EXPENSES INCURRED IN PERFORMANCE OF EMPLOYMENT, is amended by adding the following new sentence following the second sentence of the second paragraph, ending with "temporary housing allowance of $2,000 per month," and deleting the balance of the paragraph: "If during the Employment Term the Executive relocates his primary residence to Southern California (defined as Los Angeles County and south), the $2,000 per month payable as a temporary housing allowance will be added to Executive's Base Salary." 4. Except as specifically set forth above, the Agreement and the terms and conditions thereof, will remain in full force and effect. From and after the date of execution of this First Amendment, all references to the Agreement shall be deemed to be references to the Agreement as amended hereby. IN WITNESS WHEREOF, the parties have executed this First Amendment on the day and year first above written. CARL KARCHER ENTERPRISES, INC., EXECUTIVE a California corporation /s/ Robert A. Wilson /s/ C. Thomas Thompson - ------------------------------- ------------------------- By: Robert A. Wilson C. Thomas Thompson Its: Vice President and General Counsel EX-10.45 5 EMPLOYMENT AGREEMENT BETWEEN CKE & ROBERT WHEATON 1 EXHIBIT 10.45 EMPLOYMENT AGREEMENT CKE RESTAURANTS, INC. AGREEMENT, dated as of January 24, 1996 by and between CKE RESTAURANTS, INC., a California corporation (the "Company") and Robert E. Wheaton (the "Executive") presently residing at 4716 East Valley Vista Lane, Paradise Valley, Arizona 85253. 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 Executive Vice President of Finance 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 Chief Executive Officer and the President 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 Executive Vice President of Finance. The Executive shall devote the Executive's full time and best efforts to the business affairs of the Company; however, with the approval of the Board of Directors, the Executive may devote reasonable time and attention to: (i) serving as a director or member of a committee of any non-for-profit organization or engaging in other charitable or community activities; (ii) upon approval of the Board of Directors, serving as a director of a corporation or as a member of a committee of an organization; (iii) managing 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. 3. EMPLOYMENT TERM. The Executive shall be employed under this 2 Agreement for a term of two (2) years from the date of execution of this Agreement, (the "Employment Term") commencing on the date hereof and terminating on the close of business on January 24, 1998, unless sooner terminated as provided in paragraphs 6, 7, 8, 9 or 10. Said contract shall automatically renew each year for an additional one year term unless the Company notifies Executive that it is terminating this renewal prior to January 23rd of such year. If the Company so informs Executive, this Agreement shall terminate one year from the January 23rd following or upon which the Company so informs Executive. 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 $200,000 (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 Chief Executive Officer or President. 4.d. BENEFITS. During the Employment Term, the Executive shall be entitled to participate in all pension, profit sharing and other retirement plans, all inventive 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 physical examination by a physician selected by the Company. The cost of said examination shall be borne by the Company. 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 Phoenix, Arizona 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 reasonably incurred out-of-pocket travel expenses not to exceed $2,000 per month for the first twelve (12) months of Executive's employment hereunder. Should Executive decide to relocate to Orange County California during the term of this 3 Agreement, the Company shall reimburse Executive for his moving expenses not to exceed $5,000. 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 this 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, his Base Salary for the balance of the Employment Term (which shall not exceed two (2) years) 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 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 Chief Executive Officer or President 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 Chief Executive Officer and President. 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 is 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. 4 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 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 constitutes 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 5 whom he proposes 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. 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 he 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 of 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 President 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 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 6 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. 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 of any other term or condition. This Agreement is intended to be performed in accordance with, and 7 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. CKE RESTAURANTS, INC. By: /s/ C. Thomas Thompson ---------------------------------- Its: President --------------------------------- EXECUTIVE /s/ Robert E. Wheaton ------------------------------ Robert E. Wheaton EX-11 6 CALCULATION OF EARNINGS PER SHARE 1 EXHIBIT 11 CKE RESTAURANTS, INC. CALCULATION OF EARNINGS PER SHARE (In thousands except per share amounts)
Sixteen Weeks Ended ---------------------- May 20, May 22, 1996 1995 -------- -------- PRIMARY EARNINGS PER SHARE Net income $ 5,333 $ 1,915 ======== ======== Weighted average number of common shares outstanding during the period 18,571 18,255 Incremental common shares attributable to exercise of outstanding options 378 15 Repurchase of shares -- (72) -------- -------- Total shares 18,949 18,198 ======== ======== Primary earnings per share $ .28 $ .11 ======== ======== FULLY DILUTED EARNINGS PER SHARE Net income $ 5,333 $ 1,915 ======== ======== Weighted average number of common shares outstanding during the period 18,571 18,255 Incremental common shares attributable to exercise of outstanding options 538 16 Repurchase of shares -- (72) -------- -------- Total shares 19,109 18,199 ======== ======== Fully diluted earnings per share $ .28 $ .11 ======== ========
14 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CKE RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AS OF AND FOR THE SIXTEEN WEEKS ENDED MAY 20, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MAY 20, 1996. 1,000 4-MOS JAN-27-1997 JAN-30-1996 MAY-20-1996 16,712 2,507 13,676 0 7,208 49,338 280,098 156,793 246,335 62,700 0 0 0 193 106,362 246,335 129,510 152,934 101,925 142,858 (1,274) 0 2,595 8,755 3,422 5,333 0 0 0 5,333 .28 .28
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