-----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, T4JnC1Poxe/RQFHOpBdpIqzRfXHinOxJ9AXNmohqjmzYTpYCC/Z0zKXlzMlYlCNB AXa4kfoVD9QfiDmAF2kSPw== 0000892569-98-001157.txt : 19980427 0000892569-98-001157.hdr.sgml : 19980427 ACCESSION NUMBER: 0000892569-98-001157 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19980126 FILED AS OF DATE: 19980424 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CKE RESTAURANTS INC CENTRAL INDEX KEY: 0000919628 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 330602639 STATE OF INCORPORATION: DE FISCAL YEAR END: 0127 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11313 FILM NUMBER: 98599963 BUSINESS ADDRESS: STREET 1: 1200 N HARBOR BLVD CITY: ANAHEIM STATE: CA ZIP: 92801 BUSINESS PHONE: 7147745796 10-K 1 FORM 10-K FOR THE FISCAL YEAR ENDED 01/26/1998 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ------------------------ [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 26, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 1-13192 CKE RESTAURANTS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ DELAWARE 33-0602639 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1200 NORTH HARBOR BOULEVARD ANAHEIM, CALIFORNIA 92801 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 774-5796 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
(TITLE OF EACH CLASS) NAME OF EACH EXCHANGE ON WHICH REGISTERED: --------------------- ------------------------------------------ COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 31, 1998 was $1,394,174,828. The number of shares outstanding of the registrant's common stock was 46,587,830 as of March 31, 1998. DOCUMENTS INCORPORATED BY REFERENCE. Portions of the registrant's Proxy Statement for the 1998 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after January 26, 1998, are incorporated by reference into Part III of this Report. The Exhibit Index is contained in Part IV herein on Page E-1. ================================================================================ 2 CKE RESTAURANTS, INC. AND SUBSIDIARIES INDEX TO ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 26, 1998
PAGE ---- PART I Item 1. Business.................................................... 1 Item 2. Properties.................................................. 14 Item 3. Legal Proceedings........................................... 14 Item 4. Submission of Matters to a Vote of Security Holders......... 15 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... 15 Item 6. Selected Financial and Operating Data....................... 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 18 Item 8. Financial Statements and Supplementary Data................. 26 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 26 PART III Item 10. Directors and Executive Officers of the Registrant.......... 26 Item 11. Executive Compensation...................................... 26 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 26 Item 13. Certain Relationships and Related Transactions.............. 26 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................................... 28
i 3 PART I ITEM 1. BUSINESS OVERVIEW CKE Restaurants, Inc., a Delaware corporation ("CKE" or the "Company"), is a leading nationwide owner, operator and franchisor of quick-service restaurants with 3,981 branded restaurant units operating as of January 26, 1998, primarily under the Carl's Jr. and Hardee's brand names. Based on domestic system-wide sales, the Company's Hardee's and Carl's Jr. chains are the fourth and seventh largest quick-service hamburger restaurant chains in the United States, respectively. The Company also owns and operates quick-service Mexican restaurants under the Taco Bueno brand name. O Carl's Jr.(R) -- Carl's Jr. was founded in 1956 and is located primarily in the Western United States, with a leading market presence in California. The Carl's Jr. menu features several charbroiled hamburgers, chicken sandwiches, steak sandwiches and other signature items, including the Famous Star, Western Bacon Cheeseburger(R), Super Star(R), Charbroiler Chicken Sandwiches(R), Crispy Chicken Sandwiches(R) and the Charbroiled Sirloin Steak Sandwich. The Company believes that Carl's Jr. maintains a strong price-value image with its customers because its menu items are generally made-to-order, meet exacting quality standards, are offered in generous portions and have a strong reputation for quality and taste. As of January 26, 1998, the Carl's Jr. system included 708 restaurants, of which 443 were operated by the Company and 265 were operated by the Company's franchisees and licensees. O Hardee's(R) -- Hardee's, which was acquired by the Company in July 1997, was founded in 1961 and has a leading market presence in the Southeastern and Midwestern United States. Hardee's strength is its breakfast menu, generating approximately 30% of its overall revenues, which is one of the highest percentages in the quick-service hamburger restaurant industry. Hardee's breakfast menu features made-from-scratch biscuits, biscuit breakfast sandwiches and other items such as hash rounds and breakfast platters. The current Hardee's lunch and dinner menu includes hamburgers and fried chicken. Since its acquisition of Hardee's, the Company's management has implemented certain improvements to the Hardee's menu by streamlining its product offerings and is in the process of adding in selected markets certain Carl's Jr. lunch and dinner menu items to complement Hardee's strong breakfast menu. As of January 26, 1998, the Hardee's system included 3,038 restaurants, of which 863 were operated by the Company and 2,175 were operated by the Company's franchisees and licensees. As a result of the acquisition of Flagstar Enterprises, Inc. ("FEI"), 1,420 of the 3,038 Hardee's restaurants operated as of January 26, 1998 are presently operated by the Company and 1,618 are operated by the Company's franchises and licensees. (See "Recent Developments"). O Taco Bueno(R) -- The Company owns and operates 109 Taco Bueno quick-service Mexican restaurants located in Texas and Oklahoma. Taco Bueno seeks to differentiate itself from its principal competitors by offering a diverse menu featuring generous portions of freshly prepared, high quality food items. In addition to typical quick-service Mexican offerings, such as burritos, tacos, tostadas and combination meals, Taco Bueno features a number of signature menu items, such as its MexiDips & Chips and Bueno Chilada Platter. BUSINESS STRATEGY The Company's strategy is to increase the profitability and sales of its existing and newly acquired restaurants by applying its customer-focused, disciplined operating strategy. The Company believes that its ability to deliver high quality food to customers with superior service in a clean and friendly environment is central to its operating success. The Company has developed food, labor and customer service management practices that allow management to effectively monitor restaurant-level operations, benchmark restaurant performance statistics and communicate system-wide best practices across its restaurant concepts. In addition, the Company aggressively promotes and enhances brand awareness through innovative advertising and is committed to controlling costs at each level of operations. A key element to the Company's strategy is to 1 4 acquire underperforming restaurants and increase the profitability and sales of the acquired restaurants by applying its successful operating strategy. In October 1994, the Company's new management team began implementing a variety of operating initiatives designed to revitalize the Carl's Jr. brand and improve its financial results. These initiatives included, among others, a renewed focus on offering superior products, the elimination of most lower-priced menu items, a new advertising campaign, a dual-branding program with The Green Burrito and the commencement of a remodeling program for Carl's Jr. restaurants. Since then, the Company has experienced significant increases in revenues, restaurant-level margins and net income. From fiscal 1994 to fiscal 1998, Company-operated Carl's Jr. restaurant-level margins increased from 17.8% to 24.2% and average unit sales increased from $992,000 to $1,157,000. In addition, for the past 11 quarters, Carl's Jr. has reported increases in Company-operated Carl's Jr. restaurant revenues and restaurant-level margins as compared to the same periods in prior years. Based upon publicly available data, Company-operated Carl's Jr. restaurants generate restaurant-level margins and average unit sales which the Company believes are among the highest of the major quick-service hamburger restaurant chains. The Company believes these results are directly related to the implementation of its operating initiatives, management practices and disciplined operating strategy. In July 1997, the Company acquired Hardee's, which allowed it to significantly expand the scope of its operations and become one of the leading nationwide operators of quick-service hamburger restaurants. Despite Hardee's poor recent historical performance, the Company believes there is significant value in Hardee's and Carl's Jr.'s complementary geographic markets and relative menu strengths, Hardee's established brand name and Hardee's significant market presence in many of its existing markets. The Company has begun implementing a plan to meaningfully improve the profitability and sales of Hardee's in an effort to improve Hardee's poor recent historical performance. The Company's plan includes many of the strategic and operating initiatives which it used to improve the operations of its Carl's Jr. restaurants including implementing CKE's management practices, improving the quality of food, enhancing the quality of service, updating restaurant facilities and managing costs more effectively. The Company is in the early stages of its plan to improve Hardee's operations and has focused its efforts initially on managing costs more effectively and realizing purchasing synergies. Hardee's Company-operated restaurant-level margins in the fourth quarter of fiscal 1998 increased to 12.8% compared with 1.5% for the comparable period in the prior year for restaurants open and operating as of December 31, 1996. The Company has accomplished this initial margin improvement by streamlining the Hardee's menu, introducing the Carl's Jr. labor matrix to refine labor usage, focusing on safety and accident prevention as a way to reduce workers' compensation costs, reducing food waste and theft tolerance levels, decreasing food and paper costs through the realization of certain purchasing synergies and conforming Hardee's depreciation policies with those of the Company. RECENT DEVELOPMENTS On April 1, 1998, the Company acquired FEI from Advantica Restaurant Group, Inc. ("Advantica") for a purchase price of $380.8 million plus the assumption of $45.6 million in capital lease obligations, subject to adjustment ("the FEI Acquisition"). FEI was the largest franchisee of the Hardee's system, previously operating 557 Hardee's restaurants, located primarily in the Southeastern United States. The Company believes that the FEI Acquisition provides it with an opportunity to continue to expand the scope of its operations and to exercise further control over its Hardee's restaurant system. As a result of the FEI Acquisition, 1,420 of the 3,038 Hardee's restaurants operated as of January 26, 1998 are presently operated by the Company, representing 46.7% of the Hardee's system, and giving the Company control of 48 of Hardee's 98 broadcast cooperative advertising markets. The Company believes it can meaningfully improve the same-store sales trends and profitability levels at FEI's Hardee's restaurants by implementing the strategies which it has used to improve the operations of its Carl's Jr. restaurants and is beginning to implement at its Company-operated Hardee's restaurants. In addition, with a greater percentage of Company-operated restaurants, the Company believes it will be better positioned to promote a consistent 2 5 Hardee's brand image as it attempts to revamp the menu offerings, cooking methods and overall customer satisfaction at Hardee's. GROWTH STRATEGY The Company is currently pursuing a strategy of growth and expansion through increasing profitability and sales at its existing and newly-acquired underperforming restaurants. The key elements of the Company's growth strategy are as follows: Drive Hardee's Sales. The Company is in the early stages of its plan to revitalize the Hardee's brand and has focused its efforts initially on increasing restaurant margins by managing costs more effectively and realizing purchasing synergies. The Company believes it can improve Hardee's sales by further implementing its plan which includes introducing Carl's Jr.'s charbroiling cooking methods, accelerating the remodeling of Company-operated restaurants, and launching an advertising campaign through its recently selected advertising firm, Angotti, Thomas, Hedge, Inc., which targets the frequent fast-food user (males, age 16-34) as well as Hardee's existing customer base which consists equally of males and females. Leverage Carl's Jr. and Hardee's Strengths. Carl's Jr. and Hardee's have complementary geographic markets and menu strengths. Carl's Jr.'s strength is its lunch and dinner menu, which features charbroiled hamburgers and chicken sandwiches that have a strong reputation for quality and taste. Hardee's strength is its breakfast menu, which has historically generated approximately 30% of its overall revenues. The Company is in the process of adding in selected markets Carl's Jr. lunch and dinner menu items, including the introduction of the Carl's Jr. brand name, to complement Hardee's strong breakfast menu. The Company will evaluate the potential for dual-branding the Carl's Jr. and Hardee's brands in a focused fashion on a market-by-market basis. Continue to Grow Successful Carl's Jr. Chain. The Company intends to continue its Carl's Jr. expansion program by opening new restaurants, continuing its innovative advertising campaign and making selected opportunistic conversions of existing Hardee's restaurants. For fiscal 1999, the Company currently anticipates that it will open up to 30, and its franchisees will open up to 30, new Carl's Jr. restaurants. In addition, the Company plans to continue its successful dual-branding of its Carl's Jr. restaurants with The Green Burrito. The Company plans to convert at least 60 restaurants per year to dual-brand locations in each of the next three years. Opportunistically Pursue Strategic Acquisitions. While the Company is not currently contemplating any significant additional acquisitions or investments, it will continue to evaluate opportunities to expand its operations by making strategic acquisitions of, or investments in, underperforming restaurant companies. Since the Company's acquisition of Hardee's, it has purchased an additional 85 Hardee's restaurants from its franchisees in fiscal 1998, primarily in the St. Louis, Missouri and Green Bay, Wisconsin areas. The Company will continue to consider opportunities to acquire additional Hardee's restaurants, if appropriately priced, in areas the Company believes may strengthen Hardee's position in the market. RESTAURANT OPERATIONS CARL'S JR. Concept. The Company believes that its Carl's Jr. restaurants' superior food quality, diverse menu and attentive customer service differentiate the Company from its competitors and are critical to its success. Unlike many quick-service restaurants which emphasize lower prices, Carl's Jr. restaurants focus on offering customers a higher quality dining experience at a reasonable price. Carl's Jr. charbroiled hamburgers, chicken sandwiches and signature items are generally made-to-order, meet exacting quality standards and are offered in generous portions. Carl's Jr.'s menu features freshly prepared food items that appeal to a broad audience. By providing partial table service, unlimited drink refills and an attractive restaurant decor, Carl's Jr. restaurants offer a pleasant, customer-friendly environment. The Company believes that its focus on customers and customer service, superior food quality and generous portions enables the Carl's Jr. restaurants to maintain a strong price-value image with its customers. 3 6 Menu and Restaurant Design. Carl's Jr. restaurants offer a variety of products that have a strong reputation for quality and taste. The Carl's Jr. menu is relatively uniform throughout the chain and features several charbroiled hamburgers and chicken sandwiches, including the Famous Star, Western Bacon Cheeseburger, Super Star, Charbroiler Chicken Sandwiches, Crispy Chicken Sandwiches and the Charbroiled Sirloin Steak Sandwich. Other entrees include a fish sandwich, baked potatoes and prepackaged salads. Side orders, such as french fries, onion rings and fried zucchini, are also offered. Most restaurants also have a breakfast menu including eggs, bacon, sausage, French Toast Dips(R), the Sunrise Sandwich(R) and a breakfast burrito. In addition, the restaurants sell a variety of promotional products on a limited basis. The Company was also among the first to offer self-service salad bars and all-you-can-drink beverage bars. Most Carl's Jr. restaurants are freestanding, ranging in size from 2,500 to 4,000 square feet, with a seating capacity of 65 to 115 persons and drive-thru facilities. Some restaurants are located in shopping malls and other in-line facilities. Currently, several building designs and floor plans are in use system-wide, depending upon operational needs, local zoning requirements and real estate availability. The Company has completed remodeling substantially all of its Carl's Jr. restaurants to provide them with a fresh, contemporary look. Exterior improvements include brighter colors, red awnings and a large, tilted Happy Star(R) logo. The new interiors feature the same bright colors, food murals, display cases for salads and desserts and accent lighting throughout the dining area. The Company believes that its new restaurant design will further increase the consumers' awareness of the Carl's Jr. brand. Operations. The Company strives to maintain high standards in all materials used by its restaurants, as well as the operations related to food preparation, service and cleanliness. Hamburgers and chicken and steak sandwiches at Carl's Jr. restaurants are generally prepared or assembled after the customer has placed an order and are served promptly. Hamburger patties, chicken breasts and sirloin steaks are charbroiled in a gas-fired double broiler that sears the meat on both sides. The meat is conveyed through the broiler automatically to maintain uniform heating and cooking time. Each Company-operated Carl's Jr. restaurant is operated by a manager who has received nine to 13 weeks of management training. This training program involves a combination of classroom instruction and on-the-job training in specially designated training restaurants. Other restaurant employees are trained by the restaurant manager in accordance with Company guidelines. Restaurant managers are supervised by district managers, each of whom is responsible for 11 to 14 restaurants. Approximately 35 district managers are under the supervision of four regional vice presidents, all of whom regularly inspect the operations in their respective districts and regions. Green Burrito Dual-Branding. Dual-branding allows a single restaurant to offer consumers two distinct brand menus. In May 1995, the Company entered into a five-year agreement with GB Foods Corporation ("GB Foods"), the operator and franchisor of The Green Burrito quick-service Mexican food concept, to offer The Green Burrito menu at selected Carl's Jr. locations. The Company believes that The Green Burrito's position in the popular Mexican food segment and its dinner menu orientation complement the Carl's Jr. menu. Customers of the Carl's Jr./Green Burrito dual-brand restaurants are able to order items from both the Carl's Jr. menu board and The Green Burrito menu board from the same counter and both menus are available to customers utilizing the drive-thru. The Green Burrito menu offered at the dual-brand restaurants features a broad range of traditional Mexican food items, including burritos, tostadas, enchiladas, taquitos and nachos. A variety of condiments such as jalapeno peppers, hot sauce and mild and hot salsa are available at self-serve salsa bars so that customers can spice and garnish their meals according to individual taste. The Company believes that this dual-branding program has attracted new customers, while increasing the frequency of customer visits at converted restaurants. In order to convert an existing Carl's Jr. restaurant to a Carl's Jr./Green Burrito restaurant, the additional equipment necessary to offer The Green Burrito menu is added to the Carl's Jr. restaurant, as well as new menu boards and new signage, both inside and outside, indicating the offering of both brands. In most cases, changes to the seating area or other parts of the physical structure of the restaurant are unnecessary. 4 7 The Company's agreement with GB Foods initially provided for the conversion of 140 Carl's Jr. restaurants to Carl's Jr./Green Burrito dual-brand restaurants by July 2000. The original agreement was modified in February 1997 to provide for the conversion of at least 60 restaurants per year to dual-brand locations for each of the next three years. The Company is required to pay an initial franchise fee for each restaurant opened and remit royalties on The Green Burrito food sales to GB Foods. At the end of fiscal 1996, the Company elected to sub-franchise, and shortly thereafter began offering, the Carl's Jr./Green Burrito dual-brand to its franchise community. As of January 26, 1998, 12 franchised Carl's Jr. restaurants have been converted to the Carl's Jr./Green Burrito concept. The Company receives a portion of the fee for each franchise conversion and royalties from its franchisees' Green Burrito food sales. Franchised and Licensed Operations. The Company's franchise strategy is designed to further the development of the Carl's Jr. chain and reduce the total capital required of the Company for development of new Carl's Jr. restaurants. Franchise arrangements with Carl's Jr. franchisees, who operate in Arizona, California, Colorado, Hawaii, Nevada, Oregon and Utah, generally provide for initial fees and continuing royalty payments to the Company based upon a percentage of sales. Additionally, most franchisees purchase food, paper and other supplies from the Company. Franchisees may also be obligated to remit lease payments for the use of Company-owned or leased restaurant facilities and to pay related occupancy costs, which include maintenance, insurance and property taxes. The Company also plans to continue to pursue non-traditional franchise development opportunities through innovative formats, including gasoline stations, convenience stores and institutional food service outlets. The Company's franchising philosophy is such that only candidates with appropriate experience are considered for the program. Specific net worth and liquidity requirements must also be satisfied. Area development agreements generally require franchisees to open a specified number of Carl's Jr. restaurants in a designated geographic area within a specified time period. As of January 26, 1998, 265 Carl's Jr. restaurants were operated by the Company's franchisees and licensees. The majority of the Company's franchisees own more than one restaurant, with 12 franchisees owning seven or more restaurants. The Company presently anticipates that its franchisees and licensees will open up to 30 new Carl's Jr. restaurants during fiscal 1999. To expand the Carl's Jr. presence internationally, the Company entered into nine exclusive licensing agreements that allow the Carl's Jr. licensees to use the Carl's Jr. name and trademarks and provide for initial fees and continuing royalties based upon a percentage of sales. As of January 26, 1998, there were 22 licensed restaurants in operation, most of which are located in Mexico and the Pacific Rim. Royalties from the Company's licensing agreements were not material in fiscal 1998, 1997 or 1996. HARDEE'S Concept. The Hardee's restaurant chain offers a variety of menu items targeted at a broad audience in a quick-service, uniform format. Hardee's restaurants emphasize hometown values by providing generous portions at reasonable prices in a friendly environment. Hardee's restaurant promotions often include "two-for-two" campaigns, which offer two menu items for two dollars. Unlike many quick-service hamburger restaurants, Hardee's strength has been in the breakfast menu, which features made-from-scratch biscuits. Hardee's breakfast menu generates approximately 30% of its overall operating revenue, one of the highest in the quick-service hamburger industry. The Company has begun implementing certain improvements to its Hardee's restaurants to offer higher quality food and service in a clean and pleasant environment. These improvements include introducing partial table service, unlimited drink refills and charbroiling cooking methods. Hardee's has a leading market presence in the Southeastern and Midwestern United States. Menu and Restaurant Design. The restaurants currently offer hamburgers, chicken, roast beef and fish sandwiches, hot dogs and low-fat yogurt for lunch and dinner. Hardee's breakfast menu features made-from-scratch biscuits, biscuit breakfast sandwiches and other items such as hash rounds and breakfast platters. Since its acquisition of Hardee's, the Company's management has implemented certain improvements to the Hardee's menu by streamlining its product offerings to improve guest service and food quality. The Company 5 8 also is in the process of adding certain Carl's Jr. lunch and dinner menu items to Hardee's strong breakfast menu. Substantially all of Hardee's restaurants have drive-thru facilities and selected restaurants are open 24 hours a day, primarily on weekends. Most Hardee's restaurants are freestanding, ranging in size from 3,000 to 3,500 square feet, with a seating capacity of 75 to 100 persons. Currently, several building designs and floor plans are in use system-wide, depending upon operational needs, local zoning requirements and real estate availability. The Company is currently in the process of remodeling certain of its Hardee's restaurants to provide them with a fresh appearance. Improvements include new menu boards, kitchen upgrades, new roofs, paint, trim and wallpaper, as well as minor landscaping and parking lot repairs. The Company plans to remodel all of Hardee's Company-operated restaurants over the next three to five years. Operations. The Company strives to maintain high standards in all materials used by its Hardee's restaurants, as well as the operations related to food preparation, service and cleanliness. As part of its plan to implement its Carl's Jr. operating strategy at Hardee's, the Company is in the process of installing gas-fired double charbroilers in each existing Company-owned Hardee's restaurant. In addition, the Company is also in the process of implementing its Carl's Jr. management practices, including its extensive management training program, at Hardee's. Franchised and Licensed Operations. Franchise agreements with Hardee's franchisees, who operate in the Southeastern and Midwestern United States, generally provide for initial fees and continuing royalty payments to the Company based upon a percentage of sales. Most franchisees are required to purchase certain inventory and supplies from approved suppliers and are required to spend a minimum percentage of sales each month on advertising. In addition, most franchisees are required to purchase and install all fixtures, furnishings, signs and equipment specified in the approved site layout and plan. Prior to the opening of each franchised restaurant, the general manager of each franchise is required to attend and complete a training program sponsored by the Company. Franchisees may also be required to remit lease payments for the use of Company-owned or leased restaurant facilities and to pay related occupancy costs. As of January 26, 1998, 1,618 Hardee's restaurants were operated by the Company's franchisees and licensees (other than FEI, which was acquired by the Company on April 1, 1998). The majority of the Company's franchisees own more than one restaurant, with 35 franchisees owning 10 or more restaurants. Prior to the FEI Acquisition, FEI was the largest franchisee of Hardee's restaurants, operating 557 restaurants located primarily in the Southeastern United States. The Company presently anticipates that its franchisees and licensees will open up to 30 new Hardee's restaurants during fiscal 1999. TACO BUENO The Company owns and operates 109 Taco Bueno quick-service Mexican restaurants located in Texas and Oklahoma. The Taco Bueno restaurants were acquired by the Company in October 1996 in connection with the acquisition of Casa Bonita Incorporated. Taco Bueno seeks to differentiate itself from its principal competitors by offering a diverse menu featuring generous portions of freshly prepared, high quality food items. In addition to typical quick-service Mexican offerings, such as burritos, tacos, tostadas and combination meals, Taco Bueno features a number of signature menu items such as its MexiDips & Chips and Bueno Chilada Platter. Taco Bueno's Mexican platters include taco and burrito platters, beef and chicken taco salads and nacho platters, each of which are accompanied by rice, beans, freshly prepared guacamole and chips. The restaurants also feature a salsa bar which includes sliced jalapenos, diced onions, pico de gallo, and hot sauce. Taco Bueno restaurants generally feature a "Santa Fe/Pueblo" architecture and exterior decor, which is designed to increase visibility and consumer recognition, and generally range in size from 2,400 square feet to 3,200 square feet. Restaurant interiors include wooden tables and chairs, booth seating, stucco walls, warm colors and a southwestern theme, all of which are intended to create a distinctive atmosphere. The Company is also in the process of enhancing the Taco Bueno brand image with new signage and menu boards and is considering a more extensive remodeling program. 6 9 The Company's strategy with respect to its Taco Bueno concept is to increase its market share and competitive presence in existing markets. The Company believes that the growing popularity of Mexican food and the relatively few national or regional Mexican quick-service restaurant chains provide a significant opportunity to expand the Taco Bueno concept within its core markets in the areas of Dallas/Ft. Worth, Tulsa and Oklahoma City and to enter into new markets. The Company anticipates it will open up to five Taco Bueno restaurants in its existing markets during fiscal 1999. INVESTMENTS IN OTHER RESTAURANT CONCEPTS The Company has selectively acquired or invested in other restaurant concepts as follows: GB Foods and JB's Restaurants. The Company owns, operates and franchises the JB's Restaurant family dining restaurant concept and owns and operates six Galaxy Diner "50's-style" casual theme restaurants. As of January 26, 1998, the JB's Restaurant system consisted of 94 restaurants, of which 74 were owned and operated by the Company. The JB's Restaurant system and the Galaxy Diner restaurants were purchased by the Company in connection with its acquisition of Summit Family Restaurants Inc. ("Summit") during fiscal 1997. In February 1998, the Company sold 12 Company-operated JB's Restaurants to Star Buffet, Inc. ("Star Buffet"). As a result of such sale, the Company received approximately $4.8 million in cash. In addition, the Company has recently announced two additional transactions which will result in the disposition of the entire JB's Restaurant system and Galaxy Diner restaurants. First, the Company has agreed to sell 14 Company-operated JB's Restaurants and two Galaxy Diner restaurants to Timber Lodge Steakhouse, Inc. ("Timber Lodge") in connection with the proposed merger of Timber Lodge and GB Foods. Second, the Company has agreed to sell 48 Company-operated JB's Restaurants and the JB's Restaurant franchise system, together with four Galaxy Diner restaurants, to GB Foods. If the above transactions are completed, the Company expects to receive approximately 1.6 million shares of GB Foods, which would represent approximately 10% of GB Foods' outstanding shares after giving effect to such transactions. There can be no assurance that these transactions will be completed. The foregoing transactions, together with the Company's reorganization and the initial public offering of Star Buffet will complete the Company's previously announced plans to sell or otherwise dispose of all or a portion of the restaurant businesses of Summit. Rally's and Checkers. Rally's Hamburgers, Inc. ("Rally's") operates and franchises the Rally's Hamburgers double drive-thru quick-service hamburger restaurant concept. As of January 9, 1998, there were 473 Rally's restaurants operating in 18 states, primarily in the Midwest and the Sunbelt, of which 26 were operated by the Company in California and Arizona. The Company and Rally's entered into an operating agreement, effective in July 1996, pursuant to which Rally's retains ownership of the assets of such restaurants and receives a percentage of the restaurants' sales. The Company has invested $21.3 million in Rally's for a 27% interest in Rally's outstanding shares, and has the right to acquire an additional 4% interest. Rally's owns a 27% interest in Checkers Drive-In Restaurants, Inc. ("Checkers"). Checkers operates and franchises the Checkers Drive-In Restaurants double drive-through quick-service hamburger restaurant concept. As of January 9, 1998, there were 473 Checkers restaurants operating in 23 states. The Company has the right to acquire shares of common stock representing 10% of Checkers' outstanding shares. The Company also holds $7.6 million aggregate principal amount of Checkers' senior secured debt, net of related discount. Star Buffet. Star Buffet is an operator of 33 buffet-style restaurants and 11 franchised, family-style JB's Restaurants. The Company formed Star Buffet in connection with a reorganization of its buffet-style restaurant operations and with Star Buffet's initial public offering in September 1997, and continues to hold a 37% interest in Star Buffet. Boston Market. The Company continues to hold a minority interest in Boston West, L.L.C. ("Boston West"), which acquired the Company's Boston Market restaurant assets and operations in fiscal 1995 and is developing Boston Market stores in designated markets in California under an area development agreement 7 10 with Boston Chicken, Inc., the franchisor of the Boston Market restaurant concept. As of January 26, 1998, Boston West operated 98 Boston Market stores located in Southern California. The Company intends to continuously review its investments in other restaurant concepts. Although the Company has no present intention to dispose of or acquire additional interests in other restaurant concepts, the Company may do so in the future. When deciding to dispose of or acquire additional interests, the Company may take into consideration various factors, including, but not limited to, business prospects of the restaurant concept, alternative business opportunities available to the Company and general economic conditions. PURCHASING AND DISTRIBUTION The Company purchases most of the primary food products and packaging supplies used in the Carl's Jr. restaurant system and warehouses and distributes such items to both Company-operated and franchised Carl's Jr. restaurants. Although not required to do so, substantially all of the Company's Carl's Jr. franchisees purchase most of their supplies from the Company. The Company's Carl's Jr. restaurant chain is one of the few businesses in the quick-service restaurant industry that has elected not to outsource all of its distribution activities. The Company currently purchases substantially all of the food products and cleaning products sold or used in its Hardee's restaurants from Fast Food Merchandisers, Inc. ("FFM"), certain of which are manufactured by FFM for the Company according to the Company's food product formulations. FFM currently distributes such products, together with most food and other products sold or used by Hardee's restaurants, to restaurants operated by the Company, excluding those acquired in the FEI Acquisition, and to many of the Hardee's restaurants operated by the Company's franchisees. Pursuant to the terms of product supply and distribution agreements entered into between the Company and FFM in connection with the Company's acquisition of Hardee's in July 1997, the Company is obligated to purchase substantially all of its requirements for certain specified products from FFM for a five-year term, and FFM will provide exclusive distribution services to Company-operated Hardee's restaurants, excluding those acquired in the FEI Acquisition, with respect to such products, as well as products purchased from other vendors, for a seven-year term. The prices to be paid by the Company for FFM products, and delivery fees to be paid by the Company to FFM for distribution services, will be subject to adjustment in certain circumstances, which may include increases resulting from changes in FFM's cost structure. Although the Company believes the prices anticipated to be paid to FFM will remain competitive, there can be no assurance that the prices and fees paid by the Company to FFM will not increase, perhaps substantially, which could have a material adverse effect on the Company. FEI has benefited from participating in Advantica's centralized purchasing program. Advantica's size provided it with significant purchasing power, which often enabled it to obtain products at more favorable prices from several nationally recognized manufacturers. Food and packaging for FEI's Hardee's restaurants are purchased from independent suppliers approved by Hardee's. After the FEI Acquisition, FEI will continue to operate under existing arrangements with its suppliers. The Company obtained from FFM a waiver of the exclusivity provisions of its supply agreements with FFM to permit the continuation of FEI's existing arrangements with suppliers. A substantial portion of products for FEI's Hardee's restaurants is obtained from MBM Corporation ("MBM"), an independent supplier and distributor of food and other products. In connection with Advantica's sale of its distribution subsidiary to MBM in 1995, FEI entered into a ten year distribution agreement under which MBM distributes and supplies certain products and supplies to FEI. There are no volume requirements relative to this agreement; however, the products named therein must be purchased through MBM unless they are unable to make delivery within a reasonable period. The Company believes its mature procurement process allows it to effectively manage food costs, provide adequate quantities of food and supplies at competitive prices, and generate revenues from franchisees by adding a nominal mark-up to cover direct costs and provide better overall service to its restaurants. The Company seeks competitive bids from suppliers on many of its food products, approves suppliers of those products and requires them to adhere to product specifications established by the Company. Whenever 8 11 possible, the Company negotiates sole source contracts for particular products which tend to produce deeper discounts. COMPETITION The food service industry is intensely competitive with respect to the quality and value of food products offered, concept, service, pace, dining experience and location. The Company primarily competes with major restaurant chains, some of which dominate the quick-service restaurant industry, and also competes with a variety of other take-out food service companies and fast-food restaurants. The Company's competitors also include a variety of mid-price, full-service casual dining restaurants, health and nutrition-oriented restaurants, delicatessens and prepared food stores, as well as supermarkets and convenience stores. Many of the Company's competitors have substantially greater financial, marketing and other resources than the Company, which may give them certain competitive advantages. Certain of the major quick-service restaurant chains have increasingly offered selected food items and combination meals at discounted prices. In recent years, the Company's restaurant sales were adversely affected by aggressive promotions and price reductions by its competitors. Future changes in the pricing or other marketing strategies of one or more of the Company's competitors could have a material adverse effect on the Company's financial condition and results of operations. As the Company's competitors expand operations, competition can be expected to intensify. Such increased competition could have a material adverse effect on the Company's financial condition and results of operations. The Company also faces competition from other quick-service operators, retail chains, other companies and developers for desirable site locations, which may adversely affect the cost, implementation and timing of the Company's expansion plans. TRADEMARKS AND SERVICE MARKS The Company owns numerous trademarks and service marks. The Company has registered many of those marks, including Carl's Jr., the Happy Star logo, Hardee's and proprietary names for a number of the Carl's Jr., Hardee's and Taco Bueno menu items, with the United States Patent and Trademark Office. The Company believes that its trademarks and service marks have significant value and play an important role in its marketing efforts. The Green Burrito(R) is a registered trademark of GB Foods. SEASONALITY The Company's business is moderately seasonal. Average restaurant sales are normally higher in the summer months than during the winter months for each of the Company's restaurant concepts. Seasons have a greater impact on average restaurant sales at Hardee's restaurants in comparison with the Company's other restaurant concepts. GOVERNMENT REGULATIONS Each Company-operated and franchised restaurant must comply with regulations adopted by federal agencies and with licensing and other regulations enforced by state and local health, sanitation, safety, fire and other departments. In addition, these restaurants also must comply with federal and state environmental regulations, but those regulations have not had a material effect on the restaurants' operations. More stringent and varied requirements of local governmental bodies with respect to zoning, land use and environmental factors can delay and sometimes prevent development of new restaurants and remodeling of existing restaurants in particular locations. The Company is also subject to federal laws and a substantial number of state laws regulating the offer and sale of franchises. Such laws impose registration and disclosure requirements on franchisors in the offer and sale of franchises and may also apply substantive standards to the relationship between franchisor and franchisee, including limitations on the ability of franchisors to terminate franchisees and alter franchise arrangements. The Company believes it is operating in substantial compliance with applicable laws and regulations governing its operations. 9 12 The Company and its franchisees must comply with the Fair Labor Standards Act and various federal and state laws governing employment matters, such as minimum wages, overtime and other working conditions and citizenship requirements. Many of the Company's employees are paid hourly rates related to the federal and state minimum wage laws and, accordingly, increases in the minimum wage increase the Company's labor cost. EMPLOYEES As of January 26, 1998, the Company employed approximately 46,500 persons, of whom approximately 42,700 were hourly restaurant, distribution or clerical employees and the remainder were managerial, salaried employees engaged in administrative and supervisory capacities. A majority of the hourly employees are employed on a part-time basis to provide service necessary during peak periods of restaurant operations. As of December 31, 1997, FEI employed approximately 19,400 persons, approximately 17,600 of which were employed at the restaurant level. None of the Company's employees is currently covered by a collective bargaining agreement. The Company has never experienced a work stoppage attributable to labor disputes and believes its employee relations are good. FORWARD-LOOKING STATEMENTS AND RISK FACTORS The Company wishes to caution readers that the information contained and incorporated by reference herein contains forward-looking statements that involve a number of risks and uncertainties. A number of factors could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by any forward-looking statements made by or on behalf of the Company. These factors include, but are not limited to, the competitive environment in the quick-service restaurant industry in general and in the Company's specific market areas, changes in prevailing interest rates and the availability of financing, inflation, changes in costs of goods and services, economic conditions in general and in the Company's specific market areas, and uncertainties related to the acquisition of Hardee's and FEI. In addition, such forward-looking statements are necessarily dependent upon assumptions, estimates and data that may be incorrect or imprecise. Accordingly, any forward-looking statements included or incorporated by reference herein do not purport to be predictions of future events or circumstances and may not be realized. Forward-looking statements can be identified by, among other things, the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "seeks" or "anticipates," or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategies, plans or intentions. The accompanying information contained in this Form 10-K, including without limitation the information set forth under "Item 1. Business," and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," identifies important factors that could cause such differences. The acquisition of Hardee's significantly increased the size of the Company. Managing the Company and integrating the acquired business operations of Hardee's will continue to present a significant challenge to the Company's management. Historically, Hardee's has been a well-established but underperforming brand which has recently experienced declining system-wide same-store sales and a declining market share in the quick-service hamburger restaurant industry. The Company continues to evaluate the restaurant operations of Hardee's and various short- and long-term strategic considerations in the process of assessing the extent to which Hardee's restaurant operations will be integrated, restructured or otherwise modified by the Company. One of the objectives of the Company's turnaround strategies for Hardee's is to stem the recent negative operating trends experienced by Hardee's. However, there can be no assurance that these strategies will be successful. If the Company is unable to achieve anticipated improvements in restaurant-level operating margins or reductions in corporate overhead costs in its Hardee's operations on a timely basis, cash flows generated from Hardee's operations may not be adequate to support the Company's turnaround strategies for Hardee's, some of which require significant capital expenditures. The Company's success will also depend, in part, on its Hardee's franchisees. Hardee's franchisees are not required to participate in implementing the Company's strategies and there can be no assurance that Hardee's franchisees will participate. Lack of participation by Hardee's franchisees in implementing the Company's strategies could delay or limit the 10 13 success of the Company's strategies. Restructuring and integrating the restaurant operations of Hardee's will require the dedication of significant capital and management resources, which may cause an interruption of, or a loss of momentum in, the activities of the Company. The difficulties of such restructuring and integration may be increased by the necessity of coordinating geographically separate organizations and selectively introducing the Carl's Jr. brand into markets in which Carl's Jr. restaurants have never operated, all of which, together with other factors beyond the Company's control, may adversely affect the cost, implementation, execution and timing of the Company's turnaround strategies for Hardee's. Failure to effectively accomplish the integration of the Company's operations or to improve Hardee's results of operations could have a material adverse effect on the Company's financial condition and results of operations. The FEI Acquisition results in another significant increase in the size of the Company. Integrating the acquired business operations of FEI also presents a significant challenge to the Company's management, and may affect the implementation and timing of the Company's turnaround strategies for Hardee's. The Company believes that the FEI Acquisition will help the Company achieve a greater degree of control over the entire Hardee's system as well as its advertising and marketing strategies; however, no assurances can be given that the Company will realize the benefits it anticipates from the FEI Acquisition, or that the FEI Acquisition will not adversely affect the Company's financial condition or results of operations. In order to finance the Hardee's acquisition and to make borrowings available to the Company for working capital and other corporate purposes, in July 1997, the Company entered into a term loan facility of $75.0 million (the "Term Loan Facility") and a $225.0 million revolving credit facility (the "Revolving Credit Facility" and, collectively with the Term Loan Facility, the "Senior Credit Facility"). As of January 26, 1998, borrowings of $67.5 million remained outstanding under the Term Loan Facility and borrowings of $71.0 million remained outstanding under the Revolving Credit Facility. On April 1, 1998, the Company amended the Senior Credit Facility to increase the aggregate principal amounts of the lenders' commitments under the Term Loan Facility to $250.0 million and under the Revolving Credit Facility to $250.0 million. The Company incurred borrowings of $213.2 million thereunder to finance a portion of the purchase price of the FEI Acquisition. In connection with the completion of the Company's convertible subordinated notes ("the Notes") on March 13, 1998, the Company incurred $197.2 million in additional indebtedness which, when combined with the amount the Company has outstanding under its Senior Credit Facility, will increase the ratio of its long-term debt to its total capitalization from 28.2% at January 26, 1998 to 56.5%, as adjusted to give pro forma effect to the FEI Acquisition and the sale of the Notes. (See Note 9 of Notes to Consolidated Financial Statements.) The Company's increased degree of leverage could have important consequences to investors, including the following: (i) the Company's ability to obtain additional financing for working capital, capital expenditures, acquisitions and general corporate purposes may be decreased in the future; (ii) an increased portion of the Company's cash flow from operations will be dedicated to the payment of principal and interest on its indebtedness, thereby reducing the funds available to the Company for other purposes; (iii) most of the Company's borrowings are and will continue to be at variable rates of interest (including borrowings under the Senior Credit Facility), which exposes the Company to the risk of increased interest rates; (iv) the Company may be substantially more leveraged than certain of its competitors, which may place the Company at a competitive disadvantage; and (v) the Company's substantial degree of leverage may limit its flexibility to adjust to changing market conditions, reduce its ability to withstand competitive pressures and make it more vulnerable to a downturn in general economic conditions or its businesses. The Company's ability to make scheduled payments or to refinance its obligations with respect to its indebtedness, and to comply with the financial covenants and other obligations under its debt instruments, will depend on its financial and operating performance, which in turn will be subject to economic conditions and to financial, business and other factors beyond its control. There can be no assurance that the Company's operating results, cash flow and capital resources will be sufficient for payment of its indebtedness in the future. The Company's growth strategy includes, among other things, opening additional Company-operated and franchised restaurants, dual-branding its restaurant concepts and remodeling its restaurants. The success of the Company's growth strategy will depend on numerous factors, many of which are beyond the control of the Company and its franchisees, including the hiring, training and retention of qualified management and other restaurant personnel, the ability to obtain necessary governmental permits and approvals, the availability of 11 14 appropriate financing and general economic conditions. The Company and its franchisees face competition from other restaurant operators, retail chains, companies and developers for desirable site locations, which may adversely affect the cost, implementation and timing of the Company's expansion plans. To manage its planned expansion, the Company must ensure the continuing adequacy of its existing systems and procedures, including its supply and distribution arrangements, restaurant management, financial controls and information systems. The Company's growth will also depend in part on its ability to increase sales at existing restaurants. In addition to its turnaround strategies for Hardee's, the Company expects to continue remodeling and upgrading equipment at its Hardee's restaurants. The Company has substantially completed its remodeling program for its Company-operated Carl's Jr. restaurants and plans to convert at least 60 of its Carl's Jr. restaurants to Carl's Jr./Green Burrito dual-brand restaurants in each of the next three years. The Company will incur significant capital expenditures in remodeling and converting restaurants and will experience a loss of revenues during the brief periods of time that restaurants are closed for remodeling or conversion. There can be no assurance that such remodels and conversions will increase the revenues generated by these restaurants or, even if revenues are increased, that such increases will be sustainable. In addition, although the sales results experienced by the Company-operated Carl's Jr. restaurants that have been remodeled or converted to dual-brand restaurants have generally been favorable to date, there can be no assurance that such favorable sales results are sustainable or that they are indicative of sales results that will be achieved by restaurants to be remodeled or converted in the future. There can also be no assurance that the Company will be able to achieve same-store sales increases in its Company-operated restaurants. Although the Company is not currently contemplating any significant additional acquisitions of other restaurant companies, it will continue to evaluate investment opportunities in other restaurant companies. Acquisitions involve a number of risks that could adversely affect the Company's operating results, including the diversion of management's attention, the assimilation of the operations and personnel of the acquired companies, the amortization of acquired intangible assets and the potential loss of key employees. No assurance can be given that any acquisition or investment by the Company will not materially and adversely affect the Company or that any such acquisition or investment will enhance the Company's business. If the Company determines to make any significant acquisitions of, or investments in, other businesses, the Company may be required to sell additional equity or debt securities or obtain additional credit facilities. The sales, if any, of additional equity or convertible debt securities could result in additional dilution to the Company's stockholders. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company are as follows:
NAME AGE POSITION ---- --- -------- William P. Foley II.................. 53 Chairman of the Board, Chief Executive Officer C. Thomas Thompson................... 48 President and Chief Operating Officer Rory J. Murphy....................... 50 President, Hardee's Food Systems, Inc. Carl A. Strunk....................... 60 Executive Vice President, Chief Financial Officer Andrew F. Puzder..................... 47 Executive Vice President, General Counsel and Secretary Robert E. Wheaton.................... 45 Executive Vice President Robert W. Wisely..................... 52 Executive Vice President, Marketing Loren C. Pannier..................... 56 Senior Vice President, Investor Relations Edward J. Dewey...................... 52 Senior Vice President, Chief of Staff, Office of the Chairman
William P. Foley II became Chief Executive Officer in October 1994, Chairman of the Board of Directors in March 1994, and has served as a director since December 1993. Since 1981, Mr. Foley has been Chairman of the Board, President (until January 1995) and Chief Executive Officer of Fidelity National Financial, Inc. ("Fidelity"), a company engaged in title insurance and related services. Mr. Foley also serves 12 15 as the Chairman of the Board of Star Buffet, GB Foods and Checkers and as a member of the Boards of Directors of Rally's, DataWorks Corporation and Micro General Corporation. C. Thomas Thompson was appointed President and Chief Operating Officer in October 1994. Mr. Thompson has been a franchisee of the Company since 1984, and currently operates 15 Carl's Jr. restaurants in the San Francisco Bay Area. Mr. Thompson also currently serves as Vice Chairman of the Board of Checkers and as a member of the Board of Directors of Rally's and Star Buffet. Mr. Thompson has more than 25 years of experience in the restaurant industry. He previously held various positions with Jack-in-the-Box. Rory J. Murphy was appointed President of Hardee's immediately following the Company's acquisition of Hardee's in July 1997. Mr. Murphy served as Executive Vice President, Restaurant Operations of the Company from June 1996 until July 1997, and served as Senior Vice President, Restaurant Operations of the Company from February 1993 until June 1996. Mr. Murphy has been employed by the Company in various positions for 19 years. Carl A. Strunk was appointed Executive Vice President and Chief Financial Officer in February 1997. Mr. Strunk also serves as Executive Vice President/Finance for Fidelity and GB Foods and has been with Fidelity since 1992 and GB Foods since December 1997. Mr. Strunk previously served as President of Land Resources Corporation from 1986 to 1991. Mr. Strunk is a Certified Public Accountant and is also a member of the Board of Directors of Micro General Corporation. Andrew F. Puzder became Executive Vice President, General Counsel and Secretary in February 1997. Mr. Puzder also serves as Chief Executive Officer of GB Foods and Executive Vice President of Fidelity, where he has been since January 1995. From March 1994 to December 1994, he was a partner with the law firm of Stradling, Yocca, Carlson & Rauth. Prior to that, he was a partner with the law firm of Lewis, D'Amato, Brisbois & Bisgard, from September 1991 through March 1994, and he was a partner of the Stolar Partnership from February 1984 through September 1991. Mr. Puzder has been Chief Executive Officer and a Director of GB Foods since August 1997 and is a member of the Board of Directors of Javelin Systems, Inc. and Rally's. Robert E. Wheaton became Executive Vice President of the Company in January 1996. Mr. Wheaton also serves as the President and Chief Executive Officer, and is a member of the Board of Directors, of Star Buffet. Mr. Wheaton served as Vice President and Chief Financial Officer of Denny's Inc., a subsidiary of Advantica, from April 1995 to January 1996. From 1991 to 1995, Mr. Wheaton served as President and Chief Executive Officer, and from 1989 to 1991 as Vice President and Chief Financial Officer, of The Bekins Company. Robert W. Wisely was appointed Executive Vice President, Marketing in August 1997. Prior to that, he served as Senior Vice President, Marketing from January 1995. Mr. Wisely has been a franchisee of the Company since 1990. Prior to 1990, Mr. Wisely served as Senior Vice President, Marketing from 1985 to 1990 and as Group Vice President, Marketing from 1974 to 1979. Loren C. Pannier was appointed Senior Vice President, Investor Relations in September 1996 and served as Senior Vice President, Purchasing/Distribution from January 1996 to September 1996. Mr. Pannier also served as Chief Financial Officer of the Company from 1980 to May 1995. Mr. Pannier has been a Senior Vice President since 1980, and he has been employed by the Company for over 25 years. Edward J. Dewey became Senior Vice President, Chief of Staff, Office of the Chairman in December 1997. Mr. Dewey has been Senior Vice President, Chief of Staff, Office of the Chairman for Fidelity since December 1997. Prior to that, from May 1993 to November 1997, he was a Vice President with Fidelity National Title Insurance Company. From 1967 through 1993, Mr. Dewey was in the U.S. Army, leaving the service with the rank of Colonel. 13 16 ITEM 2. PROPERTIES The following table sets forth information regarding the Company's restaurant properties at January 26, 1998, including the FEI restaurant properties acquired on April 1, 1998:
LAND LAND AND LAND LEASED AND BUILDING AND BUILDING BUILDING OWNED OWNED LEASED TOTAL -------- ------------ -------- ----- Carl's Jr.: Company-operated........................... 45 50 348 443 Franchisee-operated(1)..................... 12 8 -- 20 Third party-operated/vacant(1)............. 7 2 -- 9 --- --- --- ----- Subtotal................................ 64 60 348 472 --- --- --- ----- Hardee's: Company-operated........................... 355 167 341 863 Franchisee-operated(1)..................... 42 36 -- 78 Third party-operated/vacant(1)............. 45 16 -- 61 --- --- --- ----- Subtotal................................ 442 219 341 1,002 --- --- --- ----- Taco Bueno: Company-operated........................... 72 10 27 109 --- --- --- ----- Subtotal................................ 578 289 716 1,583 FEI: Company-operated........................... 283 95 179 557 --- --- --- ----- Total.............................. 861 384 895 2,140 === === === =====
- --------------- (1) "Franchisee-operated" properties are those which are owned by the Company and subleased to franchisee operators. "Third party-operated/vacant" are properties owned by the Company that are either operated by unaffiliated entities or are currently vacant. The terms of the Company's leases or subleases vary in length expiring on various dates through 2023. The expiration of these leases is not expected to have a material impact on the Company's operations in any particular year as the expiration dates are staggered over a number of years and many of the leases contain renewal options. The Company's corporate headquarters and primary distribution center, located in Anaheim, California, are leased and contain approximately 78,000 and 102,000 square feet, respectively. The Company owns its Hardee's corporate facility in Rocky Mount, North Carolina. ITEM 3. LEGAL PROCEEDINGS The Company is from time to time the subject of complaints or litigation from customers alleging illness, injury or other food quality, health or operational concerns. Adverse publicity resulting from such allegations may materially adversely affect the Company and its restaurants, regardless of whether such allegations are valid or whether the Company is liable. The Company also is the subject of complaints or allegations from employees and franchisees from time to time. The Company believes that the lawsuits, claims and other legal matters to which it has become subject in the course of its business are not material to the Company's financial condition or results of operations, but an existing or future lawsuit or claim could result in an adverse decision against the Company that could have a material adverse effect on the Company's financial condition and results of operations. 14 17 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A special meeting of stockholders of the Company was held on December 9, 1997 for the purpose of voting on a proposal to amend the Company's certificate of incorporation to increase the authorized number of shares of common stock from 50,000,000 to 100,000,000. The proposal was duly passed with 38,079,710 shares voting for the proposal, 857,420 shares voting against the proposal, 81,514 shares abstaining from the vote and no broker non-votes. There were 39,018,644 shares represented and entitled to vote of the 41,988,018 shares outstanding as of the November 7, 1997 record date. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Company's common stock is listed on the New York Stock Exchange under the symbol "CKR". As of March 31, 1998, there were approximately 1,800 record holders of the Company's common stock. The following table sets forth, for the periods indicated, the high and low closing sales prices of the Company's common stock, as reported on the New York Stock Exchange Composite Tape:
HIGH LOW ------ ------ FISCAL 1997 First Quarter............................................. $14.62 $ 9.02 Second Quarter............................................ 16.97 12.42 Third Quarter............................................. 20.76 14.02 Fourth Quarter............................................ 21.82 17.35 FISCAL 1998 First Quarter............................................. $23.18 $16.70 Second Quarter............................................ 32.95 20.34 Third Quarter............................................. 40.85 28.64 Fourth Quarter............................................ 42.19 31.25
The foregoing prices have been adjusted to give retroactive effect to a three-for-two stock split effected as a stock dividend in January 1997 and a 10% stock dividend in February 1998. The Company has followed a policy of paying semi-annual cash dividends, at the annual rate of $0.05 per share (adjusted to give retroactive effect to the stock split and stock dividend), during fiscal 1996 and fiscal 1997. During fiscal 1998, the Company increased the annual rate to $0.07 per share (adjusted to give retroactive effect to the stock dividend). On March 31, 1998, the Company's Board of Directors increased the semi-annual dividend rate to $0.04 per share and declared a $0.04 cash dividend, which is payable on April 30, 1998 to holders of record on April 15, 1998. Continued payment of dividends on the Company's common stock will depend upon the Company's operating results, business requirements and financial condition, and such other factors that the Company's Board of Directors considers relevant. The Company's Senior Credit Facility imposes limitations on the amount of dividends or other distributions on its common stock that the Company may make. 15 18 ITEM 6. SELECTED FINANCIAL AND OPERATING DATA The information set forth below should be read in conjunction with the consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Form 10-K. Per share data has been retroactively adjusted for stock splits and stock dividends since the Company's inception. SELECTED FINANCIAL AND OPERATING DATA (IN THOUSANDS EXCEPT PER SHARE AMOUNTS, RESTAURANT COUNT, AND PERCENTAGES)
FISCAL YEAR ENDED OR AS OF JANUARY 31, (1) ------------------------------------------------------ 1998(2) 1997(3) 1996 1995 1994(4) ---------- -------- -------- -------- -------- CONSOLIDATED STATEMENTS OF INCOME DATA: Total revenues........................... $1,149,659 $613,380 $464,667 $442,942 $462,708 Operating income......................... 86,191 44,139 27,000 9,741 11,110 Interest expense......................... 16,914 9,877 10,004 9,202 10,387 Net income............................... 46,757 22,302 10,952 1,264 3,665 Net income per common and common equivalent share -- diluted(5)........ $ 1.07 $ 0.67 $ 0.36 $ 0.04 $ 0.12 Common and common equivalent shares used in computing per share amounts -- diluted.................... 43,747 33,276 30,555 30,882 30,118 Cash dividends paid per common share..... $ 0.07 $ 0.05 $ 0.05 $ 0.05 $ 0.05 Ratio of earnings to fixed charges(6).... 5.5x 4.7x 2.8x 1.3x 1.6x CONSOLIDATED BALANCE SHEET DATA: Total assets............................. $ 957,368 $410,367 $248,009 $244,361 $242,135 Total debt, including current portion.... 216,905 86,993 82,423 81,618 79,861 Stockholders' equity..................... $ 498,512 $214,804 $101,189 $ 88,474 $ 92,076
- --------------- (1) The Company's fiscal year is 52 or 53 weeks, ending the last Monday in January. For clarity of presentation, all years are presented as if the fiscal year ended January 31. (2) Fiscal 1998 includes operating results of Hardee's from and after July 15, 1997. Share and per share data were also affected during fiscal 1998 by a public offering of 9,171,250 shares of common stock, completed in July 1997. (3) Fiscal 1997 includes $94.3 million of revenues generated from other restaurant concepts acquired by the Company during fiscal 1997. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." Share and per share data were also affected during fiscal 1997 by a public offering of 4,743,750 shares of common stock, completed in November 1996. (4) Fiscal 1994 includes 53 weeks. (5) Fiscal 1994 includes the cumulative effect of a change in accounting principle of $(0.03) per share. In the fourth quarter of fiscal 1998, the Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share." Prior year amounts have been restated in accordance with SFAS 128. (6) For purposes of calculating the ratio of earnings to fixed charges (i) earnings represent income before income taxes and fixed charges and (ii) fixed charges consist of interest on all indebtedness, interest related to capital lease obligations and amortization of debt issuance costs. 16 19
FISCAL YEAR ENDED JANUARY 31, (1) -------------------------------------------------------------- 1998 1997 1996 1995 1994(2) ---------- ---------- ---------- ---------- ---------- CARL'S JR. RESTAURANT OPERATING DATA: System-wide restaurant revenues: Company-operated restaurants................ $ 488,495 $ 443,304 $ 389,214 $ 364,278 $ 384,859 Franchised and licensed restaurants................ 214,534 204,700 193,984 201,170 209,214 ---------- ---------- ---------- ---------- ---------- Total system-wide revenues.............. $ 703,029 $ 648,004 $ 583,198 $ 565,448 $ 594,073 ========== ========== ========== ========== ========== Restaurants open (at end of fiscal year): Company-operated............. 443 415 394 383 376 Franchised and licensed...... 265 258 273 277 272 ---------- ---------- ---------- ---------- ---------- Total................... 708 673 667 660 648 ========== ========== ========== ========== ========== Average annual sales per Company-operated restaurant(3)................ $ 1,157 $ 1,114 $ 1,006 $ 966 $ 992 Percentage increase (decrease) in comparable Company-operated restaurant sales(4)..................... 4.8% 10.7% 4.4% (3.8)% (6.5)%
PERIOD FROM PERIOD FROM FISCAL YEAR ENDED DECEMBER 31, (7) 7/16/97 TO 1/1/97 TO ------------------------------------ 1/31/98(5) 7/15/97(6) 1996 1995 1994 ----------- ----------- ---------- ---------- ---------- HARDEE'S RESTAURANT OPERATING DATA: System-wide restaurant revenues: Company-operated restaurants................ $ 339,942 $ 346,481 $ 645,409 $ 596,593 $ 593,391 Franchised and licensed restaurants................ 1,123,034 1,152,442 2,350,733 2,582,514 2,760,588 ---------- ---------- ---------- ---------- ---------- Total system-wide revenues.............. $1,462,976 $1,498,923 $2,996,142 $3,179,107 $3,353,979 ========== ========== ========== ========== ========== Restaurants open (at end of fiscal year): Company-operated............. 863 782 808 733 692 Franchised and licensed...... 2,175 2,329 2,417 2,600 2,711 ---------- ---------- ---------- ---------- ---------- Total................... 3,038 3,111 3,225 3,333 3,403 ========== ========== ========== ========== ========== Average annual sales per Company-operated restaurant(3)................ $ 803 $ 831 $ 848 $ 888 $ 968 Percentage decrease in comparable Company-operated restaurant sales(4).......... (7.2)% (0.4)% (4.4)% (6.8)% (3.5)%
- --------------- (1) The Company's fiscal year is 52 or 53 weeks, ending the last Monday in January. For clarity of presentation, all years are presented as if the fiscal year ended January 31. (2) Fiscal 1994 includes 53 weeks. (3) Calculated on a 52- or 53-week trailing basis for all years presented. (4) Includes only restaurants open throughout the full years being compared. (5) Includes results of operations for Hardee's from and after July 15, 1997, the date of acquisition. (6) Hardee's restaurant operating data for the period from January 1, 1997 to July 15, 1997 excludes the results of Hardee's restaurants sold or closed prior to July 15, 1997. (7) Hardee's restaurant operating data for the three fiscal years ending December 31, 1996 excludes the results of Hardee's restaurants sold or closed prior to December 31, 1996. 17 20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements and related notes and "Selected Financial and Operating Data" included elsewhere in this Form 10-K. OVERVIEW The Company is a leading nationwide owner, operator and franchisor of quick-service restaurants, operating principally under the Carl's Jr. and Hardee's brand names. Based on domestic system-wide sales, the Company's Hardee's and Carl's Jr. chains are the fourth and seventh largest quick-service hamburger restaurant chains in the United States, respectively. As of January 26, 1998, the Carl's Jr. system included 708 restaurants, of which 443 were operated by the Company and 265 were operated by its franchisees and licensees. Carl's Jr. restaurants are located in the Western United States, predominantly in California. In July 1997, the Company completed its acquisition of Hardee's, and as of January 26, 1998, the Hardee's system consisted of 3,038 restaurants, of which 863 were operated by the Company and 2,175 were operated by the Company's franchisees and licensees. Hardee's restaurants are located throughout the Eastern and Midwestern United States, predominantly in the Southeast. As of January 26, 1998, the Company also operated a total of 235 other restaurants, including 109 Taco Bueno quick-service Mexican food restaurants located in Texas and Oklahoma. The first Carl's Jr. restaurant was opened in 1956 by Carl N. Karcher, the Company's founder, in Anaheim, California. After an extended period of growth, the Company made certain strategic decisions and experienced operational difficulties in the early 1990s which adversely impacted the Company's sales and profitability. At that time, in response to the introduction of value pricing by its quick-service restaurant competitors, the Company reduced prices and initiated an extensive value-priced menu advertising campaign. Beginning in October 1994, the Company hired a new management team that began implementing a variety of strategic and operational programs designed to revitalize the Carl's Jr. brand and improve financial results. These programs included, among others, a renewed focus on offering superior products, the elimination of most lower-priced menu items, a new advertising campaign, a dual-branding program with The Green Burrito and the commencement of a remodeling program for Carl's Jr. restaurants. As a result of these strategies, together with the Company's successful efforts to reduce expenses at both the corporate and operating levels, the Company experienced significant improvements in sales and operating results in fiscal 1996, 1997 and 1998. The Company substantially completed its remodeling program in January 1998 and is continuing to implement its dual-branding conversions and focus on reducing expenses. The Company believes it will continue to benefit from such activities in the future. The Company believes that its acquisition of Hardee's in July 1997 allowed it to significantly expand the scope of its operations and to become one of the leading nationwide operators of quick-service hamburger restaurants. The Company has begun implementing a plan to meaningfully improve the profitability and sales of Hardee's in an effort to improve Hardee's poor recent historical performance. The Company's plan includes many of the operating initiatives which it used to improve the operations of its Carl's Jr. restaurants, including implementing CKE's management practices, improving the quality of food, enhancing the quality of service, updating restaurant facilities and managing costs more effectively. The Company believes that the FEI Acquisition will enable it to continue to expand the scope of its operations and to exercise further control over its Hardee's restaurant system. As a result of the FEI Acquisition, 1,420 of the 3,038 Hardee's restaurants operated as of January 26, 1998 are presently operated by the Company, representing 46.7% of the Hardee's system, and giving the Company control of 48 of Hardee's 98 broadcast cooperative advertising markets. The Company believes it can meaningfully improve the same-store sales trends and profitability levels at FEI's Hardee's restaurants by implementing the strategies that it has used to improve the operations of its Carl's Jr. restaurants and is beginning to implement at its other Company-operated Hardee's restaurants. The Company's revenues are derived primarily from sales by Company-operated restaurants and revenues from franchisees, including franchise and royalty fees, sales to Carl's Jr. franchisees and licensees of food and packaging products, rentals under real property leases and revenues from the sale of equipment. 18 21 Restaurant operating expenses consist primarily of food and packaging costs, payroll and other employee benefits and occupancy and other operating expenses of Company-operated restaurants. Operating costs of the Company's franchised and licensed restaurants include the cost of food and packaging products sold to Carl's Jr.'s franchisees and licensees and lease payments on properties subleased to the Company's franchisees. Other operating expenses, including advertising expenses and general and administrative expenses, relate to Company-operated restaurants as well as franchisee and licensee operations. The Company's revenues and expenses are directly affected by the number and sales volumes of Company-operated restaurants and, to a lesser extent, franchised and licensed restaurants. RESULTS OF OPERATIONS The following table sets forth the percentage relationship to total revenues, unless otherwise indicated, of certain items included in the Company's consolidated statements of income for the years indicated:
FISCAL YEAR ENDED JANUARY 31, ------------------------------ 1998(1) 1997(2) 1996 -------- -------- ------ Revenues: Company-operated restaurants............................ 88.9% 87.5% 84.7% Franchised and licensed restaurants and other........... 11.1 12.5 15.3 ----- ----- ----- Total revenues....................................... 100.0% 100.0% 100.0% ===== ===== ===== Operating costs and expenses: Restaurant operations(3): Food and packaging................................... 30.7% 30.6% 30.1% Payroll and other employee benefits.................. 30.5 27.9 27.9 Occupancy and other operating expenses............... 20.2 20.6 20.8 ----- ----- ----- 81.4 79.1 78.8 Franchised and licensed restaurants and other(4)........ 73.7 94.9 97.3 Advertising expenses(3)................................. 5.7 5.9 5.8 General and administrative expenses..................... 6.9 6.5 7.6 Operating income.......................................... 7.5 7.2 5.8 Interest expense.......................................... (1.5) (1.6) (2.1) Other income, net......................................... 0.7 0.4 0.2 ----- ----- ----- Income before income taxes................................ 6.7 6.0 3.9 Income tax expense........................................ 2.6 2.4 1.5 ----- ----- ----- Net income................................................ 4.1% 3.6% 2.4% ===== ===== =====
- --------------- (1) Fiscal 1998 includes operating results of Hardee's from and after July 15, 1997. (2) Fiscal 1997 includes $94.3 million of revenues generated from other restaurant concepts acquired by the Company during fiscal 1997. (3) As a percentage of revenues from Company-operated restaurants. (4) As a percentage of revenues from franchised and licensed restaurants and other. REVENUES Company-operated Restaurants. Revenues from Company-operated restaurants increased $485.6 million or 90.5% to $1.022 billion in fiscal 1998 as compared with fiscal 1997. Carl's Jr. Company-operated revenues for the year accounted for sales increases of $45.2 million. Additionally, the Company's Hardee's and Taco Bueno restaurants contributed $339.9 million and $51.8 million, respectively, to the increase. Offsetting these increases is the loss of revenues from the Company's HomeTown Buffet and Casa Bonita restaurants that were disposed of in connection with the initial public offering of Star Buffet in September 1997. On a same-store sales basis, the Company's Carl's Jr. sales, which are calculated using only restaurants in operation 19 22 for the full years being compared, increased 4.8%, marking the third consecutive annual increase in same-store sales for the Carl's Jr. chain. Same-store sales for the Company-operated Taco Bueno restaurants increased 6.2%, while same-store sales from Company-operated Hardee's restaurants decreased 7.2% since the date of acquisition. The decrease in same-store sales for Hardee's can be attributed to several factors, including the paring down of Hardee's oversized menu and the discontinuation of monthly new product introductions. The increase in revenues from Company-operated Carl's Jr. restaurants is primarily the result of continued momentum in the Company's various sales enhancement programs, including the continuation of conversion of its existing Carl's Jr. locations into Carl's Jr./Green Burrito dual-brand restaurants, the continued focus on promoting great-tasting new and existing food products through increased innovative advertising, and the image enhancement of its restaurants through a chain-wide remodeling program. Also contributing to the increase in sales at the Carl's Jr. restaurants was the introduction of the Charbroiled Sirloin Steak Sandwich in the fourth quarter of fiscal 1998 which has recorded the highest sales levels for a new product offering in the past 11 years. Average unit volumes in Company-operated Carl's Jr. restaurants continue to rise and reached $1,157,000 for the trailing 52-week period while average unit volumes at Company-operated Hardee's and Taco Bueno restaurants ended the fiscal year at $803,000 and $685,000 for the trailing 52-week period, respectively. The Company's revenues from Company-operated restaurants increased $143.3 million or 36.4% to $536.8 million in fiscal 1997 compared with $393.5 million in fiscal 1996. Company-operated Carl's Jr. restaurants accounted for $54.1 million of the increase, while the Company's other restaurant concepts acquired in fiscal 1997 contributed an additional $93.5 million to revenues, with the Company's Taco Bueno restaurants accounting for $22.1 million of the additional revenues. Fiscal 1996 revenues included approximately $4.3 million from the Company's Boston Market operations. The increase in revenues from Company- operated Carl's Jr. restaurants was largely due to the continued effect of the various sales enhancement programs that were implemented in fiscal 1996. The 10.7% same-store sales increase in fiscal 1997 was the second consecutive annual same-store sales increase and the highest same-store sales increase reported by the Company's Carl's Jr. chain in nearly a decade. An increase in the number of Company-operated restaurants operating in fiscal 1997 as compared with the prior year also contributed to the increase in revenues from Company-operated Carl's Jr. restaurants. Franchised and Licensed Restaurants and Other. The Company's revenues from franchised and licensed restaurants for fiscal 1998 increased $50.6 million or 66.1% to $127.2 million over fiscal 1997. This increase is principally due to the royalties earned by Hardee's franchise system, equipment sales to Hardee's franchisees and to increased royalties from, and food purchases by, franchisees and licensees of Carl's Jr. as a result of higher sales volume at franchised and licensed Carl's Jr. restaurants. Fiscal 1997 revenues from franchised and licensed restaurants increased $5.4 million, or 7.6%, to $76.6 million over fiscal 1996. The fiscal 1997 increase was primarily due to increased royalties from, and food purchases by, franchisees as they experienced increased sales trends similar to those the Company experienced in its Company-operated restaurants. This increase in sales was offset by a decrease in the number of franchised and licensed Carl's Jr. restaurants in operation during fiscal 1997 as compared with fiscal 1996. OPERATING COSTS AND EXPENSES Restaurant Operations. Restaurant-level margins of the Company's consolidated restaurant operations decreased in fiscal 1998 by 2.3% as compared with fiscal 1997, primarily reflecting the impact of typically higher operating costs at the Company's family-style restaurant concepts, which were acquired in the second quarter of fiscal 1997 and at Hardee's quick-service hamburger restaurants, which were acquired in the second quarter of fiscal 1998. The family-style segment of the restaurant industry typically has lower margins than the quick-service segment of the industry, mainly due to increased labor and food costs. Although Hardee's restaurant-level margins are substantially lower than the Company's other quick-service restaurant concepts, the Company has increased Hardee's Company-operated restaurant-level margins in the fourth quarter of fiscal 1998 to 12.8% compared with 1.5% for the comparable period of the prior year for restaurants open and operating as of December 31, 1996. The Company has accomplished this reduction of costs through many of the same cost-saving measures it implemented at its Carl's Jr. restaurants over the past three to four years, 20 23 including: the introduction of the Carl's Jr. labor matrix to refine labor usage; a focus on safety and accident prevention as a method of lowering workers' compensation costs; the reduction of food waste and theft tolerance levels; and the use of substantial purchasing synergies to lower food and paper costs. Also contributing to the increase in restaurant-level margins since acquisition is the simplification of the Hardee's menu and conforming Hardee's depreciation policies with those of the Company. While the Company's consolidated restaurant-level margins decreased in fiscal 1998, continued cost-saving strategies at the Company's Carl's Jr. restaurants have caused restaurant-level margins for the Carl's Jr. restaurant chain to continue to increase. These margins, as a percentage of revenues from Company-operated Carl's Jr. restaurants, were 24.2%, 23.1% and 21.3% in fiscal 1998, 1997, and 1996, respectively. These improved results in the Company's Carl's Jr. 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 increased purchasing synergies for food and paper, improved labor productivity and reduced workers' compensation costs. The Company's Carl's Jr. food and packaging costs have remained relatively consistent at 29.9%, 30.2% and 30.0% of revenues from Company-operated Carl's Jr. restaurants for fiscal 1998, 1997 and 1996, respectively. During fiscal 1998, food costs decreased marginally due to the purchasing economies the Carl's Jr. chain has achieved as a result of the consolidated buying power directly resulting from the addition of its other restaurant concepts. Partially offsetting these purchasing economies realized in fiscal 1998, and contributing to the slight increase in food costs in fiscal 1997, was increased pressure from commodity prices and a change in the product mix as a result of the promotion of larger, more expensive sandwiches such as the Charbroiled Sirloin Steak Sandwich, which was introduced in the fourth quarter of fiscal 1998, and the Crispy Chicken Sandwiches, which were introduced in the third quarter of fiscal 1996. Payroll and other employee benefits for the Company's Carl's Jr. restaurant chain as a percentage of revenues from Company-operated Carl's Jr. restaurants decreased 0.8% in fiscal 1998 to 25.7% and decreased 1.4% in fiscal 1997 to 26.5%. These reductions in payroll and employee benefits were achieved despite the October 1996 and September 1997 increases in the federal minimum wage and the additional March 1997 increase in California minimum wage levels. The cost reductions came primarily as a result of labor productivity programs implemented during fiscal 1996 to further decrease costs and improve direct labor efficiencies. Further, the new safety and other programs added by the Company during fiscal 1994, in conjunction with changes in state regulations, have resulted in a decrease in work-related injuries and reduced the Company's workers' compensation claims and losses during fiscal 1998 and 1997. Many of the Company's employees are paid hourly rates related to the federal and state minimum wage laws. Legislation increasing the minimum wage in October 1996 and September 1997 has resulted in higher labor costs to the Company and its franchisees. Moreover, as a result of recent legislation in California, the California state minimum wage was increased effective March 1997. The Company anticipates that any future increases in the minimum wage may be offset through pricing and other cost-control efforts; however, there can be no assurance that the Company or its franchisees will be able to pass such additional costs on to customers in whole or in part. Carl's Jr. occupancy and other operating expenses, as a percentage of revenues from Company-operated Carl's Jr. restaurants, were 20.2%, 20.2% and 20.8% in fiscal 1998, 1997 and 1996, respectively. A portion of occupancy and other operating expenses are fixed in nature, and thus as a percentage of Company-operated revenues, they fall as revenues rise. These costs increased in fiscal 1998 as compared with fiscal 1997 primarily due to increased equipment costs as the Company implements updated data technology at its restaurants and increased utility and depreciation expenses in connection with the image enhancement of the Company's Carl's Jr. restaurants. The decrease as a percentage of Company-operated restaurants in fiscal 1997 as compared with fiscal 1996 is largely due to the Company's efforts to maintain costs at the prior fiscal year levels in conjunction with the fixed nature of the expenses and the increase in revenues in fiscal 1997. Franchised and Licensed Restaurants and Other. Franchised and licensed restaurant costs increased 29.0% in fiscal 1998 to $93.8 million as compared with fiscal 1997. This increase is primarily due to the additional costs associated with the Hardee's franchise operations in addition to increased food purchases by 21 24 Carl's Jr. franchisees and licensees. As a percentage of revenues from franchised and licensed restaurants, these costs decreased 21.2% in fiscal 1998 over fiscal 1997. This decrease is mainly due to the nature of the Hardee's franchise revenues, which principally arise from royalties paid by its franchisees, in contrast with the revenues from Carl's Jr. franchisees and licensees, which are primarily derived from both royalties paid and food purchases by franchisees. As a result, the cost structure associated with Hardee's revenue from franchised and licensed restaurants is substantially lower than that associated with the Carl's Jr. franchise operations. Franchised and licensed restaurant costs in fiscal 1997 increased 5.0% to $72.7 million. These costs followed a similar trend to the revenues from franchise and licensed restaurants, with the overall increase in fiscal 1997 primarily due to increased food purchases by Carl's Jr. franchisees, partially offset by a decrease in the number of franchised and licensed restaurants in operation in fiscal 1997 as compared with the prior year. Advertising Expenses. Advertising expenses increased $26.6 million in fiscal 1998 over fiscal 1997, and $8.8 million in fiscal 1997 as compared with fiscal 1996, while remaining relatively consistent as a percentage of revenues from Company-operated restaurants. The increase in advertising expenses in fiscal 1998 is principally due to the additional advertising support for the newly acquired concepts. In fiscal 1997, as compared with fiscal 1996, the Company spent more on advertising production and increased the number of weeks on electronic media. The Company has experienced positive same-store sales growth in its Carl's Jr. restaurants in 11 consecutive quarters since the Company hired a new advertising agency and began its innovative advertising campaign in May 1995, which focuses on Carl's Jr. superior quality products. General and Administrative Expenses. General and administrative expenses increased $38.9 million and $4.7 million in fiscal 1998 and 1997 to $78.9 million and $40.0 million, respectively. As a percentage of total revenues, general and administrative expenses were 6.9%, 6.5% and 7.6% in fiscal 1998, 1997 and 1996, respectively. The increase in fiscal 1998 is primarily the result of adding the expenses associated with the support of the Hardee's restaurant operations. Hardee's general and administrative expenses as a percentage of total revenues were approximately 7.6% for fiscal 1998 as compared with 10.7% of Hardee's total revenues at the end of calendar year 1996 under previous ownership. General and administrative expenses have also increased in both fiscal 1998 and fiscal 1997 due to recording incentive compensation accruals for regional restaurant management and selected corporate employees as a result of improved operating performance. Also contributing to the increase in fiscal 1997 were increased amortization expenses and various corporate legal expenses. The decrease in general and administrative expenses as a percentage of total revenues in fiscal 1997 over fiscal 1996 was primarily attributable to the economies of scale the Company achieved by collapsing certain costs from acquired businesses into the Company's existing infrastructure. INTEREST EXPENSE Interest expense for fiscal 1998 increased $7.0 million to $16.9 million as compared with fiscal 1997 primarily as a result of additional borrowings required to complete the Hardee's acquisition and the write-off of certain loan fees associated with the termination or repayment of the Company's previous credit agreements, partially offset by a reduction in interest rates. Interest expense in fiscal 1997 decreased 1.3% to $9.9 million as compared with fiscal 1996 as a result of lower levels of borrowings outstanding during fiscal 1997, the prepayment of certain indebtedness early in fiscal 1997 and lower interest rates. OTHER INCOME, NET Other income, net, is mainly comprised of interest income, lease income, dividend income, gains and losses on sales of restaurants, income and loss on long-term investments, property management expenses and other non-recurring income and expenses. Other income, net, increased $4.9 million and $1.5 million in fiscal 1998 and fiscal 1997, respectively, as compared with the prior years. This increase in fiscal 1998 generally resulted from interest income earned on the Company's note receivable from Checkers and amortization of the related discount along with lease and dividend income recorded from the Company's long-term investment in Boston West. The fiscal 1997 increase was primarily due to increased property management expenses and a gain on the sale of restaurants in fiscal 1997 as compared with a loss in the prior year. Moreover, included in fiscal 1996 was a $1.9 million decrease in the Company's Boston Market investment which resulted from the 22 25 Company recording its pro-rata share of the losses from Boston West. (See Note 6 of Notes to Consolidated Financial Statements.) FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreased $15.9 million to $30.4 million in fiscal 1998. Total cash provided by operating activities increased $17.3 million to $74.3 million, which was primarily due to increased revenues from the Company's newly acquired concepts and increased revenues and improved operating margins from the Company's Carl's Jr. operations. Investing activities required the Company to use $428.5 million in cash to fund capital additions of $89.2 million, to fund the Company's investment in Checkers of $14.1 million, to complete the acquisition of Hardee's for $320.6 million (net of cash acquired) and to complete the acquisitions of certain Hardee's franchised restaurants. The cash required for these investing activities was partially funded by cash proceeds of $16.3 million (net of cash surrendered) from the sale of shares by the Company and the disposition of its HomeTown Buffet and Casa Bonita restaurants in connection with the initial public offering of Star Buffet and $11.9 million from the sale of property and equipment and from the collection on and sale of notes receivable, related party receivables and leases receivable. Financing activities provided the Company with $338.2 million, primarily through cash proceeds of $222.3 million from the Company's common stock offering. (See Note 11 of Notes to Consolidated Financial Statements.) The increase in total borrowings of $151.5 million, together with cash flows from operations and cash proceeds from the common stock offering were used primarily to complete the acquisition of Hardee's, to repay existing indebtedness, to fund the Company's capital expenditures for the conversion of certain of its Hardee's restaurants to dual-brand Carl's Jr./Hardee's restaurants in selected markets, to repurchase certain Hardee's franchised restaurants, to make $7.5 million in required principal repayments under the term loan portion of the Company's credit facility and to repay $5.0 million under its revolving credit facility. Additionally, the Company generated cash from the exercise of stock options of approximately $3.8 million and used cash to repay capital lease obligations of $5.0 million and pay dividends of $3.0 million. Effective July 15, 1997, the Company entered into a new Senior Credit Facility which replaced an unsecured bank credit facility arranged for the Company in July 1996. On July 15, 1997, the Company incurred $75.0 million of borrowings under the Term Loan Facility and $58.9 million of borrowings under the Revolving Credit Facility to fund a portion of the consideration needed to acquire Hardee's. As of January 26, 1998, $67.5 million of borrowings remained outstanding under the Term Loan Facility and $71.0 million of borrowings remained outstanding under the Revolving Credit Facility. On April 1, 1998, the Company amended the Senior Credit Facility to increase the aggregate principal amounts of the lenders' commitments under the Term Loan Facility to $250.0 million and under the Revolving Credit Facility to $250.0 million, which includes a $65.0 million letter of credit subfacility, and to extend the final maturity to April 2003. On April 1, 1998, the Company incurred borrowings of $213.2 million under the Senior Credit Facility to finance a portion of the purchase price of the FEI Acquisition. Principal repayments under the Term Loan Facility are due in quarterly installments commencing in June 1998 and continuing thereafter until the final maturity of the Senior Credit Facility in April 2003, resulting in annual reductions of $20.0 million in the first year of the Term Loan Facility and annual reductions thereafter ranging from $40.0 million to $70.0 million. Additional borrowings under the Revolving Credit Facility may be used for working capital and other general corporate purposes, including permitted investments and acquisitions, and any outstanding amounts thereunder will become due in April 2003. The Company will be required to repay borrowings under the Senior Credit Facility with the proceeds from certain asset sales (unless the net proceeds of such sales are reinvested in the Company's business), from the issuance of certain equity securities or from the issuance of additional indebtedness. Of the various options the Company has regarding interest rates, it has selected LIBOR plus a margin, with future margin adjustments dependent on certain financial ratios from time to time. 23 26 Borrowings and other obligations of the Company under the Senior Credit Facility are general unsubordinated obligations of the Company and secured by a pledge of the capital stock of certain of the Company's present and future subsidiaries, which subsidiaries guarantee such borrowings and other obligations, and are secured by certain franchise rights, accounts receivable, contract rights, general intangibles (including trademarks) and other assets of the Company and such subsidiaries. The Senior Credit Facility contains a number of significant covenants that, among other things, (i) restrict the ability of the Company and its subsidiaries to incur additional indebtedness and incur liens on their assets, in each case subject to specified exceptions, (ii) impose specified financial tests as a precondition to the Company's and its subsidiaries' acquisition of other businesses and (iii) limit the Company and its subsidiaries from making capital expenditures and certain restricted payments (including dividends and repurchases of stock), subject in certain circumstances to specified financial tests. In addition, the Company is required to comply with specified financial ratios and tests, including minimum EBITDA requirements, minimum interest coverage and fixed charge coverage ratios, minimum consolidated tangible net worth requirements and maximum leverage ratios. On March 13, 1998, the Company completed a private placement of $197.2 million aggregate principal amount of convertible subordinated notes, in which the Company received net proceeds of approximately $192.3 million, of which $24.1 million was used to repay indebtedness under the Term Loan Facility. The Notes, which represent unsecured general obligations of the Company subordinate in right of payment to certain other obligations, are due in 2004, are convertible into the Company's common stock at an initial conversion price of $48.204 and carry a 4.25% coupon. The remaining net proceeds from the Notes, together with borrowings under the Senior Credit Facility were used to fund the acquisition of FEI on April 1, 1998. The Company's primary source of liquidity is its revenues from Company-operated restaurants, which are generated in cash. Future capital needs will arise primarily for the construction of new restaurants, the remodeling of existing restaurants, the repurchase of certain Hardee's restaurants from franchisees, the conversion of certain restaurants to the Carl's Jr./Green Burrito and Carl's Jr./serving Hardee's breakfast dual-brand concepts and capital expenditures to be incurred in connection with the Company's integration of Hardee's and FEI. During fiscal 1999, the Company expects to incur approximately $160.0 million in capital expenditures. In addition, the Company and Imasco Holdings continue to discuss certain post-closing purchase price adjustments arising from the Hardee's acquisition. The Company believes that any payments required as a result of such purchase price adjustments will not materially affect the Company's financial condition. The Company typically maintains current liabilities in excess of current assets, because the quick-service restaurant business generally receives immediate payment for sales, while inventories and other current liabilities normally carry longer payment terms (usually 15 to 30 days). The Company believes that cash generated from its various restaurant operations, along with cash and cash equivalents on hand as of January 26, 1998, and amounts available under the Senior Credit Facility will provide the Company with the funds necessary to meet all of its capital spending and working capital requirements for the foreseeable future. If those sources of capital are insufficient to satisfy the Company's capital spending and working capital requirements, or if the Company determines to make any significant acquisition of or investments in other businesses, the Company may be required to sell additional equity or debt securities or obtain additional credit facilities. In addition, substantially all of the real properties owned by the Company and used for its restaurant operations are unencumbered and could be used by the Company as collateral for additional debt financing; however, there can be no assurance that real estate financing or other financing can be obtained on terms acceptable to the Company. Sales, if any, of additional equity or debt securities could result in additional dilution to the Company's stockholders. YEAR 2000 The Company is currently working to resolve the potential impact of the year 2000 on the processing of data-sensitive information by the Company's computerized information systems. The year 2000 problem is the result of computer programs being written using two digits (rather than four) to define the applicable year. 24 27 Any of the Company's programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in miscalculations or system failures. Based on preliminary information, costs of addressing potential problems are not currently expected to have a material adverse impact on the Company's financial position, results of operations or cash flows in future periods. However, the inability of the Company or its suppliers or distributors and other vendors to resolve such processing issues in a timely manner could have a material adverse impact on the Company. Accordingly, the Company plans to devote the necessary resources to resolve all significant year 2000 issues in a timely manner. IMPACT OF INFLATION Management recognizes that inflation has an impact on food, construction, labor and benefit costs, all of which can significantly affect the Company's operations. Historically, the Company has been able to pass any associated higher costs due to these inflationary factors along to its customers because those factors have impacted nearly all restaurant companies. During fiscal 1998 and fiscal 1997, however, management has emphasized cost controls rather than price increases, given the competitive pressure within the quick-service restaurant industry. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for the reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. SFAS 130 requires all items that are required to be recognized under accounting standards as components of comprehensive income to be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS 130 does not require a specific format for that financial statement but requires that an enterprise display an amount representing total comprehensive income for the period covered by that financial statement. SFAS 130 requires an enterprise to (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. SFAS 130 is effective for fiscal years beginning after December 15, 1997. Management has determined that SFAS 130 will not have a material impact on the Company's reporting of its consolidated financial position or results of operations and requires only additional disclosure. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for public business enterprises to report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. This statement supersedes FASB Statement No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains the requirement to report information about major customers. It amends FASB Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to remove the special disclosure requirements for previously unconsolidated subsidiaries. SFAS 131 requires, among other items, that a public business enterprise report a measure of segment profit or loss, certain specific revenue and expense items, and segment assets, information about the revenues derived from the enterprise's products or services, and major customers. SFAS 131 also requires that the enterprise report descriptive information about the way that the operating segments were determined and the products and services provided by the operating segments. SFAS 131 is effective for financial statements for periods beginning after December 15, 1997. In the initial year of application, comparative information for earlier years is to be restated. SFAS 131 need not be applied to interim financial statements in the initial year of its application, but comparative information for interim periods in the initial year of application is to be reported in financial statements for interim periods in the second year of application. Management has not determined whether the adoption of SFAS 131 will have a material impact on the Company's segment reporting. 25 28 In December 1997, the American Institute of Certified Public Accountants approved for issuance the Statement of Position ("SOP"), Reporting on the Costs of Start-Up Activities. The SOP requires that costs incurred during a start-up activity (including organization costs) be expensed as incurred. The SOP is effective for fiscal years beginning after December 15, 1998. The Company currently amortizes pre-opening costs over one year from the time they are incurred. Management does not believe the impact of the adoption of this SOP on the Company's consolidated financial position or results of operations will be material. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Index included at "Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K." ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information pertaining to directors and executive officers of the registrant is hereby incorporated by reference to the Company's Proxy Statement to be used in connection with the Company's 1998 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 26, 1998. Information concerning the current executive officers of the Company is contained in Item 1 of Part I of this Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information pertaining to executive compensation is hereby incorporated by reference to the Company's Proxy Statement to be used in connection with the Company's 1998 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 26, 1998. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information pertaining to security ownership of certain beneficial owners and management is hereby incorporated by reference to the Company's Proxy Statement to be used in connection with the Company's 1998 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 26, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information pertaining to certain relationships and related transactions is hereby incorporated by reference to the Company's Proxy Statement to be used in connection with the Company's 1998 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 26, 1998. 26 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CKE RESTAURANTS, INC. By: /s/ WILLIAM P. FOLEY II ------------------------------------ William P. Foley II Chairman of the Board and Chief Executive Officer Date: April 22, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ WILLIAM P. FOLEY II Chairman of the Board and Chief Executive April 22, 1998 - ------------------------------------ Officer (Principal Executive Office) William P. Foley II /s/ CARL A. STRUNK Executive Vice President, Chief Financial April 22, 1998 - ------------------------------------ Officer (Principal Financial and Carl A. Strunk Accounting Officer) /s/ BYRON ALLUMBAUGH Director April 22, 1998 - ------------------------------------ Byron Allumbaugh /s/ PETER CHURM Director April 22, 1998 - ------------------------------------ Peter Churm /s/ CARL L. KARCHER Director April 22, 1998 - ------------------------------------ Carl L. Karcher /s/ CARL N. KARCHER Director April 22, 1998 - ------------------------------------ Carl N. Karcher /s/ DANIEL D. LANE Vice Chairman of the Board April 22, 1998 - ------------------------------------ Daniel D. Lane /s/ W. HOWARD LESTER Director April 22, 1998 - ------------------------------------ W. Howard Lester /s/ FRANK P. WILLEY Director April 22, 1998 - ------------------------------------ Frank P. Willey
27 30 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGE NUMBER ------ (A)(1) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS: Independent Auditors' Report................................ F-1 Consolidated Balance Sheets -- as of January 31, 1998 and F-2 1997........................................................ Consolidated Statements of Income -- for the years ended F-3 January 31, 1998, 1997 and 1996............................. Consolidated Statements of Stockholders' Equity -- for the F-4 years ended January 31, 1998, 1997 and 1996................. Consolidated Statements of Cash Flows -- for the years ended F-5 January 31, 1998, 1997 and 1996............................. Notes to Consolidated Financial Statements.................. F-6 (A)(2) INDEX TO FINANCIAL STATEMENT SCHEDULES: All schedules are omitted since the required information is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto. (A)(3) EXHIBITS: An "Exhibit Index" has been filed as a part of this Form 10-K beginning on page E-1 hereof and is incorporated herein by reference. (B) CURRENT REPORTS ON FORM 8-K: None.
28 31 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders CKE Restaurants, Inc. and Subsidiaries: We have audited the accompanying consolidated financial statements of CKE Restaurants, Inc. and Subsidiaries as listed in the accompanying index. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CKE Restaurants, Inc. and Subsidiaries as of January 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended January 31, 1998 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Orange County, California March 17, 1998, except for Note 9 and Note 22, relating to the amendment to the Company's Senior Credit Facility and acquisition of Flagstar Enterprises, Inc., which are as of April 1, 1998. F-1 32 CKE RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
JANUARY 31, ---------------------- 1998 1997 --------- --------- (DOLLARS IN THOUSANDS) Current assets: Cash and cash equivalents................................. $ 30,382 $ 46,330 Accounts receivable....................................... 27,317 7,942 Related party receivables................................. 1,171 2,088 Inventories............................................... 17,024 9,223 Deferred income taxes, net................................ -- 7,214 Prepaid expenses.......................................... 13,045 6,232 Other current assets...................................... 3,217 1,168 -------- -------- Total current assets.............................. 92,156 80,197 Property and equipment, net................................. 627,026 208,099 Property under capital leases, net.......................... 47,528 37,115 Long-term investments....................................... 48,089 33,268 Notes receivable............................................ 11,162 6,210 Related party receivables................................... 7,626 9,325 Costs in excess of net assets acquired, net................. 95,744 25,560 Other assets................................................ 28,037 10,593 -------- -------- $957,368 $410,367 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt......................... $ 15,812 $ 735 Current portion of capital lease obligations.............. 5,499 4,347 Accounts payable.......................................... 60,303 41,515 Deferred income taxes, net................................ 5,675 -- Other current liabilities................................. 89,195 36,527 -------- -------- Total current liabilities......................... 176,484 83,124 -------- -------- Long-term debt.............................................. 138,793 33,770 Capital lease obligations................................... 56,801 48,141 Other long-term liabilities................................. 86,778 30,528 Stockholders' equity: Preferred stock, $.01 par value; authorized 5,000,000 shares; none issued or outstanding..................... -- -- Common stock, $.01 par value; authorized 100,000,000 shares; issued and outstanding 46,523,179 shares and 36,540,626 shares...................................... 465 365 Additional paid-in capital................................ 366,110 126,246 Retained earnings......................................... 131,937 88,193 -------- -------- Total stockholders' equity........................ 498,512 214,804 -------- -------- $957,368 $410,367 ======== ========
See accompanying notes to consolidated financial statements. F-2 33 CKE RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
FISCAL YEAR ENDED JANUARY 31, ---------------------------------------- 1998 1997 1996 ------------ ---------- ---------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Revenues: Company-operated restaurants: Carl's Jr............................................ $ 488,495 $443,304 $389,214 Hardee's............................................. 339,942 -- -- Taco Bueno........................................... 73,982 22,146 -- JB's Restaurants..................................... 64,820 33,517 -- HomeTown Buffet...................................... 27,496 20,590 -- Other................................................ 27,718 17,251 4,272 ---------- -------- -------- 1,022,453 536,808 393,486 ---------- -------- -------- Franchised and licensed restaurants and other: Carl's Jr............................................ 80,730 75,785 71,181 Hardee's............................................. 45,295 -- -- Other................................................ 1,181 787 -- ---------- -------- -------- 127,206 76,572 71,181 ---------- -------- -------- Total revenues.................................. 1,149,659 613,380 464,667 ---------- -------- -------- Operating costs and expenses: Restaurant operations: Food and packaging................................... 314,412 164,120 118,244 Payroll and other employee benefits.................. 311,612 149,846 109,943 Occupancy and other operating expenses............... 206,436 110,828 82,004 ---------- -------- -------- 832,460 424,794 310,191 Franchised and licensed restaurants and other........... 93,773 72,696 69,263 Advertising expenses.................................... 58,383 31,795 22,975 General and administrative expenses..................... 78,852 39,956 35,238 ---------- -------- -------- Total operating costs and expenses.............. 1,063,468 569,241 437,667 ---------- -------- -------- Operating income.......................................... 86,191 44,139 27,000 Interest expense.......................................... (16,914) (9,877) (10,004) Other income, net......................................... 7,363 2,448 957 ---------- -------- -------- Income before income taxes................................ 76,640 36,710 17,953 Income tax expense........................................ 29,883 14,408 7,001 ---------- -------- -------- Net income................................................ $ 46,757 $ 22,302 $ 10,952 ========== ======== ======== Net income per share -- basic............................. $ 1.10 $ 0.69 $ 0.36 ========== ======== ======== Weighted average shares outstanding -- basic.............. 42,394 32,399 30,211 ========== ======== ======== Net income per common and common equivalent share -- diluted........................................ $ 1.07 $ 0.67 $ 0.36 ========== ======== ======== Common and common equivalent shares used in computing per share amounts -- diluted................................ 43,747 33,276 30,555 ========== ======== ========
See accompanying notes to consolidated financial statements. F-3 34 CKE RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK TREASURY STOCK ------------------ ------------------- ADDITIONAL TOTAL NUMBER OF NUMBER OF PAID-IN RETAINED STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY --------- ------ --------- ------- ---------- -------- ------------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) BALANCE AT JANUARY 31, 1995.... 31,094 $311 974 $(4,558) $ 34,996 $ 57,725 $ 88,474 Cash dividends ($.05 per share).......... -- -- -- -- -- (1,460) (1,460) Exercise of stock options.... 586 6 -- -- 2,744 -- 2,750 Purchase of treasury stock... -- -- 132 (551) -- -- (551) Tax benefit associated with exercise of stock options................... -- -- -- -- 848 -- 848 Net unrealized gain on investment securities..... -- -- -- -- -- 176 176 Net income................... -- -- -- -- -- 10,952 10,952 ------ ---- ------ ------- -------- -------- -------- BALANCE AT JANUARY 31, 1996.... 31,680 317 1,106 (5,109) 38,588 67,393 101,189 Cash dividends ($.05 per share).......... -- -- -- -- -- (1,514) (1,514) Exercise of stock options.... 396 4 -- -- 2,226 -- 2,230 Purchase of Summit........... 827 8 -- -- 11,403 -- 11,411 Common stock offering, net... 4,744 47 -- -- 77,568 -- 77,615 Retirement of treasury stock..................... (1,106) (11) (1,106) 5,109 (5,098) -- -- Tax benefit associated with exercise of stock options................... -- -- -- -- 1,559 -- 1,559 Net unrealized gain on investment securities..... -- -- -- -- -- 12 12 Net income................... -- -- -- -- -- 22,302 22,302 ------ ---- ------ ------- -------- -------- -------- BALANCE AT JANUARY 31, 1997.... 36,541 365 -- -- 126,246 88,193 214,804 Cash dividends ($.07 per share).......... -- -- -- -- -- (3,013) (3,013) Exercise of stock options.... 540 5 -- -- 3,787 -- 3,792 Purchase of Hardee's Green Bay, Inc.................. 271 3 -- -- 9,402 -- 9,405 Common stock offering, net... 9,171 92 -- -- 222,252 -- 222,344 Tax benefit associated with exercise of stock options................... -- -- -- -- 4,423 -- 4,423 Net income................... -- -- -- -- -- 46,757 46,757 ------ ---- ------ ------- -------- -------- -------- BALANCE AT JANUARY 31, 1998.... 46,523 $465 -- $ -- $366,110 $131,937 $498,512 ====== ==== ====== ======= ======== ======== ========
See accompanying notes to consolidated financial statements. F-4 35 CKE RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED JANUARY 31, -------------------------------- 1998 1997 1996 --------- --------- -------- (DOLLARS IN THOUSANDS) Net cash flows from operating activities: Net income................................................ $ 46,757 $ 22,302 $ 10,952 Adjustments to reconcile net income to net cash provided by operating activities, excluding the effect of acquisitions and dispositions: Depreciation and amortization.......................... 46,402 27,002 21,372 Provision for losses on accounts and notes receivable........................................... 2,729 300 313 Loss on sale of property and equipment and capital leases............................................... 4,657 1,520 1,850 Net non-cash investment and dividend income............ (3,029) (1,257) 1,047 Deferred income taxes.................................. 12,889 7,637 2,197 (Gain) loss on non-current asset and liability transactions......................................... (5,632) 151 209 Write-down of long-lived assets........................ -- 1,250 -- Net change in receivables, inventories and other current assets....................................... (13,682) (6,178) (288) Net change in accounts payable and other current liabilities.......................................... (16,754) 4,261 (4,781) --------- --------- -------- Net cash provided by operating activities......... 74,337 56,988 32,871 --------- --------- -------- Cash flows from investing activities: Purchases of: Marketable securities.................................. (393) (760) (921) Property and equipment................................. (89,210) (49,223) (27,234) Long-term investments.................................. (14,294) (7,905) (1,670) Proceeds from sale of: Marketable securities and long-term investments........ 393 5,418 1,972 Property and equipment................................. 5,952 7,816 905 Increases in notes receivable and related party receivables............................................ (200) (14,020) (2,640) Collections on and sale of notes receivable, related party receivables and leases receivable...................... 5,946 3,842 9,901 Net change in other assets................................ (1,674) (6,109) (189) Acquisitions, net of cash acquired........................ (351,294) (52,123) -- Dispositions, net of cash surrendered..................... 16,286 -- -- --------- --------- -------- Net cash used in investing activities............. (428,488) (113,064) (19,876) --------- --------- -------- Cash flows from financing activities: Net proceeds from common stock offering................... 222,344 77,615 -- Net change in bank overdraft.............................. 4,325 12,690 (9,909) Short-term borrowings..................................... 20,000 1,200 57,060 Repayments of short-term debt............................. (12,500) (1,200) (57,060) Long-term borrowings...................................... 131,489 78,000 14,573 Repayments of long-term debt.............................. (20,570) (86,274) (11,151) Repayments of capital lease obligations................... (4,956) (3,363) (3,129) Deferred financing costs.................................. (4,426) (657) (141) Net change in other long-term liabilities................. (2,705) (1,943) 3,384 Purchase of treasury stock................................ -- -- (551) Payment of dividends...................................... (3,013) (1,514) (1,460) Exercise of stock options................................. 3,792 2,230 2,750 Tax benefit associated with the exercise of stock options................................................ 4,423 1,559 848 --------- --------- -------- Net cash provided by (used in) financing activities...................................... 338,203 78,343 (4,786) --------- --------- -------- Net increase (decrease) in cash and cash equivalents...... $ (15,948) $ 22,267 $ 8,209 ========= ========= ========
See accompanying notes to consolidated financial statements. F-5 36 CKE RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES A summary of certain significant accounting policies not disclosed elsewhere in the footnotes to the consolidated financial statements is set forth below. Description of Business CKE Restaurants, Inc. ("CKE" or the "Company") owns, operates, franchises and licenses the Carl's Jr., and Hardee's quick-service restaurant concepts. As of January 31, 1998, the Carl's Jr. system included 708 restaurants, of which 443 were operated by the Company and 265 were operated by the Company's franchisees and licensees. Carl's Jr. restaurants are located in the Western United States, predominantly in California. As of January 31, 1998, the Company's Hardee's system included 3,038 restaurants, of which 863 were operated by the Company and 2,175 were operated by the Company's franchises and licenses. Hardee's restaurants are located throughout the Eastern and Midwestern United States, predominantly in the Southeast. As of January 31, 1998, the Company also operated a total of 235 other restaurants, including 109 Taco Bueno quick-service Mexican food restaurants located in Texas and Oklahoma. Basis of Presentation and Fiscal Year In June 1994, a plan of reorganization and merger (the "Merger") was approved by the stockholders of Carl Karcher Enterprises, Inc. ("Enterprises"), whereby Enterprises, the predecessor entity of the Company that was a publicly held corporation, and Boston Pacific, Inc. ("Boston Pacific") became wholly owned subsidiaries of the Company, a Delaware corporation organized during fiscal 1995. In fiscal 1997, the Company made two restaurant acquisitions. Summit Family Restaurants Inc. ("Summit") was acquired in July 1996 and Taco Bueno Restaurants, Inc. ("Taco Bueno") was acquired in October 1996 (see Note 2). In July 1997, the Company acquired Hardee's Food Systems, Inc. ("Hardee's") (see Note 2). In September 1997, the Company transferred Summit's JB's Restaurants and Galaxy Diner assets to a newly formed subsidiary, JB's Family Restaurants, Inc. ("JB's"). The Company then contributed its remaining interest in Summit and transferred its two Casa Bonita Mexican-themed restaurants to Star Buffet, Inc. ("Star Buffet"). The Company subsequently participated in the initial public offering of Star Buffet, leaving it with an approximate 37% interest in Star Buffet (see Note 6). Hardee's, Taco Bueno and JB's remain wholly owned subsidiaries of the Company. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions are eliminated. The Company's fiscal year is 52 or 53 weeks, ending the last Monday in January each year. Fiscal years 1998, 1997 and 1996 each included 52 weeks of operations. For clarity of presentation, the Company has described all years presented as if the fiscal year ended January 31. Cash Equivalents For purposes of reporting cash flows, highly liquid investments purchased with original maturities of three months or less are considered cash equivalents. The carrying amounts reported in the consolidated balance sheets for these instruments approximate their fair value. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market, and consist primarily of restaurant food items and paper supplies. F-6 37 CKE RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Deferred Financing Costs Costs related to the issuance of debt are deferred and amortized on a straight-line basis as a component of interest expense over the terms of the respective debt issues. Deferred Lease Costs Deferred lease costs arising from an acquisition represent the excess of actual rent payments on an operating lease over the current market rate on the date of the acquisition. Deferred lease costs are amortized over the remaining lives of the related leases. Investment in Joint Ventures In fiscal 1994, the Company entered into a joint venture agreement with a Mexican company to operate a Carl's Jr. restaurant in Baja California. The Company owns a 50% interest in this joint venture. In fiscal 1996, the Company entered into another joint venture agreement, in which the Company owns a 30% interest with one of its licensees to operate 130 Carl's Jr. restaurants in 16 Asian countries over the next five years. Both joint venture agreements, which are accounted for under the equity method, are not considered material to the Company's consolidated financial statements. Restaurant Operating Agreement The Company and Rally's Hamburgers, Inc. ("Rally's") entered into an operating agreement, effective in July 1996, whereby the Company began operating 28 Rally's-owned restaurants located in California and Arizona. Rally's retains ownership of the restaurants' assets and receives a percentage of the restaurants' sales. One of the Rally's restaurants operated by the Company has been converted into a Carl's Jr. "Jr." restaurant, which offers a limited Carl's Jr. menu in a double drive-thru and walk-up service format. The Company has also added a dining room to one of these restaurants and is now operating it as a Carl's Jr. restaurant. The Company's results of operations include the revenue and expenses of these 26 Rally's restaurants from July 2, 1996. Property and Equipment Property and equipment are recorded at cost, less depreciation and amortization. Depreciation is computed using the straight-line method based on the assets' estimated useful lives, which range from three to 40 years. Leasehold improvements are amortized on a straight-line basis over the lesser of the estimated useful lives of the assets or the related lease terms. Impairment of Long-Lived Assets In fiscal 1997, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires the assessment of certain long-lived assets for possible impairment when events or circumstances indicate their carrying amounts may not be recoverable. Losses are recognized when the carrying value of these assets exceeds the total estimated undiscounted cash flows expected to be generated over the assets' estimated life. The Company adopted SFAS 121 in the first quarter of fiscal 1997 and recorded a $1.3 million non-cash pretax charge, equivalent to $0.02 per share, to adjust the carrying value of those assets identified as impaired. The costs in excess of net assets acquired are amortized on a straight-line basis, principally over 40 years. The Company periodically reviews the costs in excess of net assets acquired in accordance with SFAS 121. Accumulated amortization of costs in excess of net assets acquired was $4.7 million and $2.6 million at January 31, 1998 and 1997, respectively. F-7 38 CKE RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Advertising Production costs of commercials and programming are charged to operations in the fiscal year first aired. The costs of other advertising, promotion and marketing programs are charged to operations in the fiscal year incurred. Income Taxes The Company accounts for income taxes using the asset and liability method of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under this method, income tax assets and liabilities are recognized using enacted tax rates for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A change in tax rates is recognized in income in the period that includes the enactment date. Estimations The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Share and Per Share Restatement On January 6, 1998, the Company declared a 10% stock dividend to stockholders of record on January 20, 1998, distributed on February 4, 1998. On December 19, 1996, the Company declared a three-for-two stock split, payable in the form of a stock dividend, to stockholders of record on January 2, 1997, distributed on January 22, 1997. All data with respect to earnings per share, dividends per share and share information, including price per share where applicable, in the consolidated financial statements and notes to consolidated financial statements have been retroactively adjusted to reflect the stock dividend and stock split. Earnings per Share The Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") in fiscal 1998. SFAS 128 requires the presentation of "basic" earnings per share which represents net earnings divided by the weighted average shares outstanding excluding all common stock equivalents. Dual presentation of "diluted" earnings per share reflecting the dilutive effect of all common stock equivalents is also required. Reclassifications Certain prior year amounts in the accompanying consolidated financial statements have been reclassified to conform with the fiscal 1998 presentation. In addition, as a result of the acquisition of Hardee's, reclassifications of certain operating costs and expenses were made to conform with financial classification policies of acquired entities. F-8 39 CKE RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2 -- ACQUISITIONS On July 15, 1997, the Company acquired Hardee's, the operator and franchisor of the Hardee's(R) quick-service hamburger restaurant concept. In connection with the acquisition, which was accounted for as a purchase, the Company acquired all of the issued and outstanding shares of Hardee's for cash consideration of $327.0 million. The purchase price remains subject to adjustment to an amount to be agreed upon by the Company and Imasco Holdings, Inc., which represents the net asset value of Hardee's as of July 15, 1997. The Company used the net proceeds from the sale of 9,171,250 shares of the Company's common stock to the public for net proceeds of $222.3 million (see Note 11) in conjunction with borrowings of $133.9 million under the Company's Senior Credit Facility (see Note 9) to finance the acquisition. On July 15, 1996, the Company acquired Summit, which was accounted for as a purchase. In connection with the acquisition, each of the 4,809,446 outstanding shares of Summit common stock was converted into the right to receive 0.172095 shares of the Company's common stock (and cash in lieu of fractional shares) and cash in the amount of $2.63. Accordingly, the aggregate number of shares of common stock of the Company issued in the acquisition was 827,290. The source of funds for the cash portion of the consideration was cash on hand and borrowings under the Company's then existing revolving credit facility. On October 1, 1996, the Company acquired Taco Bueno, which was accounted for as a purchase. The acquisition was completed by CBI Restaurants, Inc. ("CBI"), a newly-formed corporation in which the Company originally held an 80% equity interest. CBI paid $42.0 million in cash, which was financed by short- term loans of $9.0 million from the Company, $8.0 million from Fidelity National Financial, Inc. ("Fidelity"), and $5.0 million from Giant Group, Ltd. ("Giant"). The balance of the purchase price, $20.0 million, was financed through the Company's investment of $16.0 million in cash for an 80% equity interest in CBI and Fidelity's investment of $4.0 million in cash for the remaining 20% equity interest in CBI. The Company's investment in CBI was funded out of borrowings under the Company's then existing revolving acquisition facility. On December 3, 1996, the Company purchased Fidelity's 20% equity interest in CBI for $4.5 million, giving the Company 100% ownership of CBI and Taco Bueno. CBI also repaid the short-term loans of $8.0 million to Fidelity and $5.0 million to Giant. The purchase of Fidelity's equity interest and the repayment of short-term loans were provided by the net proceeds of the Company's common stock offering (see Note 11). When the Company acquired Summit, it was the operator of three restaurant concepts: JB's Restaurants, a family dining chain; HomeTown Buffet restaurants, which were operated by Summit as a franchisee; and Galaxy Diner, a "50's-style" casual theme restaurant. Taco Bueno, when acquired by the Company, was an operator of three restaurant concepts: Taco Bueno, a quick-service Mexican restaurant chain; Casa Bonita, a Mexican-themed restaurant; and Crystal's, a pizzeria. The three Crystal's were closed by the Company in the first quarter of fiscal 1998. After the acquisition of Summit, the Company determined that its principal focus was on the quick-service segment of the restaurant industry as opposed to the family-dining segment. As such, in September 1997, the Company transferred Summit's JB's Restaurants and Galaxy Diner assets to a newly formed subsidiary, JB's. The Company then contributed its remaining interest in Summit, which consisted of 16 HomeTown Buffet restaurants, and its two Casa Bonita restaurants to Star Buffet. The Company subsequently participated in the initial public offering of Star Buffet, leaving it with an approximate 37% interest in Star Buffet (see Note 6). Taco Bueno (formerly Casa Bonita) and JB's remain wholly owned subsidiaries of the Company. F-9 40 CKE RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The assets acquired, including the costs in excess of net assets acquired, and liabilities assumed in the acquisitions of Hardee's, Summit and Taco Bueno are as follows:
HARDEE'S SUMMIT TACO BUENO --------- -------- ---------- (DOLLARS IN THOUSANDS) Tangible assets acquired at fair value........... $ 424,739 $ 59,772 $40,672 Costs in excess of net assets acquired........... 57,339 -- 9,860 Liabilities assumed at fair value................ (155,078) (30,716) (8,532) --------- -------- ------- Total purchase price................... $ 327,000 $ 29,056 $42,000 ========= ======== =======
Selected unaudited pro forma combined results of operations for the years ended January 31, 1998 and 1997, assuming the Hardee's acquisition occurred on February 1, 1997 and 1996 and assuming the Summit and Taco Bueno acquisitions occurred on February 1, 1996, using actual restaurant-level margins and general and administrative expenses prior to the acquisition of each entity, are presented as follows:
1998 1997 ------------- ------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Total revenues.............................................. $1,494,069 $1,552,930 Net income (loss)........................................... $ 51,583 $ (7,742) Net income (loss) per share -- basic........................ $ 1.12 $ ( 0.18) Net income (loss) per share -- diluted...................... $ 1.09 $ (0.18)
NOTE 3 -- ACCOUNTS RECEIVABLE Details of accounts receivables are as follows:
1998 1997 ---------- --------- (DOLLARS IN THOUSANDS) Trade receivables, net...................................... $19,595 $5,982 Notes receivable, current................................... 3,572 1,022 Income tax receivable....................................... 964 714 Other....................................................... 3,186 224 ------- ------ $27,317 $7,942 ======= ======
NOTE 4 -- PROPERTY AND EQUIPMENT Property and equipment consists of the following:
ESTIMATED USEFUL LIFE 1998 1997 ----------- --------- --------- (DOLLARS IN THOUSANDS) Land.............................................. $180,961 $ 50,487 Leasehold improvements............................ 4-25 years 129,910 91,227 Buildings and improvements........................ 7-40 years 230,637 70,023 Equipment, furniture and fixtures................. 3-10 years 255,714 147,488 -------- -------- 797,222 359,225 Less: Accumulated depreciation and amortization... 170,196 151,126 -------- -------- $627,026 $208,099 ======== ========
F-10 41 CKE RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5 -- LEASES The Company occupies land and buildings under terms of numerous lease agreements expiring on various dates through 2023. Many leases provide for future rent escalations and renewal options. In addition, contingent rentals, determined as a percentage of sales in excess of specified levels, are often stipulated. Most of these leases obligate the Company to pay costs of maintenance, insurance and property taxes. Property under capital leases is comprised of the following:
1998 1997 --------- --------- (DOLLARS IN THOUSANDS) Building.................................................... $84,718 $74,667 Less: Accumulated amortization.............................. 37,190 37,552 ------- ------- $47,528 $37,115 ======= =======
Amortization is calculated on a straight-line basis over the shorter of the respective lease terms or the estimated useful lives of the related assets. Minimum lease payments for all leases and the present value of net minimum lease payments for capital leases as of January 31, 1998 are as follows:
CAPITAL OPERATING -------- ---------- (DOLLARS IN THOUSANDS) Fiscal Year: 1999...................................................... $12,473 $ 70,999 2000...................................................... 11,920 65,658 2001...................................................... 11,531 60,078 2002...................................................... 10,997 55,347 2003...................................................... 10,316 50,244 Thereafter................................................ 57,896 249,660 ------- -------- Total minimum lease payments...................... 115,133 $551,986 ======== Less: Amount representing interest.......................... 52,833 ------- Present value of minimum lease payments..................... 62,300 Less: Current portion....................................... 5,499 ------- Capital lease obligations, excluding current portion........ $56,801 =======
Total minimum lease payments have not been reduced by minimum sublease rentals of $84.5 million due in the future under certain operating subleases. The Company has leased and subleased land and buildings to others, primarily as a result of the franchising of certain restaurants. Many of these leases provide for fixed payments with contingent rent when sales exceed certain levels, while others provide for monthly rentals based on a percentage of sales. Lessees generally bear the cost of maintenance, insurance and property taxes. Components of the net investment in leases receivable, included in other current assets and other assets, are as follows:
1998 1997 -------- -------- (DOLLARS IN THOUSANDS) Net minimum lease payments receivable....................... $4,891 $6,680 Less: Unearned income....................................... 2,028 2,721 ------ ------ Net investment.............................................. $2,863 $3,959 ====== ======
F-11 42 CKE RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Minimum future rentals to be received as of January 31, 1998 are as follows:
CAPITAL OPERATING LEASES OR LESSOR SUBLEASES LEASES --------- --------- (DOLLARS IN THOUSANDS) Fiscal Year: 1999...................................................... $ 568 $ 2,767 2000...................................................... 567 2,805 2001...................................................... 560 2,873 2002...................................................... 565 2,867 2003...................................................... 540 2,745 Thereafter................................................ 2,091 12,526 ------ ------- Total minimum future rentals...................... $4,891 $26,583 ====== =======
Total minimum future rentals do not include contingent rentals which may be received under certain leases. Aggregate rents under noncancelable operating leases during fiscal 1998, 1997 and 1996 are as follows:
1998 1997 1996 ------- ------- ------- (DOLLARS IN THOUSANDS) Minimum rentals....................................... $49,984 $33,597 $29,225 Contingent rentals.................................... 4,002 1,937 1,384 Less: Sublease rentals................................ 6,025 5,644 5,058 ------- ------- ------- $47,961 $29,890 $25,551 ======= ======= =======
NOTE 6 -- LONG-TERM INVESTMENTS GB Foods Corporation and JB's Restaurants The Company owns, operates and franchises the JB's Restaurant family dining restaurant concept and owns and operates six Galaxy Diner "50's-style" casual theme restaurants. As of January 31, 1998, the JB's Restaurant system consisted of 94 restaurants, of which 74 were owned and operated by the Company. The JB's Restaurant system and the Galaxy Diner restaurants were purchased by the Company in connection with its acquisition of Summit during fiscal 1997 (see Note 2). In February 1998, the Company sold 12 Company-operated JB's Restaurants to Star Buffet. As a result of such sale the Company received approximately $4.8 million in cash. In addition, the Company has recently announced two additional transactions which will result in the disposition of the entire JB's Restaurant system and Galaxy Diner restaurants. First, the Company has agreed to sell 14 Company-operated JB's Restaurants and two Galaxy Diner restaurants to Timber Lodge Steakhouse, Inc. ("Timber Lodge") in connection with the proposed merger of Timber Lodge and GB Foods Corporation ("GB Foods"). Second, the Company has agreed to sell JB's, which consists of the remaining 48 Company-operated JB's Restaurants and the JB's Restaurant franchise system, together with four Galaxy Diner restaurants, to GB Foods. If the above transactions are completed, the Company expects to receive approximately 1.6 million shares of common stock of GB Foods, which would represent approximately 10% of GB Foods' outstanding shares after giving effect to such transactions. There can be no assurance that these transactions will be completed. The foregoing transactions, together with the Company's reorganization and the initial public offering of Star Buffet, will complete the Company's previously announced plans to sell or otherwise dispose of all or a portion of the restaurant businesses of Summit. F-12 43 CKE RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Star Buffet, Inc. Star Buffet is an operator of 33 buffet-style restaurants and 11 franchised, family-style JB's Restaurants. On September 30, 1997, the Company participated in an initial public offering of its buffet-style restaurant operations. Prior to the offering, the Company formed Star Buffet to continue to operate its 16 HomeTown Buffet franchised restaurants and two Casa Bonita theme restaurants. Star Buffet then completed an initial public offering of 3,450,000 shares of its common stock, of which 600,000 shares were sold by the Company as a selling shareholder. The Company received net proceeds of $6.7 million in connection with such sale, and retained an approximate 37% interest in Star Buffet which the Company accounts for under the equity method of accounting. The Company also received dividend income of $9.3 million in the transaction, and sold the net assets of two Casa Bonita restaurants to Star Buffet for their net book value of $1.1 million. The Company continues to own and operate the JB's Restaurants and Galaxy Diner restaurant concepts in its new subsidiary, JB's. Operating results for fiscal 1998 include 35 weeks of operations for the 16 HomeTown Buffet franchised restaurants and two Casa Bonita restaurants. Rally's Hamburgers, Inc. On April 20, 1996, the Company purchased from Giant, in settlement of certain litigation, 2,350,432 shares of Rally's common stock for $4.1 million, representing approximately 15% of Rally's outstanding shares. In connection with this settlement, the Company also received options to purchase Rally's common stock from Giant over the next two years. Effective August 31, 1996, the Company participated in Rally's rights offering, pursuant to which the Company received one right for each of the 2,350,432 shares of Rally's common stock the Company already owned. In accordance with the terms of the rights offering, holders of rights were entitled to purchase one unit for each 3.25 rights surrendered for a cash payment of $2.25 per unit. Each unit consists of one share of Rally's common stock and one warrant to purchase an additional share of Rally's common stock upon payment of a $2.25 exercise price. The Company contributed approximately $1.7 million in cash and acquired 775,488 shares of Rally's common stock in connection with the rights offering, with warrants to acquire another 775,488 shares. Additionally, on November 29, 1996, the Company elected to exercise options to purchase 626,607 shares of common stock of Rally's from Giant for a total of approximately $1.9 million. On December 20, 1996, Rally's issued the Company warrants to purchase 750,000 restricted shares of Rally's common stock at an exercise price of $4.375 per share. The warrants have a three-year term and are exercisable after December 20, 1997. On December 18, 1997, the Company and certain other investors exchanged their shares of Checkers Drive-In Restaurants, Inc. ("Checkers") common stock for newly issued shares of Rally's common stock and Rally's Series A preferred stock. In exchange for the Company's 12,754,885 shares of Checkers' common stock, the Company received 2,798,080 shares of Rally's common stock and 28,619 shares of Rally's Series A preferred stock. The shares of Series A preferred stock acquired by the Company are convertible into an aggregate of 2,861,900 additional shares of common stock; provided, however, that such conversion is subject to the approval of Rally's stockholders at its next annual meeting. Primarily as a result of the above transactions, as of January 31, 1998, the Company's investment in Rally's was $21.3 million, representing an approximate 27% ownership interest of Rally's, which the Company accounts for under the equity method of accounting. Assuming full exercise of all the warrants and the conversion of the Series A preferred stock into Rally's common stock, the Company would beneficially own approximately 31% of Rally's outstanding shares. Further, as a result of this transaction, Rally's owns approximately 27% of Checkers' outstanding shares. F-13 44 CKE RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Checkers Drive-In Restaurants, Inc. On November 14, 1996, the Company, together with a group of investors, purchased $35.8 million aggregate principal amount of Checkers' 13.75% senior secured debt, due on July 31, 1998. The aggregate purchase price for this senior secured debt was $35.1 million. In addition to the Company, the investors included KCC Delaware, a wholly owned subsidiary of Giant, Fidelity, The Travelers Indemnity Company and certain affiliated individual investors. The Company paid $12.9 million in cash for $13.2 million, or a 36.75% share of the debt. On November 22, 1996, the investors restructured Checkers' indebtedness under its existing credit agreement. Pursuant to the restructuring, the term of the credit agreement was extended by one year until July 31, 1999 and the fixed interest rate on such indebtedness was reduced to 13.0%. The investors modified certain financial covenants and the timing and amount of principal payments due under the credit agreement. In connection with the restructuring, the Company received warrants to purchase 7,350,423 shares of Checkers' common stock at an exercise price of $0.75 per share ("the Checkers Warrants"). The Company recorded the difference between the fair market value of Checkers' common stock and the exercise price of the Checkers Warrants on the date of grant as a reduction, or discount, to the note receivable from Checkers. This discount is amortized on a straight-line basis into interest income over the life of the note. As of January 31, 1998, the Company's note receivable from Checkers, net of the related discount, was $7.6 million and is included in related party receivables. On February 19, 1997, the Company purchased 6,162,299 shares of Checkers' common stock at $1.14 per share and 61,636 shares of Checkers' Series A preferred stock at $114.00 per share for an aggregate purchase price of $14.1 million in connection with a private placement of Checkers' securities to the Company and other investors, including certain related parties. During fiscal 1998, the shares of Series A preferred stock acquired by the Company were converted into 6,592,586 additional shares of Checkers' common stock. On December 18, 1997, as discussed above, the Company exchanged 12,754,885 shares of Checkers' common stock for 2,798,080 shares of Rally's common stock and 28,619 shares of Rally's Series A preferred stock. The Company continues to hold the Checkers Warrants, which, if exercised, would represent approximately 10% of Checkers' outstanding shares. Boston Market In January 1994, the Company acquired from Boston Chicken, Inc. ("BCI") the rights to develop, own and operate up to 300 Boston Market stores throughout designated markets in California. Boston Pacific was formed during fiscal 1995 to conduct the Company's Boston Market franchise operations. In April 1995, the Company's overall strategic plans were revised and the Company determined that its available cash should be used to fund the expansion and image enhancement of its Carl's Jr. restaurants. As such, management determined it would opt for a more passive investment role and eliminate its control and significant influence in the Boston Market concept. The Company formed a new privately owned company, Boston West, LLC ("Boston West"), which assumed the operations of all of the Company's 25 existing Boston Market stores and agreed to fulfill the Company's remaining obligation to develop an additional 175 Boston Market stores under its January 1994 area development agreement with BCI. In connection with this transaction, the Company received preferred units and all the outstanding common equity units in Boston West, for a cost of approximately $19.7 million and $620,000, respectively, in exchange for a majority of its existing Boston Market restaurant assets. On May 30, 1995, Boston West issued an additional $2.5 million of common equity units to an independent investor group in return for cash and certain notes receivable, which are secured by $1.2 million of Boston West common equity units. As of this date, the Company ceased consolidating the operations of F-14 45 CKE RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Boston West into its financial statements and commenced realizing a pro-rata share of the losses of Boston West. On September 12, 1995, Boston West formally agreed to repurchase one half of the Company's outstanding common equity units in Boston West, at a purchase price of $10.00 per unit, or $310,000. As of this date, the Company began accounting for its interest in Boston West under the cost method of accounting for investments. The Company is entitled to receive dividends on its preferred units at rates ranging from 8.6% to 9.0%. The dividends earned through June 1997 will be paid in cash upon conversion of the Company's preferred units into common equity units. In addition, this transaction provided for the leasing of approximately $12.0 million of equipment and real property retained by the Company to Boston West at current market rates. An affiliate of BCI has an option to purchase all the equipment and real property leased by the Company to Boston West. In fiscal 1997, the Company received $2.5 million in cash and $2.5 million in additional preferred units in exchange for real property that the Company was leasing to Boston West. In addition, pursuant to this agreement, the Company has an option to co-fund, along with BCI loan proceeds, the capital requirements of Boston West up to a maximum of $15.0 million, of which the Company funded approximately $1.7 million in fiscal 1996 through the purchase of additional preferred units. In March 1996, the Company's Board of Directors elected to cease participation in the option to co-fund the capital requirements of Boston West. With the amounts co-funded to date, the Company's interest in Boston West may be increased to up to approximately 26% upon conversion of the preferred units. As of January 31, 1998 and 1997, the Company's total long-term investment in Boston West was $22.3 million, which approximates fair value. The Company's estimate of fair value of its long-term investment was based on a number of factors including the discounted estimated future cash flows of Boston West and the present value of expected future preferred dividend distributions. A total of 98 Boston Market stores were opened under the area development agreement with BCI as of the end of fiscal 1998. NOTE 7 -- OTHER ASSETS Other assets are comprised of the following:
1998 1997 --------- --------- (DOLLARS IN THOUSANDS) Deferred lease costs........................................ $12,931 $ 1,761 Deferred financing costs.................................... 4,093 1,443 Leases receivable........................................... 2,623 3,735 Other assets................................................ 8,390 3,654 ------- ------- $28,037 $10,593 ======= =======
NOTE 8 -- OTHER CURRENT LIABILITIES Other current liabilities are comprised of the following:
1998 1997 --------- --------- (DOLLARS IN THOUSANDS) Salaries, wages and other benefits.......................... $33,258 $15,899 State sales taxes........................................... 11,350 7,685 Other self-insurance reserves............................... 12,457 3,103 Self-insured workers' compensation reserve.................. 5,436 4,781 Other accrued liabilities................................... 26,694 5,059 ------- ------- $89,195 $36,527 ======= =======
F-15 46 CKE RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9 -- LONG-TERM DEBT Long-term debt is comprised of the following:
1998 1997 ---------- --------- (DOLLARS IN THOUSANDS) Secured notes payable, principal payments in specified amounts quarterly through July 2002, interest based on LIBOR plus 0.50%.......................................... $138,500 $ -- Secured note payable, principal payments in specified amounts monthly through 2001, interest at 8.17%........... 4,851 5,111 Industrial Revenue Bonds, payable in 1999, variable interest rate averaging 3.52% in fiscal 1998....................... 3,600 3,600 Secured notes payable, principal payments in varying amounts monthly through July 2017, interest based on LIBOR plus 2.75%..................................................... -- 20,000 Other....................................................... 7,654 5,794 -------- ------- 154,605 34,505 Less: Current portion....................................... 15,812 735 -------- ------- $138,793 $33,770 ======== =======
Effective July 15, 1997, the Company entered into a new credit facility (the "Senior Credit Facility") with a group of financial institutions, which replaced an unsecured bank credit facility arranged for the Company in July 1996. The Senior Credit Facility, which matures in July 2002, consists of a $75.0 million term loan facility (the "Term Loan Facility") and a $225.0 million revolving credit facility (the "Revolving Credit Facility") which includes a $55.0 million letter of credit subfacility. On July 15, 1997, the Company incurred $75.0 million of borrowings under the Term Loan Facility and $58.9 million of borrowings under the Revolving Credit Facility to fund a portion of the consideration needed to acquire Hardee's and to repay $20.0 million in existing indebtedness. The Company also borrowed an additional $17.1 million under the Revolving Credit Facility during the year primarily to fund capital expenditures in connection with the conversion of certain of the Hardee's restaurants to Carl's Jr./Hardee's dual-brand restaurants in certain test markets and to repurchase certain Hardee's franchised restaurants. As of January 31, 1998, $67.5 million of borrowings remained outstanding under the Term Loan Facility and $71.0 million remained outstanding under the Revolving Credit Facility. On April 1, 1998, the Company amended the Senior Credit Facility to increase the aggregate principal amounts of the lenders' commitments under the Term Loan Facility to $250.0 million and under the Revolving Credit Facility to $250.0 million, which includes a $65.0 million letter of credit subfacility, and to extend the final maturity. The Company incurred borrowings of $213.2 million thereunder to finance a portion of the purchase price of the Flagstar Enterprises, Inc. ("FEI") acquisition (see Note 22). Principal repayments under the Term Loan Facility are due in quarterly installments commencing in June 1998 and continuing thereafter until the final maturity of the Senior Credit Facility in April 2003, resulting in annual reductions of $20.0 million in the first year of the Term Loan Facility and annual reductions thereafter ranging from $40.0 million to $70.0 million. Additional borrowings under the Revolving Credit Facility may be used for working capital and other general corporate purposes, including permitted investments and acquisitions, and any outstanding amounts thereunder will become due in April 2003. The Company will be required to repay borrowings under the Senior Credit Facility with the proceeds from certain asset sales (unless the net proceeds of such sales are reinvested in the Company's business), from the issuance of certain equity securities or from the issuance of additional indebtedness. Of the various options the Company has regarding interest rates, it has selected LIBOR plus a margin, with future margin adjustments dependent on certain financial ratios from time to time. Borrowings and other obligations of the Company under the Senior Credit Facility are general unsubordinated obligations of the Company and secured by a pledge of the capital stock of certain of the F-16 47 CKE RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Company's present and future subsidiaries, which subsidiaries guarantee such borrowings and other obligations, and are secured by certain franchise rights, accounts receivable, contract rights, general intangibles (including trademarks) and other assets of the Company and such subsidiaries. The Senior Credit Facility contains a number of significant covenants that, among other things, (i) restrict the ability of the Company and its subsidiaries to incur additional indebtedness and incur liens on their assets, in each case subject to specified exceptions, (ii) impose specified financial tests as a precondition to the Company's and its subsidiaries' acquisition of other businesses and (iii) limit the Company and its subsidiaries from making capital expenditures and certain restricted payments (including dividends and repurchases of stock), subject in certain circumstances to specified financial tests. In addition, the Company is required to comply with specified financial ratios and tests, including minimum EBITDA requirements, minimum interest coverage and fixed charge coverage ratios, minimum consolidated tangible net worth requirements and maximum leverage ratios. As of fiscal year end, the Company was in compliance with all of its covenants governing its Senior Credit Facility. On March 13, 1998, the Company completed a private placement of $197.2 million aggregate principal amount of convertible subordinated notes (the "Notes"), in which the Company received net proceeds of approximately $192.3 million, of which $24.1 million was used to repay indebtedness under the Term Loan Facility. The Notes, which represent unsecured general obligations of the Company subordinate in right of payment to certain other obligations are due in 2004, are convertible into the Company's common stock at an initial conversion price of $48.204 and carry a 4.25% coupon. The remaining net proceeds from the Notes, together with borrowings under the Senior Credit Facility, were used to fund the acquisition of FEI on April 1, 1998 (see Note 22). Secured notes payable are collateralized by certain restaurant property deeds of trust, with a carrying value of $10.4 million as of January 31, 1998. Long-term debt (excluding $410.4 million principal amount of indebtedness incurred subsequent to January 31, 1998) matures in fiscal years ending after January 31, 1998 as follows:
(DOLLARS IN THOUSANDS) ---------------------- Fiscal Year: 1999.................................................... $ 15,812 2000.................................................... 19,328 2001.................................................... 20,561 2002.................................................... 15,735 2003.................................................... 78,836 Thereafter.............................................. 4,333 -------- $154,605 ========
NOTE 10 -- OTHER LONG-TERM LIABILITIES Other long-term liabilities consist of the following:
1998 1997 --------- --------- (DOLLARS IN THOUSANDS) Self-insured workers' compensation reserve.................. $18,049 $ 9,283 Closure reserves............................................ 32,448 5,263 Other....................................................... 36,281 15,982 ------- ------- $86,778 $30,528 ======= =======
F-17 48 CKE RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company presently self-insures for group insurance, workers' compensation and fire and comprehensive protection on most equipment and certain other assets. A total of $23.5 million and $14.1 million was accrued as of January 31, 1998 and 1997, respectively, representing the current and long-term portions of the net present value of an independent actuarial valuation of the Company's workers' compensation claims. These amounts are net of a discount of $4.0 million and $2.0 million in fiscal 1998 and 1997, respectively. The closure reserves primarily consist of amounts provided for in the acquisition of Hardee's for the closure of certain restaurants and corporate facilities. In prior years, the Company initiated programs to dispose of or franchise its Arizona and Texas operations. As of January 31, 1998 and 1997, $5.5 million and $6.0 million, respectively, were accrued for these costs, including the current portion. These balances are mainly comprised of estimated lease subsidies which represent the net present value of the excess of future lease payments over estimated sublease income. The remaining unamortized discount to present value these lease subsidies at January 31, 1998 was $4.2 million and will be amortized to operations over the remaining sublease terms, which range up to 17 years. NOTE 11 -- STOCKHOLDERS' EQUITY In July 1994, the Board of Directors authorized the repurchase of up to three million shares of the Company's common stock. A total of 1,105,995 shares of stock were repurchased to date, which includes the purchase of 103,125 shares in fiscal 1995 from the Chairman Emeritus at the then market price of $5.53 per share. The balance of these shares was purchased in a series of open market transactions, at an average price of approximately $4.53 per share, for an aggregate purchase price of approximately $4.5 million. On October 28, 1996, the Board of Directors of the Company retired 1,105,995 shares of the Company's common stock which were previously held as treasury stock. During the fourth quarter of fiscal 1997, the Company issued 4,743,750 shares of its common stock at a public offering price of $17.35 per share. Proceeds from the offering, net of underwriting discounts and commissions and other related expenses, were $77.6 million. The net proceeds were used to reduce the Company's existing indebtedness and for working capital and other general corporate purposes, including the Company's investments in Checkers and additional investments in Rally's (see Note 6). During the second quarter of fiscal 1998, the Company issued 9,171,250 shares of its common stock at a public offering price of $25.45 per share. Proceeds from the offering, net of underwriting discounts and commissions and other related expenses, were $222.3 million. The net proceeds were primarily used to finance the acquisition of Hardee's (see Note 2). A special meeting of stockholders of the Company was held on December 9, 1997 for the primary purpose of voting on a proposal to amend the Company's certificate of incorporation to increase the authorized number of shares of common stock from 50,000,000 to 100,000,000. The proposal was approved by the Company's stockholders. F-18 49 CKE RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12 -- FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents information on the Company's financial instruments:
1998 1997 ----------------------- ----------------------- CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE -------- ------------ -------- ------------ (DOLLARS IN THOUSANDS) Financial assets: Cash and cash equivalents............... $ 30,382 $ 30,382 $46,330 $46,330 Notes receivable........................ 22,707 22,611 17,761 18,344 Financial liabilities: Long-term debt, including current portion.............................. 154,605 154,948 34,505 34,310
The fair value of cash and cash equivalents approximates their carrying amount due to their short maturity. The estimated fair values of notes receivable were determined by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings. The estimated fair value of long-term debt was determined by discounting future cash flows using rates currently available to the Company for debt with similar terms and remaining maturities. NOTE 13 -- RELATED PARTY TRANSACTIONS Certain members of management and the Karcher family are franchisees of the Company. A total of 41 restaurants have been sold to these individuals. Additionally, these franchisees regularly purchase food and other products from the Company on the same terms and conditions as other franchisees. During fiscal 1995, the Company made a salary advance to the Chairman Emeritus totaling $715,000, a majority of which is non-interest bearing and is to be repaid through payroll deductions. As of January 31, 1998 and 1997, $116,000 and $220,000, respectively, remained outstanding. The entire amount is scheduled to be repaid by December 1998. In fiscal 1994, the Chairman Emeritus was granted future retirement benefits for past services consisting principally of payments of $200,000 per year for life and supplemental health benefits, which had a net present value of $1.7 million as of that date. This amount was computed using certain actuarial assumptions, including a discount rate of 7%. A total of $1.2 million remained accrued in other long-term liabilities as of January 31, 1998. The Company anticipates funding these obligations as they become due. The Company leases various properties, including its corporate headquarters, one of its distribution facilities and three of its restaurants, from the Chairman Emeritus. Included in capital lease obligations were $3.6 million and $4.0 million, representing the present value of lease obligations related to these various properties at January 31, 1998 and 1997, respectively. Lease payments under these leases for fiscal 1998, 1997 and 1996 amounted to $1.3, $1.3, and $1.4 million, respectively. This was net of sublease rentals of $157,000 in fiscal 1998 and $148,000 in fiscal 1997 and 1996. In September 1996, the Company purchased a restaurant from the Chairman Emeritus for a purchase price of $1.1 million. NOTE 14 -- FRANCHISE AND LICENSE OPERATIONS Franchise arrangements, with franchisees who operate in various states, generally provide for initial fees and continuing royalty payments to the Company based upon a percent of sales. The Company generally charges an initial franchise fee for each new franchised restaurant that is added to its system, and in some cases, an area development fee, which grants exclusive rights to develop a specified number of restaurants in a designated geographic area within a specified time period. Similar fees are charged in connection with the Company's international licensing operations. These fees are recognized ratably when substantially all the F-19 50 CKE RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) services required of the Company are complete and the restaurants covered by these agreements commence operations. Certain franchisees may also purchase food, paper, supplies and equipment from the Company. Additionally, franchisees may be obligated to remit lease payments for the use of restaurant facilities owned or leased by the Company, generally for a period of 20 years. Under the terms of these leases, they are required to pay related occupancy costs which include maintenance, insurance and property taxes. The Company receives notes from franchisees in connection with the sales of Company-operated restaurants. During fiscal 1996, the Company sold certain of its Carl's Jr. franchise notes receivable, with partial recourse, to an independent third party for cash proceeds of approximately $8.4 million. The remaining notes bear interest from 7.0% to 12.5%, mature in five to 15 years and are secured by an interest in the restaurant equipment sold. Revenues from franchised and licensed restaurants consist of the following:
1998 1997 1996 -------- ------- -------- (DOLLARS IN THOUSANDS) Food service........................................ $ 63,890 $60,035 $ 56,015 Royalties........................................... 42,929 7,006 5,704 Equipment sales..................................... 9,989 -- -- Rental income....................................... 9,854 9,226 9,346 Initial fees........................................ 544 305 116 -------- ------- -------- $127,206 $76,572 $ 71,181 ======== ======= ========
Operating costs and expenses for franchised and licensed restaurants consist of the following:
1998 1997 1996 -------- ------- -------- (DOLLARS IN THOUSANDS) Food service........................................ $ 62,801 $59,606 $ 56,590 Occupancy and other operating expenses.............. 21,067 13,090 12,673 Equipment purchases................................. 9,905 -- -- -------- ------- -------- $ 93,773 $72,696 $ 69,263 ======== ======= ========
NOTE 15 -- INTEREST EXPENSE Interest expense consists of the following:
1998 1997 1996 -------- ------- -------- (DOLLARS IN THOUSANDS) Notes payable and revolving credit facility......... $ (9,689) $(3,059) $ (3,585) Capital lease obligations........................... (6,578) (6,083) (5,898) Other............................................... (647) (735) (521) -------- ------- -------- $(16,914) $(9,877) $(10,004) ======== ======= ========
F-20 51 CKE RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 16 -- OTHER INCOME, NET Other income, net consists of the following:
1998 1997 1996 ------- ------- ------- (DOLLARS IN THOUSANDS) Interest income....................................... $ 4,955 $ 2,393 $ 2,494 Lease income.......................................... 1,819 1,153 1,291 Dividend income....................................... 1,800 853 854 Net gain (loss) on sale of restaurants................ (141) 491 (374) Income (loss) from long-term investments.............. (366) 140 (1,898) Property management................................... (1,167) (1,286) (409) Net gain (loss) on sale of investments................ -- 121 (144) Other................................................. 463 (1,417) (857) ------- ------- ------- $ 7,363 $ 2,448 $ 957 ======= ======= =======
NOTE 17 -- INCOME TAXES Income tax expense consists of the following:
1998 1997 1996 ------- ------- ------- (DOLLARS IN THOUSANDS) Current: Federal............................................. $19,031 $ 5,963 $ 2,018 State............................................... 5,160 2,065 772 ------- ------- ------- 24,191 8,028 2,790 ------- ------- ------- Deferred: Federal............................................. 3,468 5,529 3,878 State............................................... 2,224 851 333 ------- ------- ------- 5,692 6,380 4,211 ------- ------- ------- $29,883 $14,408 $ 7,001 ======= ======= =======
A reconciliation of income tax expense at the federal statutory rate to the Company's provision for taxes on income is as follows:
1998 1997 1996 ------- ------- ------- (DOLLARS IN THOUSANDS) Income taxes at statutory rate........................ $26,824 $12,849 $ 6,104 State income taxes, net of federal income tax benefit............................................. 4,153 2,822 738 Targeted jobs tax credits............................. (1,508) (1,528) (243) Increase (decrease) in valuation allowance............ (515) (76) 152 Alternative minimum tax credit........................ -- (19) -- Other, net............................................ 929 360 250 ------- ------- ------- $29,883 $14,408 $ 7,001 ======= ======= =======
F-21 52 CKE RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Temporary differences and carryforwards gave rise to a significant amount of deferred tax assets and liabilities as follows:
1998 1997 --------- --------- (DOLLARS IN THOUSANDS) Deferred tax assets: Capitalized leases........................................ $10,923 $ 6,801 Workers' compensation reserve............................. 6,768 5,908 Closure reserves.......................................... 3,968 4,135 Insurance reserves........................................ 2,644 1,076 Accrued payroll........................................... 1,430 1,055 State taxes............................................... 1,967 -- Targeted jobs tax credit carry forward.................... -- 3,654 Alternative minimum tax credits........................... -- 1,647 Other..................................................... 4,364 5,668 ------- ------- 32,064 29,944 Less: Valuation allowance................................... 1,356 4,917 ------- ------- Total deferred tax assets................................... 30,708 25,027 ======= ======= Deferred tax liabilities: Depreciation.............................................. 20,798 7,088 Long-term investments..................................... 12,747 8,271 Other..................................................... 2,838 2,454 ------- ------- Total deferred tax liabilities.............................. 36,383 17,813 ------- ------- Net deferred tax assets (liabilities)....................... $(5,675) $ 7,214 ======= =======
While there can be no assurance that the Company will generate any earnings or any specific level of earnings in future years, management believes it is more likely than not that the Company will realize the majority of the benefit of the existing deferred tax assets at January 31, 1998, based on the Company's current, historical and future pre-tax earnings. NOTE 18 -- EMPLOYEE BENEFIT AND RETIREMENT PLANS Profit Sharing and Savings Plan The Company maintains a voluntary contributory profit sharing and savings investment plan for all eligible employees other than operations hourly employees. Annual contributions under the profit sharing portion of the plan are determined at the discretion of the Company's Board of Directors. Under the savings investment portion of the plan, participants may elect to contribute up to 15% of their annual salaries to the plan. Pension Plan On January 1, 1996, the Company's pension plan, covering substantially all operations employees qualified as to age and service, was amended to limit participation in the plan only to those employees who had become participants in the plan on or before December 31, 1995. Future contributions of plan benefits discontinued after this date. During fiscal year 1997, the plan was terminated and approximately $2.6 million of the accumulated benefit obligation was settled. As a result of the termination, the Company recorded approximately $500,000 F-22 53 CKE RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) and $1.3 million in pension plan expense in fiscal 1998 and 1997, respectively, which was based upon an independent actuarial valuation study. During fiscal 1996, pension contributions were $512,000. Post Retirement Benefits Other Than Pensions The Company provides an unfunded retiree medical benefit plan for substantially all Hardee's employees (except restaurant hourly employees) who retire on or after age 55 with at least five years of service. The retiree pays the actual costs of the plan with a Company subsidy provided for retirees with 10 or more years of credited service. The dollar amount of this subsidy will be capped in 2003. Such benefits provided by the Company are immaterial and do not require any additional accrual. Stock Purchase Plan In fiscal 1995, the Board of Directors adopted, and stockholders subsequently approved in fiscal 1996, an Employee Stock Purchase Plan ("ESPP"). Under the terms of the ESPP and subsequent amendments, eligible employees may voluntarily purchase, at current market prices, up to 825,000 shares of the Company's common stock through payroll deductions. Pursuant to the ESPP, employees may contribute an amount between 3% and 15% of their base salaries. The Company contributes varying amounts as specified in the ESPP. During fiscal 1998, 1997 and 1996, 54,053, 46,679 and 42,540 shares, respectively, were purchased and allocated to employees, based upon their contributions, at an average price of $31.02, $15.98 and $7.70 per share, respectively. The Company contributed $296,000 or an equivalent of 10,086 shares for the year ended January 31, 1998, $116,000 or an equivalent of 6,785 shares for the year ended January 31, 1997 and $8,000 or an equivalent of 759 shares for the year ended January 31, 1996. Stock Incentive Plans The Company's 1994 stock incentive plan was approved by stockholders in June 1994. The 1994 plan is substantially similar to the 1993 plan under which, as a result of the Merger, no further options may be granted. Awards granted to eligible employees under the 1994 plan are not restricted as to any specified form or structure, with such form, vesting and pricing provisions determined by the compensation committee of the Board of Directors. The 1994 plan also provides for the automatic annual award of stock options to nonemployee directors and nonemployee director members of the executive committee. Options generally have a term of five years from the date of grant for the nonemployee directors and 10 years from the date of grant for employees, become exercisable at a rate of 33 1/3% per year following the grant date and are priced at the fair market value of the shares on the date of grant. A total of 5,775,000 shares are available for grants of options or other awards under this plan, of which 4,045,033 stock options were outstanding as of January 31, 1998 with exercise prices ranging from $4.09 per share to $39.09 per share. The Company's 1993 stock incentive plan was superseded by the 1994 plan, as discussed above. As of January 31, 1998, 388,216 stock options, with exercise prices ranging from $4.39 per share to $8.11 per share, were outstanding under the plan. No further awards may be granted under this plan. The Company's 1982 stock option plan expired in September 1992. Under this plan, stock options were granted to key employees to purchase up to 4,950,000 shares of its common stock at a price equal to or greater than the fair market value at the date of grant. The options generally had a term of 10 years from the grant date and became exercisable at a rate of 25%, 35% and 40% per year following the grant date. The exercise prices of the 112,466 stock options outstanding as of January 31, 1998 under this plan range from $3.64 per share to $8.11 per share. In connection with the acquisition of Summit, the Company assumed the options outstanding under Summit's existing option plans: the 1984 Incentive Stock Option Plan, the 1987 Nonqualified Stock Option Plan, the 1987 Employee Incentive Stock Option Plan and the 1992 Stock Option Plan. Pursuant to the terms F-23 54 CKE RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) of the acquisition, options under these plans became fully vested on July 15, 1996. The options granted in accordance with these four plans generally had a term of five to 10 years. Under these plans, there were 21,983 stock options outstanding at January 31, 1998 with exercise prices ranging from $12.10 to $23.83 per share. No further shares may be granted under these plans. Transactions under all plans are as follows:
WEIGHTED AVERAGE SHARES EXERCISE PRICE EXERCISABLE --------- -------------- ----------- Balance, January 31, 1995....................... 1,960,238 $ 5.42 Granted....................................... 1,479,069 6.96 Canceled...................................... (194,115) 5.53 Exercised..................................... (585,738) 4.69 --------- Balance, January 31, 1996....................... 2,659,454 $ 6.43 1,028,126 Options assumed in Summit acquisition......... 84,832 17.18 Granted....................................... 1,243,919 16.36 Canceled...................................... (23,993) 8.80 Exercised..................................... (395,574) 5.64 --------- Balance, January 31, 1997....................... 3,568,638 $10.22 1,359,068 Granted....................................... 1,762,750 26.51 Canceled...................................... (223,325) 22.59 Exercised..................................... (540,365) 6.95 --------- Balance, January 31, 1998....................... 4,567,698 $16.29 1,874,704 =========
The following table summarizes information related to stock options outstanding and exercisable at January 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------- ---------------------------- WEIGHTED WEIGHTED AVERAGE WEIGHTED RANGE OF SHARES AVERAGE REMAINING SHARES AVERAGE EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE - --------------- ----------- -------------- ---------------- ----------- -------------- $ 3.64 to $ 5.45 675,054 $ 4.46 6.26 537,004 $ 4.53 5.61 8.11 295,823 7.55 5.36 288,948 7.60 8.94 13.24 1,058,535 9.51 7.60 622,465 9.19 13.62 20.45 1,015,428 18.02 8.52 333,428 17.84 20.81 29.43 1,494,258 26.57 9.19 92,859 25.61 37.78 39.09 28,600 37.83 9.68 0 0.00 --------- --------- $ 3.64 $39.09 4,567,698 $16.29 7.99 1,874,704 $ 9.96 ========= =========
For purposes of the following pro forma disclosures required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") the fair value of each option granted after fiscal 1995 has been estimated on the date of grant using the Black-Scholes option-pricing model, with the following assumptions used for grants in fiscal 1998, 1997 and 1996: annual dividends consistent with the Company's current dividend policy, which resulted in payments of $0.07 per share in fiscal 1998 and $0.05 per share in fiscal 1997 and 1996; expected volatility of 25% in fiscal 1998 and 1997 and 29% in fiscal 1996; risk-free interest rates of 5.51% in fiscal 1998, 6.25% in fiscal 1997 and 5.25% in fiscal 1996; and an expected life of 5.50 years in fiscal 1998 and 5.45 years for fiscal 1997 and 1996. The weighted average fair value of each option granted during fiscal 1998, 1997 and 1996 was $9.13, $6.80 and $2.51, respectively. Had compensation expense been recognized for fiscal 1998, 1997 and 1996 grants for stock-based compensation plans in accordance with provisions of SFAS 123, the Company would have recorded net income and earnings F-24 55 CKE RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) per share of $39.9 million, or $0.94 per basic share and $0.91 per diluted share in fiscal 1998; $20.5 million, or $0.63 per basic share and $0.62 per diluted share in fiscal 1997; and $10.7 million, or $0.35 per basic and diluted share in fiscal 1996. Since the pro forma compensation expense for stock-based compensation plans is recognized over a three-year vesting period, the foregoing pro forma reductions in the Company's net income are not representative of anticipated amounts in future years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that do not have vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the value of an estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. NOTE 19 -- SUPPLEMENTAL CASH FLOW INFORMATION
1998 1997 1996 ------- ------- ------- (DOLLARS IN THOUSANDS) Cash paid for interest and income taxes are as follows: Interest (net of amount capitalized).................... $14,448 $ 9,549 $10,198 Income taxes............................................ 18,938 2,778 2,156 Non-cash investing and financing activities are as follows: Sale of property and equipment.......................... $ -- $ 2,469 $ -- Increase in long-term investments....................... -- (2,469) -- Transfer of inventory, current assets and property and equipment to long-term investments................... -- -- 20,352 Common stock issued in connection with Summit acquisition.......................................... -- 11,411 -- Common stock issued in connection with Hardee's Green Bay, Inc. acquisition................................ 9,405 -- --
NOTE 20 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following table presents summarized quarterly results:
QUARTER ------------------------------------------------- 1ST 2ND 3RD 4TH ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FISCAL 1998 Total revenues................................ $235,356 $242,102 $347,455 $324,746 Operating income.............................. 18,406 18,954 25,121 23,710 Net income.................................... 10,586 10,545 13,102 12,524 Net income per share -- basic................. $ 0.29 $ 0.26 $ 0.28 $ 0.27 ======== ======== ======== ======== Net income per share -- diluted............... $ 0.28 $ 0.25 $ 0.27 $ 0.26 ======== ======== ======== ======== FISCAL 1997 Total revenues................................ $152,737 $127,925 $162,093 $170,625 Operating income.............................. 11,242 10,140 11,530 11,227 Net income.................................... 5,333 5,192 5,588 6,189 Net income per share -- basic................. $ 0.17 $ 0.17 $ 0.18 $ 0.17 ======== ======== ======== ======== Net income per share -- diluted............... $ 0.17 $ 0.16 $ 0.17 $ 0.17 ======== ======== ======== ========
F-25 56 CKE RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Quarterly operating results are not necessarily representative of operations for a full year for various reasons, including the seasonal nature of the quick-service restaurant industry and unpredictable adverse weather conditions which may affect sales volume and food costs. In addition, all quarters have 12-week accounting periods, except the first quarters of fiscal 1998 and 1997, which have 16-week accounting periods. NOTE 21 -- COMMITMENTS AND CONTINGENT LIABILITIES In conjunction with the Senior Credit Facility established during fiscal 1998, a letter of credit subfacility in the amount of $55.0 million was established (see Note 9). Several letters of credit are outstanding under this facility which secure the Company's potential workers' compensation claims. The Company is required to provide a letter of credit each year based on its existing workers' compensation claims experience, or set aside a comparable amount of cash or investment securities in a trust account. Additionally there is a $3.9 million letter of credit outstanding under the subfacility which secures the Industrial Revenue Bonds issued in connection with the construction of the Company's Northern California distribution facility. The Company's standby letter of credit agreements with various banks expire as follows:
(DOLLARS IN THOUSANDS) ---------------------- July 1998................................................. $37,881 October 1998.............................................. 883 November 1998............................................. 345 January 1999.............................................. 3,852 April 2000................................................ 275 ------- $43,236 =======
In fiscal 1996, the Company sold certain of its Carl's Jr. franchise notes receivable, with recourse, to an independent third party (see Note 14). In addition, the Company entered into two limited term guarantees with an independent third party during fiscal 1997 on behalf of certain of its Carl's Jr. franchisees and an additional limited term guarantee in fiscal 1998 with an independent third party on behalf of its Hardee's franchisees. The Company is contingently liable for an aggregate of approximately $4.5 million under these guarantees as of January 31, 1998. NOTE 22 -- SUBSEQUENT EVENTS On April 1, 1998, the Company acquired FEI from Advantica Restaurant Group, Inc. for a purchase price of $380.8 million plus the assumption of $45.6 million in capital lease obligations, subject to adjustment ("the FEI Acquisition"). FEI was the largest franchisee of the Hardee's system, previously operating 557 Hardee's restaurants, located primarily in the Southeastern United States. As a result of the FEI Acquisition, 1,420 of the 3,038 Hardee's restaurants operated as of January 31, 1998 are presently operated by the Company, representing 46.7% of the Hardee's system. The Company used the majority of the net proceeds from a private placement of $197.2 million aggregate principal amount of convertible subordinated notes for which the Company received net cash proceeds of $192.3 million together with borrowings of $213.2 million under the Company's Senior Credit Facility to finance the FEI Acquisition, which was accounted for as a purchase (see Note 9). F-26 57 EXHIBIT INDEX
EXHIBITS - -------- 3-1 Certificate of Incorporation of the Registrant, incorporated herein by reference to exhibit 3-1 to the Registrant's Form S-4 Registration Statement Number 333-05305. 3-2 Certificate of Amendment of Certificate of Incorporation, as filed with the Delaware Secretary of State on December 9, 1997.(1) 3-3 Bylaws of the Registrant, incorporated herein by reference to exhibit 3-2 to the Registrant's Form S-4 Registration Statement Number 333-05305. 4-1 Indenture, dated as of March 13, 1998 for 4.25% Convertible Subordinated Notes due 2004 by and between CKE Restaurants, Inc. and Chase Manhattan Bank and Trust Company, National Association, as Trustee.(1) 4-2 Form of Note (included in Exhibit 4.1). 4-3 Registration Rights Agreement dated as of March 13, 1998 between the Company and Morgan Stanley & Co. Incorporated, BT Alex Brown Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Schroder & Co. Inc.(1) 10-1 Carl Karcher Enterprises, Inc. Profit Sharing Plan, as amended, filed as exhibit 10-21 to the Company's Registration Statement on Form S-1, file No. 2-73695, and is hereby incorporated by reference.(2) 10-2 Carl Karcher Enterprises, Inc. Key Employee Stock Option Plan, filed as exhibit 10-24 to the Company's Registration Statement on Form S-1, file No. 2-80283, and is hereby incorporated by reference.(2) 10-3 Carl Karcher Enterprises, Inc. 1993 Employee Stock Incentive Plan, filed as exhibit 10-123 to the Company's Form 10-K Annual Report for fiscal year ended January 25, 1993, and is hereby incorporated by reference.(2) 10-4 CKE Restaurants, Inc. 1994 Stock Incentive Plan, as amended, incorporated herein by reference to exhibit 4-1 to the Registrant's Form S-8 Registration Statement Number 333-12399.(2) 10-5 CKE Restaurants, Inc. 1994 Employee Stock Purchase Plan, as amended.(2) 10-6 Summit Family Restaurants Inc. 1992 Stock Option Plan; 1987 Employee Incentive Stock Option Plan; 1987 Non Qualified Stock Option Plan; and the 1984 Incentive Stock Option Plan, incorporated herein by reference to exhibits 4-1, 4-2, 4-3 and 4-4 to CKE Restaurants, Inc. Form S-8 Registration Statement Number 333-12404.(2) 10-7 Employment Agreement dated January 1, 1994, by and between Carl Karcher Enterprises, Inc. and Carl N. Karcher, filed as exhibit 10-89 to the Company's Form 10-K Annual Report for fiscal year ended January 31, 1994, and is hereby incorporated by reference.(2) 10-8 First Amendment to Employment Agreement dated November 1, 1997, by and between Carl N. Karcher and Carl Karcher Enterprises, Inc.(1)(2) 10-9 Employment Agreement dated November 8, 1994, by and between Carl Karcher Enterprises, Inc. and C. Thomas Thompson, filed as exhibit 10-83 to the Company's Form 10-K Annual Report for fiscal year ended January 30, 1995, and is hereby incorporated by reference.(2) 10-10 First Amendment to Employment Agreement dated March 31, 1996, by and between Carl Karcher Enterprises, Inc. and C. Thomas Thompson, filed as exhibit 10-44 to the Company's Form 10-Q Quarterly Report for the quarterly period ended May 20, 1996, and is hereby incorporated by reference.(2) 10-11 Employment Agreement dated January 24, 1996, by and between CKE Restaurants, Inc. and Robert E. Wheaton, filed as exhibit 10-45 to the Company's Form 10-Q Quarterly Report for the quarterly period ended May 20, 1996, and is hereby incorporated by reference.(2)
E-1 58
EXHIBITS - -------- 10-12 First Amendment to Employment Agreement dated September 30, 1997, by and between CKE Restaurants, Inc. and Robert E. Wheaton.(1)(2) 10-13 Employment Agreement dated July 15, 1997, by and between Hardee's Food Systems, Inc. and Rory J. Murphy, filed as exhibit 10-46 to the Company's Form 10-Q Quarterly Report for the quarterly period ended August 11, 1997, and is hereby incorporated by reference.(2) 10-14 Settlement Agreement and Release dated as of April 26, 1996, by and between Giant Group, Ltd; William P. Foley II; CKE Restaurants, Inc.; Fidelity National Financial, Inc.; and other parties, filed as exhibit 10-42 to the Company's Form 10-Q Quarterly Report for the quarterly period ended May 20, 1996, and is hereby incorporated by reference. 10-15 Operating Agreement by and between Rally's Hamburgers, Inc. and Carl Karcher Enterprises, Inc. dated May 26, 1996, filed as exhibit 10-43 to the Company's Form 10-Q Quarterly Report for the quarterly period ended May 20, 1996, and is hereby incorporated by reference.* 10-16 Settlement and Development Agreement by and between Carl Karcher Enterprises, Inc., CKE Restaurants, Inc. and GB Foods Corporation dated as of May 1995, filed as exhibit 10-31 to the Company's Form 10-K Annual Report for the fiscal year ended January 29, 1996, and is hereby incorporated by reference. 10-17 First Amendment to Settlement and Development Agreement by and between Carl Karcher Enterprises, Inc., CKE Restaurants, Inc. and GB Foods Corporation dated as of February 20, 1997. 10-18 Agreement to Contribute Assets dated April 17, 1995 by and between Boston West, L.L.C. and Boston Pacific, Inc., filed as exhibit 10-84 to the Company's Form 10-K Annual Report for fiscal year ended January 30, 1995, and is hereby incorporated by reference. 10-19 Amended and Restated Limited Liability Company Agreement of Boston West, L.L.C. (a Delaware Limited Liability Company) dated April 16, 1995, filed as exhibit 10-85 to the Company's Form 10-K Annual Report for fiscal year ended January 30, 1995, and is hereby incorporated by reference. 10-20 First Amendment to the Amended and Restated Limited Liability Company Agreement of Boston West, L.L.C. dated May 15, 1995, filed as exhibit 10-34 to the Company's Form 10-K Annual Report for the fiscal year ended January 29, 1996, and is hereby incorporated by reference. 10-21 Second Amendment to the Amended and Restated Limited Liability Company Agreement of Boston West, L.L.C. dated May 30, 1995, filed as exhibit 10-35 to the Company's Form 10-K Annual Report for the fiscal year ended January 29, 1996, and is hereby incorporated by reference. 10-22 Third Amendment to the Amended and Restated Limited Liability Company Agreement of Boston West, L.L.C. dated September 12, 1995, filed as exhibit 10-36 to the Company's Form 10-K Annual Report for the fiscal year ended January 29, 1996, and is hereby incorporated by reference. 10-23 Fourth Amendment to the Amended and Restated Limited Liability Company Agreement of Boston West, L.L.C. dated January 31, 1996, filed as exhibit 10-37 to the Company's Form 10-K Annual Report for the fiscal year ended January 29, 1996, and is hereby incorporated by reference. 10-24 Unit Option Agreement by and between Boston West, L.L.C. and Boston Pacific, Inc., dated as of September 12, 1995, filed as exhibit 10-38 to the Company's Form 10-K Annual Report for the fiscal year ended January 29, 1996, and is hereby incorporated by reference. 10-25 Unit Repurchase Agreement by and between Boston West, L.L.C. and Boston Pacific, Inc. dated as of September 12, 1995, filed as exhibit 10-39 to the Company's Form 10-K Annual Report for the fiscal year ended January 29, 1996, and is hereby incorporated by reference. 10-26 Term Loan and Security Agreement between Carl Karcher Enterprises, Inc. and Heller Financial, Inc., dated December 19, 1995, filed as exhibit 10-40 to the Company's Form 10-K Annual Report for the fiscal year ended January 29, 1996, and is hereby incorporated by reference.
E-2 59
EXHIBITS - -------- 10-27 Amendment No. One to Term Loan and Security Agreement dated as of January 22, 1996, by and between Carl Karcher Enterprises, Inc. and Heller Financial, Inc. filed as exhibit 10-41 to the Company's Form 10-K Annual Report for the fiscal year ended January 29, 1996, and is hereby incorporated by reference. 10-28 Amendment No. Two to Term Loan and Security Agreement dated as of January 14, 1997, by and between Carl Karcher Enterprises, Inc. and Heller Financial, Inc. 10-29 Stock Purchase Agreement, dated as of August 27, 1996, by and between CKE Restaurants, Inc. and Casa Bonita Holdings, Inc., filed as exhibit 10-1 to the Company's Current Report on Form 8-K dated August 27, 1996, and is hereby incorporated by reference.* 10-30 Stock Purchase Agreement, dated as of April 27, 1997, by and among CKE Restaurants Inc., Imasco Holdings, Inc. and Hardee's Food Systems, Inc., filed as exhibit 10.1 to the Company's Current Report on Form 8-K dated April 27, 1997, and is hereby incorporated by reference.* 10-31 Supply Agreement, dated as of July 14, 1997, by and between Hardee's Food Systems, Inc. and Fast Food Merchandisers, Inc. (Forest City Division), filed as exhibit 99.3 to the Company's Current Report on Form 8-K dated April 27, 1997, and is hereby incorporated by reference.* 10-32 Supply Agreement, dated as of July 14, 1997, by and between Hardee's Food Systems, Inc. and Fast Food Merchandisers, Inc. (Monterey Division), filed as exhibit 99.4 to the Company's Current Report on Form 8-K dated April 27, 1997, and is hereby incorporated by reference.* 10-33 Supply Agreement, dated as of July 14, 1997, by and between Hardee's Food Systems, Inc. and QVS, Inc., filed as exhibit 99.5 to the Company's Current Report on Form 8-K dated April 27, 1997, and is hereby incorporated by reference.* 10-34 Distribution Agreement, dated as of July 14, 1997, by and among the Company, Hardee's Food Systems, Inc. and Fast Food Merchandisers, Inc., filed as exhibit 99.6 to the Company's Current Report on Form 8-K dated April 27, 1997, as is hereby incorporated by reference.* 10-35 Exchange Agreement, dated as of December 8, 1997, by and between Rally's Hamburgers, Inc., CKE Restaurants, Inc., Fidelity National Financial, Inc., Giant Group, LTD and others.*(1) 10-36 Stock Purchase Agreement dated February 18, 1998, among CKE Restaurants, Inc., Advantica Restaurant Group, Inc., Spartan Holdings, Inc. and Flagstar Enterprises, Inc., filed as exhibit 99.2 to the Company's Current Report on Form 8-K dated February 19, 1998, and is hereby incorporated by reference.* 10-37 Amended and Restated Credit Agreement, dated as of April 1, 1998, by and between the CKE Restaurants, Inc. and Banque Paribas, as agent.*(1) 11-1 Computation of Earnings Per Share.(1) 12-1 Computation of Ratios.(1) 21-1 Subsidiaries of Registrant.(1) 23-1 Consent of KPMG Peat Marwick LLP.(1) 27-1 Financial Data Schedule (included only with electronic filing). 27-2 Financial Data Schedule restated for fiscal year 1997 (included only with electronic filing). 27-3 Financial Data Schedule restated for fiscal year 1996 (included only with electronic filing).
- --------------- * Schedules omitted. The Registrant shall furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule upon request. (1) Filed herewith. (2) A management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 14(c) of Form 10-K. E-3 EX-3.2 2 CERT. OF AMENDMENT OF CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.2 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF CKE RESTAURANTS, INC. DECEMBER 9, 1997 Pursuant to the provisions of Section 242 of the Delaware General Corporation Law, CKE Restaurants, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Company"), hereby certifies as follows: 1. That the following amendment to the Certificate of Incorporation of the Company was approved by unanimous written consent of the Board of Directors and by majority vote of the stockholders of the Company: Article V, Section 1 of the Certificate of Incorporation of the Company is amended to read in its entirety as follows: "ARTICLE V: Authorized Capital Stock SECTION 1. Number of Authorized Shares. The Corporation shall be authorized to issue two classes of shares of stock to be designated, respectively, "Common Stock" and "Preferred Stock;" the total number of shares of all classes of stock that the Corporation shall have authority to issue is One Hundred Five Million (105,000,000) shares, consisting of One Hundred Million (100,000,000) shares of Common Stock, par value $.01 per share, and Five Million (5,000,000) shares of Preferred Stock, par value $.01 per share." 2. That the above amendment was duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law. IN WITNESS WHEREOF, the Company has caused this Certificate of Amendment of Certificate of Incorporation to be duly executed by the Company's authorized officer as shown below and attested to by its Secretary. 2 Dated: December 9, 1997 CKE RESTAURANTS, INC. /s/ C. THOMAS THOMPSON ---------------------------------------- By: C. Thomas Thompson, President Attest: /s/ SHARON CALAHAN - ------------------------------------- Assistant Secretary NOTARIAL ACKNOWLEDGEMENT STATE OF CALIFORNIA) ) COUNTY OF ORANGE ) On December 9, 1997, before me, the undersigned Notary Public, personally appeared C. Thomas Thompson, personally known to me [or proved to me on the basis of satisfactory evidence] to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/ SHARON CALAHAN ---------------------------------- EX-4.1 3 INDENTURE 1 EXHIBIT 4.1 ================================================================================ CKE RESTAURANTS, INC. TO CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION TRUSTEE ------------ INDENTURE DATED AS OF MARCH 13, 1998 ------------ 4 1/4% CONVERTIBLE SUBORDINATED NOTES DUE 2004 ================================================================================ 2 CKE RESTAURANTS, INC. CROSS-REFERENCE SHEET PURSUANT TO ITEM 601(B)(4)(IV) OF REGULATION S-K
SECTION OF THE TRUST INDENTURE ACT OF 1939 INDENTURE LOCATION AND CAPTION - --------------------------- ------------------------------ 310(a)...................................... Section 8.9 (Eligibility of Trustee) 310(b)...................................... Section 8.8 (Conflicting Interest of Trustee); Section 8.10 (Resignation or Removal of Trustee) 311(a) and (b).............................. Section 8.13 (Limitation on Rights of Trustee as Creditor) 311(c)...................................... Not Applicable 312(a), (b) and (c)......................... Section 6.1 (Noteholders' Lists); Section 6.2 (Preservation and Disclosure of Lists) 3.13(a), (b), (c) and (d)................... Section 6.3 (Reports by Trustee) 3.14(a)..................................... Section 6.4 (Reports by Company) 3.14(b)..................................... Not Applicable 3.14(c)..................................... Section 5.10 (Compliance Certificate); Section 8.2 (Reliance on Documents, Opinions, Etc.); Section 8.7 (Officers' Certificate and Opinion of Counsel as Evidence); Section 13.1 (Discharge of Indenture); Section 16.5 (Evidence of Compliance with Conditions Precedent; Certificates) 3.14(d)..................................... Not Applicable 3.14(e)..................................... Section 16.6 (Statements Required in Certificate or Opinion) 3.14(f)..................................... Section 8.7 (Officers' Certificate and Opinion of Counsel as Evidence) 3.15(a)..................................... Section 8.1 (Duties and Responsibilities of Trustee); Section 8.7 (Officers' Certificate and Opinion of Counsel) 3.15(b)..................................... Section 7.8 (Notice of Defaults) 3.15(c) and (d)............................. Section 8.1 (Duties and Responsibilities of Trustee) 3.15(e)..................................... Section 7.9 (Undertaking to Pay Costs) 3.16(a)..................................... Section 7.1 (Events of Default); Section 7.7 (Direction of Proceedings and Waiver of Defaults by Majority of Noteholders) 3.16(b)..................................... Section 5.1 (Payment of Principal, Premium and Interest); Section 7.7 (Direction of Proceedings and Waiver of Defaults by Majority of Noteholders)
3
SECTION OF THE TRUST INDENTURE ACT OF 1939 INDENTURE LOCATION AND CAPTION - --------------------------- ------------------------------ 3.16(c)..................................... Section 9.1 (Action by Noteholders) 3.17(a)..................................... Section 7.2 (Payment of Notes on Default; Suit Therefor); Section 7.5 (Proceedings by Trustee) 317(b)...................................... Section 5.4 (Provisions as to Paying Agent); Section 13.3 (Paying Agent to Repay Monies Held) 318(a)...................................... Section 6.2 (Preservation and Disclosure of Lists); Section 6.3 (Reports by Trustee); Section 6.4 (Reports by Company); Section 8.1 (Duties and Responsibilities of Trustee); Section 8.8 (Conflicting Interests of Trustee); Section 8.9 (Eligibility of Trustee); Section 8.13 (Limitations on Rights of Trustee as Creditor)
4 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS Section 1.1 Definitions.............................................................. 2 Affiliate.......................................... 2 Applicable Price................................... 2 Board of Directors................................. 2 Business Day....................................... 2 Closing Price...................................... 3 Commission......................................... 3 Common Stock....................................... 3 Company............................................ 3 Company Notice..................................... 3 Conversion Price................................... 3 Corporate Trust Office............................. 3 Credit Agreement................................... 3 Custodian.......................................... 4 default............................................ 4 Defaulted Interest................................. 4 Depositary......................................... 4 Designated Senior Indebtedness..................... 4 Event of Default................................... 5 Exchange Act....................................... 5 Fundamental Change................................. 5 Indebtedness....................................... 5 Indenture.......................................... 6 Initial Purchasers................................. 6 Liquidated Damages................................. 6 Note or Notes...................................... 6 Noteholder or holder.................................6 Officers' Certificate.............................. 6 Opinion of Counsel................................. 6 outstanding........................................ 6 Person............................................. 7 PORTAL Market...................................... 7 Predecessor Note................................... 7 QIB................................................ 7
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Page ---- Reference Market Price............................. 7 Register........................................... 7 Registration Rights Agreement...................... 8 Regulation S....................................... 8 Representative..................................... 8 Responsible Officer................................ 8 Restricted Securities.............................. 8 Rule 144A.......................................... 8 Securities Act..................................... 8 Senior Indebtedness................................ 8 Subsidiary......................................... 9 Trading Day........................................ 9 Trigger Event........................................9 Trust Indenture Act................................ 9 Trustee............................................ 9 ARTICLE II ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES Section 2.1 Designation Amount and Issue of Notes.................................... 10 Section 2.2 Form of Notes............................................................ 10 Section 2.3 Date and Denomination of Notes; Payments of Interest..................... 11 Section 2.4 Execution of Notes....................................................... 12 Section 2.5 Exchange and Registration of Transfer of Notes: Restrictions on Transfer; Depositary..................................................... 13 Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes............................... 21 Section 2.7 Temporary Notes.......................................................... 22 Section 2.8 Cancellation of Notes Paid, Etc.......................................... 22 ARTICLE III REDEMPTION OF NOTES Section 3.1 Redemption Prices........................................................ 22 Section 3.2 Notice of Redemption; Selection of Notes................................. 23 Section 3.3 Payment of Notes Called for Redemption................................... 24 Section 3.4 Conversion Arrangement on Call for Redemption............................ 25
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Page ---- Section 3.5 Redemption at Option of Holders.......................................... 26 Section 3.6 Covenant to Comply with Securities Laws upon Purchase of Notes........... 28 Section 3.7 No Sinking Fund.......................................................... 28 ARTICLE IV SUBORDINATION OF NOTES Section 4.1 Agreement of Subordination............................................... 28 Section 4.2 Payments to Noteholders.................................................. 29 Section 4.3 Subrogation of Notes..................................................... 32 Section 4.4 Authorization by Noteholders............................................. 33 Section 4.5 Notice to Trustee........................................................ 33 Section 4.6 Trustee's Relation to Senior Indebtedness................................ 34 Section 4.7 No Impairment of Subordination........................................... 34 Section 4.8 Certain Conversions Deemed Payment....................................... 34 Section 4.9 Article Applicable to Paying Agents...................................... 35 Section 4.10 Senior Indebtedness Entitled to Rely..................................... 35 ARTICLE V PARTICULAR COVENANTS OF THE COMPANY Section 5.1 Payment of Principal, Premium and Interest............................... 35 Section 5.2 Offices for Notices and Payments......................................... 36 Section 5.3 Appointments to Fill Vacancies in Trustee's Office....................... 36 Section 5.4 Provisions as to Paying Agent............................................ 37 Section 5.5 Corporate Existence...................................................... 38 Section 5.6 Maintenance of Properties................................................ 38 Section 5.7 Payment of Taxes and Other Claims........................................ 38 Section 5.8 Rule 144A Information Requirement........................................ 38 Section 5.9 Stay, Extension and Usury Laws........................................... 39 Section 5.10 Compliance Certificate................................................... 39 ARTICLE VI NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE
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Page ---- Section 6.1 Noteholders' Lists....................................................... 39 Section 6.2 Preservation and Disclosure of Lists..................................... 40 Section 6.3 Reports by Trustee....................................................... 40 Section 6.4 Reports by Company....................................................... 40 ARTICLE VII REMEDIES OF THE TRUSTEE AND NOTEHOLDERS IN THE EVENT OF DEFAULT Section 7.1 Events of Default........................................................ 41 Section 7.2 Payment of Notes on Default; Suit Therefor............................... 43 Section 7.3 Application of Monies Collected by Trustee............................... 45 Section 7.4 Proceedings by Noteholder................................................ 46 Section 7.5 Proceedings by Trustee................................................... 47 Section 7.6 Remedies Cumulative and Continuing....................................... 47 Section 7.7 Direction of Proceedings and Waiver of Defaults by Majority of Noteholders.............................................................. 47 Section 7.8 Notice of Defaults....................................................... 48 Section 7.9 Undertaking to Pay Costs................................................. 48 ARTICLE VIII CONCERNING THE TRUSTEE Section 8.1 Duties and Responsibilities of Trustee................................... 48 Section 8.2 Reliance on Documents, Opinions, Etc..................................... 50 Section 8.3 No Responsibility for Recitals, Etc...................................... 51 Section 8.4 Trustee, Paying Agents, Conversion Agents or Registrar May Own Notes.................................................................... 51 Section 8.5 Monies to Be Held in Trust............................................... 51 Section 8.6 Compensation and Expenses of Trustee..................................... 52 Section 8.7 Officers' Certificate and Opinion of Counsel as Evidence................. 52 Section 8.8 Conflicting Interests of Trustee......................................... 53 Section 8.9 Eligibility of Trustee................................................... 53 Section 8.10 Resignation or Removal of Trustee........................................ 53 Section 8.11 Acceptance by Successor Trustee.......................................... 54 Section 8.12 Succession by Merger, Etc................................................ 55 Section 8.13 Limitation on Rights of Trustee as Creditor.............................. 55
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Page ---- ARTICLE IX CONCERNING THE NOTEHOLDERS Section 9.1 Action by Noteholders.................................................... 56 Section 9.2 Proof of Execution by Noteholders........................................ 56 Section 9.3 Who Are Deemed Absolute Owners........................................... 56 Section 9.4 Company-Owned Notes Disregarded.......................................... 57 Section 9.5 Revocation of Consents; Future Holders Bound............................. 57 ARTICLE X NOTEHOLDERS' MEETINGS Section 10.1 Purposes of Meetings..................................................... 58 Section 10.2 Call of Meetings by Trustee.............................................. 58 Section 10.3 Call of Meetings by Company or Noteholders............................... 58 Section 10.4 Qualifications for Voting................................................ 59 Section 10.5 Regulations.............................................................. 59 Section 10.6 Voting................................................................... 59 Section 10.7 No Delay of Rights by Meeting............................................ 60 ARTICLE XI SUPPLEMENTAL INDENTURES Section 11.1 Supplemental Indentures Without Consent of Noteholders................... 60 Section 11.2 Supplemental Indentures with Consent of Noteholders...................... 61 Section 11.3 Effect of Supplemental Indenture......................................... 62 Section 11.4 Notation on Notes........................................................ 63 Section 11.5 Evidence of Compliance of Supplemental Indenture to Be Furnished Trustee.................................................................. 63
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Page ---- ARTICLE XII CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE Section 12.1 Company May Consolidate Etc. on Certain Terms............................ 63 Section 12.2 Successor Corporation to Be Substituted.................................. 64 Section 12.3 Opinion of Counsel to Be Given Trustee................................... 64 ARTICLE XIII SATISFACTION AND DISCHARGE OF INDENTURE Section 13.1 Discharge of Indenture................................................... 65 Section 13.2 Deposited Monies to Be Held in Trust by Trustee.......................... 65 Section 13.3 Paying Agent to Repay Monies Held........................................ 65 Section 13.4 Return of Unclaimed Monies............................................... 66 Section 13.5. Reinstatement............................................................ 66 ARTICLE XIV IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS Section 14.1 Indenture and Notes Solely Corporate Obligations......................... 66 ARTICLE XV CONVERSION OF NOTES Section 15.1 Right to Convert......................................................... 67 Section 15.2 Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends...................... 67 Section 15.3 Payments in Lieu of Fractional Shares.................................... 69 Section 15.4 Conversion Price......................................................... 69 Section 15.5 Adjustment of Conversion Price........................................... 69 Section 15.6 Effect of Reclassification, Consolidation, Merger or Sale................ 80 Section 15.7 Taxes on Shares Issued................................................... 81
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Page ---- Section 15.8 Reservation of Shares; Shares to Be Fully Paid; Compliance with Governmental Requirements; Listing of Common Stock....................... 81 Section 15.9 Responsibility of Trustee................................................ 82 Section 15.10 Notice to Holders Prior to Certain Actions............................... 83 ARTICLE XVI MISCELLANEOUS PROVISIONS Section 16.1 Provisions Binding on Company's Successors............................... 84 Section 16.2 Official Acts by Successor Corporation................................... 84 Section 16.3 Addresses for Notices, Etc............................................... 84 Section 16.4 Governing Law............................................................ 84 Section 16.5 Evidence of Compliance with Conditions Precedent; Certificates to Trustee.................................................................. 84 Section 16.6 Statements Required in Certificate or Opinion............................ 84 Section 16.7 Legal Holidays........................................................... 85 Section 16.8 No Security Interest Created............................................. 85 Section 16.9 Benefits of Indenture.................................................... 85 Section 16.10 Table of Contents, Headings, Etc......................................... 85 Section 16.11 Authenticating Agent..................................................... 86 Section 16.12 Execution in Counterparts................................................ 87 EXHIBIT A -- Form of Note
vii 11 INDENTURE dated as of March 13, 1998, between CKE RESTAURANTS, INC., a Delaware corporation (hereinafter sometimes called the "Company", as more fully set forth in Section 1.1), and CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION, duly organized and existing under the laws of the United States of America, as trustee hereunder (hereinafter sometimes called the "Trustee", as more fully set forth in Section 1.1). W I T N E S S E T H: WHEREAS, for its lawful corporate purposes, the Company has duly authorized the issue of its 4 1/4% Convertible Subordinated Notes due 2004 (hereinafter sometimes called the "Notes"), in an aggregate principal amount not to exceed $197,225,000 and, to provide the terms and conditions upon which the Notes are to be authenticated, issued and delivered, the Company has duly authorized the execution and delivery of this Indenture; and WHEREAS, the Notes, the certificate of authentication to be borne by the Notes, a form of assignment, a form of option to elect repayment upon a Fundamental Change (as defined herein), a form of conversion notice and a certificate of transfer to be borne by the Notes are to be substantially in the forms hereinafter provided for; and WHEREAS, all acts and things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee or a duly authorized authenticating agent, as provided in this Indenture, the valid, binding and legal obligations of the Company, and to constitute these presents a valid agreement according to its terms, have been done and performed, and the execution of this Indenture and the issue hereunder of the Notes have in all respects been duly authorized. NOW, THEREFORE, THIS INDENTURE WITNESSETH: That in order to declare the terms and conditions upon which the Notes are, and are to be, authenticated, issued and delivered, and in consideration of the premises and of the purchase and acceptance of the Notes by the holders thereof, the Company covenants and agrees with the Trustee for the equal and proportionate benefit of the respective holders from time to time of the Notes (except as otherwise provided below), as follows: 12 ARTICLE I DEFINITIONS Section 1.1 Definitions. The terms defined in this Section 1.1 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.1. All other terms used in this Indenture that are defined in the Trust Indenture Act or which are by reference therein defined in the Securities Act (except as herein otherwise expressly provided or unless the context otherwise requires) shall have the meanings assigned to such terms in said Trust Indenture Act and in said Securities Act as in force at the date of the execution of this Indenture. The words "herein," "hereof," "hereunder," and words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other Subdivision. The terms defined in this Article include the plural as well as the singular. Affiliate: The term "Affiliate" of any specified Person shall mean any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control," when used with respect to any specified Person means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling' and "controlled" have meanings correlative to the foregoing. Applicable Price: The term "Applicable Price" means (i) in the event of a Fundamental Change in which the holders of the Common Stock receive only cash, the amount of cash received by the holder of one share of Common Stock and (ii) in the event of any other Fundamental Change, the arithmetic average of the Closing Price for the Common Stock (determined as set forth in Section 15.5(i)) during the ten Trading Days immediately prior to (A) the record date for the determination of the holders of Common Stock entitled to receive cash, securities, property or other assets in connection with such Fundamental Change, or, (B) if there is no such record date, the date upon which the holders of the Common Stock shall have the right to receive cash, securities, property or other assets in connection with the Fundamental Change. Board of Directors: The term "Board of Directors" shall mean the Board of Directors of the Company or a committee of such Board duly authorized to act for it hereunder. Business Day: The term "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in 2 13 The City of New York or the City of San Francisco are authorized or obligated by law or executive order to close or be closed. Closing Price: The term "Closing Price" shall have the meaning specified in Section 15.5(i)(1). Commission: The term "Commission" shall mean the Securities and Exchange Commission. Common Stock: The term "Common Stock" shall mean any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which is not subject to redemption by the Company. Subject to the provisions of Section 15.6, however, shares issuable on conversion of Notes shall include only shares of the class designated as common stock of the Company at the date of this Indenture or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which are not subject to redemption by the Company; provided that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion to which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. Company: The term "Company" shall mean CKE Restaurants, Inc., a Delaware corporation, and subject to the provisions of Article XII, shall include its successors and assigns. Company Notice: The term "Company Notice" shall have the meaning specified in Section 3.5(b). Conversion Price: The term "Conversion Price" shall have the meaning specified in Section 15.4. Corporate Trust Office: The term "Corporate Trust Office", or other similar term, shall mean the principal office of the Trustee at which at any particular time its corporate trust business shall be administered, which office is, at the date as of which this Indenture is dated, located at 101 California Street, Suite 2725, San Francisco, California 94111. Credit Agreement: The term "Credit Agreement" shall mean that certain Credit Agreement dated as of July 15, 1997 among the Company, the Lenders named therein and Banque Paribas, as agent, together with all other agreements, instruments and 3 14 documents executed or delivered pursuant thereto or in connection therewith, in each case as such Credit Agreement, agreements, instruments or documents (or such agents or lenders) has been prior to the date hereof and hereafter may be amended, restated, supplemented, extended, renewed, replaced, substituted or otherwise modified from time to time, including, without limitation, replacement or substitution in its entirety with one or more agreements, agents or syndicates of financial institutions; provided, that with respect to any one or more loan agreements providing for the refinancing of Indebtedness under the Credit Agreement, such loan agreement or loan agreements shall be the Credit Agreement under this Indenture only if a notice to that effect has been delivered by the Company to the Trustee. Custodian: The term "Custodian" shall mean Chase Manhattan Bank and Trust Company, National Association, as custodian with respect to the Notes in global form, or any successor entity thereto. default: The term "default" shall mean any event that is, or after notice or passage of time, or both, would be, an Event of Default. Defaulted Interest: The term "Defaulted Interest" has the meaning ascribed to it in Section 2.3. Depositary: The term "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.5(d) as the Depositary with respect to the Notes, until a successor shall have been appointed and become such pursuant to the applicable provisions of this Indenture, and thereafter, "Depositary" shall mean or include such successor. Designated Senior Indebtedness: The term "Designated Senior Indebtedness" shall mean Senior Indebtedness under the Credit Agreement or any other particular Senior Indebtedness in which the instrument creating or evidencing the same or the assumption or guarantee thereof (or related agreements or documents to which the Company is a party) expressly provides that such Senior Indebtedness shall be "Designated Senior Indebtedness" for purposes of this Indenture (provided that such instrument, agreement or other document may place limitations and conditions on the right of such Senior Indebtedness to exercise the rights of Designated Senior Indebtedness). If any payment made to any holder of any Designated Senior Indebtedness or its Representative with respect to such Designated Senior Indebtedness is rescinded or must otherwise be returned by such holder or Representative upon the insolvency, bankruptcy, reorganization, receivership, dissolution, winding-up or liquidation of the Company or any similar proceeding, the reinstated Indebtedness of the Company arising as a result of such rescission or return shall constitute Designated Senior Indebtedness effective as of the date of such rescission or return. 4 15 Event of Default: The term "Event of Default" shall mean any event specified in Section 7.1(a), (b), (c), (d), (e), (f) or (g). Exchange Act: The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as in effect from time to time. Fundamental Change: The term "Fundamental Change" means the occurrence of any transaction or event in connection with which all or substantially all Common Stock shall be exchanged for, be converted into, be acquired for or constitute the right to receive consideration (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise) which is not all or substantially all common stock listed (or, upon consummation of or immediately following such transaction or event which will be listed) on a United States national securities exchange or approved for quotation on the Nasdaq National Market or any similar system of automated dissemination of quotations of securities prices. Indebtedness: The term "Indebtedness" shall mean, with respect to any Person, and without duplication, (a) all indebtedness, obligations and other liabilities (contingent or otherwise) of such Person for borrowed money (including obligations of the Company in respect of overdrafts, foreign exchange contracts, currency exchange agreements, interest rate protection agreements, and any loans or advances from banks, whether or not evidenced by notes or similar instruments) or evidenced by bonds, debentures, notes or similar instruments (whether or not the recourse of the lender is to the whole of the assets of such Person or to only a portion thereof), other than any account payable or other accrued current liability or obligation incurred in the ordinary course of business in connection with the obtaining of materials or services; (b) all reimbursement obligations and other liabilities (contingent or otherwise) of such Person with respect to letters of credit, bank guarantees or bankers' acceptances; (c) all obligations and liabilities (contingent or otherwise) in respect of leases of such Person required, in conformity with generally accepted accounting principles, to be accounted for as capitalized lease obligations on the balance sheet of such Person and all obligations and other liabilities (contingent or otherwise) under any lease or related document (including a purchase agreement) in connection with the lease of real property which provides that such Person is contractually obligated to purchase or cause a third party to purchase the leased property and thereby guarantee a minimum residual value of the leased property to the lessor and the obligations of such Person under such lease or related document to purchase or to cause a third party to purchase such leased property; (d) all obligations of such Person (contingent or otherwise) with respect to an interest rate or other swap, cap or collar agreement or other similar instrument or agreement or foreign currency hedge, exchange, purchase or similar instrument or agreement; (e) all direct or indirect guaranties or similar agreements by 5 16 such Person in respect of, and obligations or liabilities (contingent or otherwise) of such Person to purchase or otherwise acquire or otherwise assure a creditor against loss in respect of, indebtedness, obligations or liabilities of another Person of the kind described in clauses (a) through (d); (f) any indebtedness or other obligations described in clauses (a) through (d) secured by any mortgage, pledge, lien or other encumbrance existing on property which is owned or held by such Person, regardless of whether the indebtedness or other obligation secured thereby shall have been assumed by such Person; and (g) any and all deferrals, renewals, extensions and refundings of, or amendments, modifications or supplements to, any indebtedness, obligation or liability of the kind described in clauses (a) through (f). Indenture: The term "Indenture" shall mean this instrument as originally executed or, if amended or supplemented as herein provided, as so amended or supplemented. Initial Purchasers: The term "Initial Purchasers" means Morgan Stanley & Co. Incorporated, BT Alex. Brown Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Schroder & Co. Inc. Liquidated Damages: The term "Liquidated Damages" shall have the meaning specified in Section 2(e) of the Registration Rights Agreement. Note or Notes: The terms "Note" or "Notes" shall mean any Note or Notes, as the case may be, authenticated and delivered under this Indenture, including the Global Note. Noteholder or holder: The terms "Noteholder" or "holder" as applied to any Note, or other similar terms (but excluding the term "beneficial holder"), shall mean any Person in whose name at the time a particular Note is registered on the Note registrar's books. Officers' Certificate: The term "Officers' Certificate," when used with respect to the Company, shall mean a certificate signed by both (a) the President, the Chief Executive Officer or the Chief Financial Officer and (b) by the Treasurer or the Secretary of the Company. Opinion of Counsel: The term "Opinion of Counsel" shall mean an opinion in writing signed by legal counsel, who may be an employee of or counsel to the Company, or other counsel acceptable to the Trustee. outstanding: The term "outstanding," (except as otherwise provided in Section 8.10) when used with reference to Notes, shall, subject to the provisions of Section 9.4, 6 17 mean, as of any particular time, all Notes authenticated and delivered by the Trustee under this Indenture, except (a) Notes theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (b) Notes, or portions thereof, (i) for the redemption of which monies in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Company) or (ii) which shall have been otherwise defeased in accordance with Article XIII; (c) Notes in lieu of which, or in substitution for which, other Notes shall have been authenticated and delivered pursuant to the terms of Section 2.6; and (d) Notes converted into Common Stock pursuant to Article XV and Notes deemed not outstanding pursuant to Article III. Person: The term "Person" shall mean a corporation, an association, a partnership, an individual, a joint venture, a joint stock company, a trust, an unincorporated organization or a government or an agency or a political subdivision thereof. PORTAL Market: The term "PORTAL Market" shall mean the Private Offerings, Resales and Trading through Automated Linkages Market operated by the National Association of Securities Dealers, Inc. or any successor thereto. Predecessor Note: The term "Predecessor Note" of any particular Note shall mean every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purposes of this definition, any Note authenticated and delivered under Section 2.6 in lieu of a lost, destroyed or stolen Note shall be deemed to evidence the same debt as the lost, destroyed or stolen Note that it replaces. QIB: The term "QIB" shall mean a "qualified institutional buyer" as defined in Rule 144A. Reference Market Price: The term "Reference Market Price" shall initially mean $25.92 and, in the event of any adjustment to the Conversion Price pursuant to Sections 15.5(a), (b), (c), (d), (e), (f) or (g), the Reference Market Price shall also be adjusted so that the ratio of the Reference Market Price to the Conversion Price after giving effect to any such adjustment shall always be the same as the ratio of $25.92 to the initial Conversion Price specified in the form of Note attached hereto (without regard to any adjustment thereto). 7 18 Register: The term "Register" shall have the meaning specified in Section 2.5(a). Registration Rights Agreement: The term "Registration Rights Agreement" means that certain Registration Rights Agreement, dated as of March 13, 1998, between the Company and the Initial Purchasers. Regulation S: The term "Regulation S" shall mean Regulation S promulgated under the Securities Act. Representative: The term "Representative" shall mean the (a) indenture trustee or other trustee, agent or representative for any Senior Indebtedness or (b) with respect to any Senior Indebtedness that does not have any such trustee, agent or other representative, (i) in the case of such Senior Indebtedness issued pursuant to an agreement providing for voting arrangements as among the holders or owners of such Senior Indebtedness, any holder or owner of such Senior Indebtedness acting with the consent of the required persons necessary to bind such holders or owners of such Senior Indebtedness and (ii) in the case of all other such Senior Indebtedness, the holder or owner of such Senior Indebtedness. Responsible Officer: The term "Responsible Officer," when used with respect to the Trustee, shall mean any officer of the Trustee in the Corporate Trust Office assigned and duly authorized by the Trustee to administer its corporate trust matters hereunder. Restricted Securities: The term "Restricted Securities" has the meaning specified in Section 2.5(d). Rule 144A: The term "Rule 144A" shall mean Rule 144A promulgated under the Securities Act. Securities Act: The term "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. Senior Indebtedness: The term "Senior Indebtedness" shall mean the principal of, premium, if any, interest (including all interest accruing subsequent to the commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowable as a claim in any such proceeding) and rent payable on or in connection with, and all fees, costs, expenses and other amounts accrued or due on or in connection with, Indebtedness of the Company, whether outstanding on the date of this Indenture or thereafter created, incurred, assumed, guaranteed or in effect guaranteed by the Company (including all deferrals, renewals, extensions, refinancings or refundings of, or amendments, restatements, modifications or supplements to, the 8 19 foregoing), unless in the case of any particular Indebtedness the instrument creating or evidencing the same or the assumption or guarantee thereof expressly provides that such Indebtedness shall not be senior in right of payment to the Notes or expressly provides that such Indebtedness is "pari passu" or "junior" to the Notes. Notwithstanding the foregoing, the term Senior Indebtedness shall not include any Indebtedness of the Company to any subsidiary of the Company, a majority of the voting stock of which is owned, directly or indirectly, by the Company. If any payment made to any holder of any Senior Indebtedness or its Representative with respect to such Senior Indebtedness is rescinded or must otherwise be returned by such holder or Representative upon the insolvency, bankruptcy, reorganization, receivership, dissolution, winding-up or liquidation of the Company or similar proceeding, the reinstated Indebtedness of the Company arising as a result of such rescission or return shall constitute Senior Indebtedness effective as of the date of such rescission or return. Subsidiary: The term "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or managing general partner of which is such Person or a subsidiary of such Person or (b) the only general partners of which are such Person or of one or more subsidiaries of such Person (or any combination thereof). Trading Day: The term "Trading Day" shall have the meaning specified in Section 15.5(i)(5). Trigger Event: The term "Trigger Event" shall have the meaning specified in Section 15.5(d). Trust Indenture Act: The term "Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as amended, as it was in force at the date of execution of this Indenture, except as provided in Sections 11.3 and 15.6; provided, however, that in the event the Trust Indenture Act of 1939 is amended after the date hereof, the term "Trust Indenture Act" shall mean, to the extent required by such amendment, the Trust Indenture Act of 1939 as so amended. Trustee: The term "Trustee" shall mean Chase Manhattan Bank and Trust Company, National Association, and its successors and any corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party and any successor trustee at the time serving as successor trustee hereunder. 9 20 The definitions of certain other terms are as specified in Section 2.5 and 3.5 and Article XV. ARTICLE II ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES Section 2.1 Designation Amount and Issue of Notes. The Notes shall be designated as "4 1/4% Convertible Subordinated Notes due 2004." Notes not to exceed the aggregate principal amount of $197,225,000 (except pursuant to Sections 2.5, 2.6, 3.3, 3.5 and 15.2 hereof) upon the execution of this Indenture, or from time to time thereafter, may be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said Notes to or upon the Trustee's receipt of the written order of the Company, signed by its (a) President, Chief Executive Officer or Chief Financial Officer and (b) Treasurer or Secretary, and the other documents required pursuant to Sections 16.5 and 16.6 hereof, without any further action of the Company hereunder. Section 2.2 Form of Notes. The Notes and the Trustee's certificate of authentication to be borne by such Notes shall be substantially in the form set forth in Exhibit A, which is incorporated in and made part of this Indenture. Any of the Notes may have such letters, numbers or other marks of identification and such notations, legends and endorsements as the officers executing the same may approve (execution thereof to be conclusive evidence of such approval) and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any securities exchange or automated quotation system on which the Notes may be listed, or to conform to usage. Neither the Company nor the Trustee shall have any responsibility for any defect in the CUSIP number that appears on any bond, debenture, coupon, note, check, advice of payment or redemption notice, and any such document may contain a statement to the effect that CUSIP numbers have been assigned by an independent service for convenience of reference and that neither the Company nor the Trustee shall be liable for any inaccuracy in such numbers. Any Note in global form shall represent such of the outstanding Notes as shall be specified therein and shall provide that it shall represent the aggregate amount of outstanding Notes from time to time endorsed thereon and that the aggregate amount of outstanding Notes represented thereby may from time to time be increased or reduced to reflect transfers or exchanges permitted hereby. Any endorsement of a Note in global form to reflect the amount of any increase or decrease in the amount of outstanding Notes represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in such manner 10 21 and upon instructions given by the holder of such Notes in accordance with this Indenture. Payment of principal of and interest (including Liquidated Damages, if any) and premium, if any, on any Note in global form shall be made to the holder of such Note. The terms and provisions contained in the form of Note attached as Exhibit A hereto shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Section 2.3 Date and Denomination of Notes; Payments of Interest. The Notes shall be issuable in registered form without coupons in denominations of $1,000 principal amount and integral multiples thereof. Every Note shall be dated the date of its authentication and shall bear interest from the applicable date in each case as specified on the face of the form of Note attached as Exhibit A hereto. Interest on the Notes shall be computed on the basis of a 360-day year comprised of twelve 30-day months. The Person in whose name any Note (or its Predecessor Note) is registered at the close of business on any record date with respect to any interest payment date, except (i) that the interest payable upon redemption (unless the date of redemption is an interest payment date) will be payable to the person to whom principal is payable and (ii) as set forth in the next succeeding sentence. In the case of any Note (or portion thereof) which is converted into Common Stock of the Company during the period from (but excluding) a record date to (but excluding) the next succeeding interest payment date either (i) if such Note (or portion thereof) has been called for redemption on a redemption date which occurs during such period, or is to be redeemed in connection with a Fundamental Change on a Repurchase Date (as defined in Section 3.5) which occurs during such period, the Company shall not be required to pay interest on such interest payment date in respect of any such Note (or portion thereof) except to the extent required to be paid upon redemption of such Note or portion thereof pursuant to Section 3.3 or 3.5 hereof or (ii) if otherwise, any Note (or portion thereof) submitted for conversion during such period shall be accompanied by funds equal to the interest payable on such succeeding interest payment date on the principal amount so converted. Interest may, as the Company shall specify to the paying agent in writing by each record date, be paid either (i) by check mailed to the address of the person entitled thereto as it appears in the Note register or (ii) by transfer to an account maintained by such person located in the United States; provided, however, that payments to the Depositary will be made by wire transfer of immediately available funds to the account of the Depositary or its nominee. The term "record date" with respect to any interest payment date shall mean the March 1 or September 1 preceding said March 15 or September 15, respectively. Any interest (including Liquidated Damages, if any) on any Note which is payable, but is not punctually paid or duly provided for, on any said March 15 or September 15 (herein called "Defaulted Interest") shall forthwith cease to be payable to the Noteholder on the relevant record date by virtue of his having been such Noteholder; and such 11 22 Defaulted Interest shall be paid by the Company, at its election in each case, as provided in clause (1) or (2) below; (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on a special record date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest to be paid on each Note and the date of the payment (which shall be not less than twenty-five (25) days after the receipt by the Trustee of such notice, unless the Trustee shall consent to an earlier date), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as provided in this clause. Thereupon the Trustee shall fix a special record date for the payment of such Defaulted Interest which shall be not more than fifteen (15) days and not less than ten (10) days prior to the date of the proposed payment and not less than ten (10) days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such special record date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the special record date therefor to be mailed, first-class postage prepaid to each Noteholder at his address as it appears on the Register, not less than ten (10) days prior to such special record date. Notice of the proposed payment of such Defaulted Interest and the special record date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Notes (or their respective Predecessor Notes) were registered at the close of business on such special record date and shall no longer be payable pursuant to the following clause (2) of this Section 2.3. (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange or automated quotation system on which the Notes may be listed or designated for issuance, and upon such notice as may be required by such exchange or automated quotation system, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Section 2.4 Execution of Notes. The Notes shall be signed in the name and on behalf of the Company by the facsimile signature of its Chief Executive Officer or President, and attested by the facsimile signature of its Chief Financial Officer, Treasurer or Secretary (which may be printed, engraved or otherwise reproduced thereon, by facsimile or otherwise). Only such Notes as shall bear thereon a certificate of authentication substantially in the form set forth on the form of Note attached as Exhibit A hereto, manually executed by 12 23 the Trustee (or an authenticating agent appointed by the Trustee as provided by Section 16.11), shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate by the Trustee (or such an authenticating agent) upon any Note executed by the Company shall be conclusive evidence that the Note so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture. In case any officer of the Company who shall have signed any of the Notes shall cease to be such officer before the Notes so signed shall have been authenticated and delivered by the Trustee, or disposed of by the Company, such Notes nevertheless may be authenticated and delivered or disposed of as though the person who signed such Notes had not ceased to be such officer of the Company; and any Note may be signed on behalf of the Company by such persons as, at the actual date of the execution of such Note, shall be the proper officers of the Company, although at the date of the execution of this Indenture any such person was not such an officer. Section 2.5 Exchange and Registration of Transfer of Notes: Restrictions on Transfer; Depositary. (a) The Company shall cause to be kept at the Corporate Trust Office a register (the register maintained in such office and in any other office or agency of the Company designated pursuant to Section 5.2 being herein sometimes collectively referred to as the "Register") in which, subject to such reasonable regulations as it may prescribe, be registered and the transfer of Notes shall be registered as provided in this Article II. Such Register shall be in written form or in any other form capable of being converted into written form within a reasonable time. At all reasonable times such Register shall be open for inspection by the Trustee. Upon due presentment for registration of transfer of any Note at any office or agency maintained by the Company pursuant to Section 5.2, the Company shall execute and register and the Trustee shall authenticate and deliver in the name of the transferee or transferees a new Note or Notes for an equal aggregate principal amount. The Trustee is hereby appointed "Note registrar" for the purpose of registering Notes and transfers of Notes as provided herein. The Company may appoint one or more co-registrars in accordance with Section 5.2. Upon due presentment for registration of transfer of any Note to the Trustee and satisfaction of the requirements for such transfer set forth in this Section 2.5, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of any authorized denominations and of a like aggregate principal amount and bearing such restrictive legends as may be required by this Indenture, without charge except for any tax or other governmental charge imposed in connection herewith. 13 24 Notes may be exchanged for a like aggregate principal amount of Notes of other authorized denominations. Notes to be exchanged shall be surrendered at any office or agency to be maintained by the Company pursuant to Section 5.2 and the Company shall execute and register and the Trustee shall authenticate and deliver in exchange therefor the Note or Notes which the Noteholder making the exchange shall be entitled to receive, bearing registration numbers not contemporaneously outstanding. All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of transfer or exchange. All Notes presented or surrendered for registration of transfer or for exchange, redemption or conversion shall (if so required by the Company or the Note registrar) be duly endorsed, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company, and the Notes shall be duly executed by the Noteholder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Notes, but the Company may require payment of a sum sufficient to cover any tax, assessment or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Notes. Neither the Company nor the Trustee shall be required to exchange or register a transfer of (i) any Notes for a period of fifteen (15) days next preceding any selection of Notes to be redeemed or (ii) any Notes or portions thereof called for redemption pursuant to Section 3.2 or (iii) any Notes or portion thereof surrendered for conversion pursuant to Article XV or (iv) any Notes or portions thereof tendered for redemption pursuant to Section 3.5. (b) So long as the Notes are eligible for book-entry settlement with the Depositary, or unless otherwise required by law, all Notes that are so eligible may be represented by one or more Notes in global form registered in the name of the Depositary or the nominee of the Depositary (each, a Global Note), except as otherwise specified below. The transfer and exchange of beneficial interests in any such Note in any such Global Note shall be effected through the Depositary in accordance with this Indenture (including the restrictions on transfer set forth herein) and the procedures of the Depositary therefor. The Trustee shall make appropriate endorsements to reflect increases or decreases in the principal amounts of such global Notes as set forth in the face of the Note ("Principal Amount") to reflect any such transfers. Except as provided below, beneficial owners of a Note in global form shall not be entitled to have certificates registered in their names, will not receive or be entitled to 14 25 receive physical delivery of certificates in definitive form and will not be considered holders of such Notes in global form. (c) So long as the Notes are Restricted Securities and are eligible for book-entry settlement, or unless otherwise required by law, as set forth in an Officers' Certificate delivered to the Trustee, upon receipt by the Trustee of any definitive Note or Notes for registration of transfer, together with the form of assignment duly completed with an indication that such transfer is being made pursuant to Rule 144A or Regulation S, the Trustee shall make an endorsement on the Global Note to reflect an increase in the aggregate Principal Amount represented by such Global Note equal to the principal amount of the definitive Note or Notes being so transferred, and the Trustee shall cancel such definitive Note or Notes, in accordance with the standing instructions and procedures of the Depositary. Notwithstanding the foregoing, (i) no definitive Note, or portion thereof, as to which the Trustee was notified in writing by the Company that the Company or any Affiliate of the Company held any beneficial interest therein, shall be included in such Global Note and (ii) the Trustee shall issue Notes in definitive form upon registration of transfer of any beneficial interest in a Note in global form to the Company or any Affiliate of the Company. Any Note in global form may be endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with the provisions of this Indenture as may be required by the Custodian, the Depositary or by the National Association of Securities Dealers, Inc. in order for the Notes to be tradeable on the PORTAL Market or as may be required for the Notes to be tradeable on any other market developed for trading of securities pursuant to Rule 144A or required to comply with any applicable law or any regulation thereunder or with the rules and regulations of any securities exchange or automated quotation system upon which the Notes may be listed or traded or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Notes are subject. (d) Every Note that bears or is required under this Section 2.5(d) to bear the legend set forth in this Section 2.5(d) (together with any Common Stock issued upon conversion of the Notes and required to bear the legend set forth in Section 2.5(e), collectively, the "Restricted Securities") shall be subject to the restrictions on transfer set forth in this Section 2.5(d) (including those set forth in the legend set forth below) unless such restrictions on transfer shall be waived by written consent of the Company, and the holder of each such Restricted Note, by such Noteholder's acceptance thereof, agrees to be bound by all such restrictions on transfer. As used in Sections 2.5(d) and 2.5(e), the term "transfer" encompasses any sale, pledge, transfer or other disposition whatsoever of any Restricted Security. Until written notification by the Company to the Trustee of the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), every certificate evidencing a Note (and all securities issued in exchange 15 26 therefor or substitution thereof, other than Common Stock, if any, issued upon conversion thereof, which shall bear the legend set forth in Section 2.5(e), if applicable) shall bear a legend in substantially the following form, unless the Note registrar is notified by the Company in writing that such Note has been sold pursuant to a registration statement that has been declared effective under the Securities Act (and which continues to be effective at the time of such transfer), or unless otherwise agreed by the Company (with written notice thereof by the Company to the Trustee and the Note registrar): THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR"); (2) AGREES THAT IT WILL NOT, PRIOR TO EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO CKE RESTAURANTS, INC. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED 16 27 EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (3) AGREES THAT PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE), IT WILL FURNISH TO CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (4) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED HEREBY PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE NOTE EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A U.S. PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE NOTE EVIDENCED HEREBY PURSUANT TO CLAUSE 2(F) ABOVE OR UPON ANY TRANSFER OF THE NOTE EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. 17 28 Any Note (or security issued in exchange or substitution therefor) as to which such restrictions on transfer shall have expired in accordance with their terms or as to the conditions for removal of the foregoing legend set forth therein have been satisfied may, upon surrender of such Note for exchange to the Note registrar in accordance with the provisions of this Section 2.5, be exchanged for a new Note or Notes, of like tenor and aggregate principal amount, which shall not bear the restrictive legend required by this Section 2.5(d). Notwithstanding any other provisions of this Indenture (other than the provisions set forth in the second paragraph of Section 2.5(b) and in this Section 2.5(d)), a Note in global form may not be transferred as a whole or in part except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. The Depositary shall be a clearing agency registered under the Exchange Act. The Company initially appoints The Depository Trust Company to act as Depositary with respect to the Notes in global form. Initially, the Global Note shall be issued to the Depositary, registered in the name of Cede & Co., as the nominee of the Depositary, and deposited with the Custodian for Cede & Co. If at any time the Depositary for a Note in global form notifies the Company that it is unwilling or unable to continue as Depositary for such Note, the Company may appoint a successor Depositary with respect to such Note. If a successor Depositary is not appointed by the Company within ninety (90) days after the Company receives such notice, the Company will execute, and the Trustee, upon receipt of an Officers' Certificate for the authentication and delivery of Notes, will authenticate and deliver, Notes in certificated form, in aggregate principal amount equal to the principal amount of such Note in global form, in exchange for such Note in global form. If a Note in certificated form is issued in exchange for any portion of a Note in global form after the close of business at the office or agency where such exchange occurs on any record date and before the opening of business at such office or agency on the next succeeding interest payment date, interest will not be payable on such interest payment date in respect of such Note, but will be payable on such interest payment date, subject to the provisions of Section 2.3, only to the Person to whom interest in respect of such portion of such Note in global form is payable in accordance with the provisions of this Indenture. Notes in certificated form issued in exchange for all or a part of a Note in global form pursuant to this Section 2.5 shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. Upon execution and authentication, the Trustee shall deliver such Notes in certificated form to the Persons in whose names such Notes in certificated form are so registered. 18 29 At such time as all interests in a Note in global form have been redeemed, converted, canceled or exchanged for Notes in certificated form, or transferred to a transferee who receives Notes in certificated form thereof, such Note in global form shall, upon receipt thereof, be canceled by the Trustee in accordance with standing procedures and instructions existing between the Depositary and the Custodian. At any time prior to such cancellation, if any interest in a global Note is exchanged for Notes in certificated form, redeemed, converted, repaid or canceled, or transferred to a transferee who receives Notes in certificated form therefor or any Note in certificated form is exchanged or transferred for part of a Note in global form, the principal amount of such Note in global form shall, in accordance with the standing procedures and instructions existing between the Depositary and the Custodian, be appropriately reduced or increased, as the case may be, and an endorsement shall be made on such Note in global form, by the Trustee or the Custodian, at the direction of the Trustee, to reflect such reduction or increase. (e) Until written notification by the Company to the Trustee of the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), any stock certificate representing Common Stock issued upon conversion of such Note shall bear a legend in substantially the following form, unless such Common Stock has been sold pursuant to a registration statement that has been declared effective under the Securities Act (and which continues to be effective at the time of such transfer) or such Common Stock has been issued upon conversion of Notes that have been transferred pursuant to a registration statement that has been declared effective under the Securities Act, or unless otherwise agreed by the Company (with written notice thereof by the Company to the Trustee and the Note registrar): THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES THAT UNTIL THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), (1) IT WILL NOT RESELL OR OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY EXCEPT (A) TO CKE RESTAURANTS, INC. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN COMPLIANCE WITH RULE 144A, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO CHASEMELLON SHAREHOLDER SERVICES, L.L.C., 19 30 AS TRANSFER AGENT (OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRANSFER AGENT OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (2) PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(F) ABOVE), IT WILL FURNISH TO CHASEMELLON SHAREHOLDER SERVICES, L.L.C., AS TRANSFER AGENT (OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) IT WILL DELIVER TO EACH PERSON TO WHOM THE COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(F) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY PURSUANT TO CLAUSE 1(F) ABOVE OR UPON ANY TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. Any such Common Stock as to which such restrictions on transfer shall have expired in accordance with their terms or as to which the conditions for removal of the foregoing legend set forth therein have been satisfied may, upon surrender of the certificates representing such shares of Common Stock for exchange in accordance with the procedures of the transfer agent for the Common Stock, be exchanged for a new certificate or certificates for a like number of shares of Common Stock, which shall not bear the restrictive legend required by this Section 2.5(e). 20 31 (f) Any Note or Common Stock issued upon the conversion or exchange of a Note that, prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), is purchased or owned by the Company or any Affiliate thereof may not be resold by the Company or such Affiliate unless registered under the Securities Act or resold pursuant to an exemption from the registration requirements of the Securities Act in a transaction which results in such Notes or Common Stock, as the case may be, no longer being "restricted securities" (as defined under Rule 144). Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes. In case any Note shall become mutilated or be destroyed, lost or stolen, the Company in its discretion may execute, and upon its request the Trustee or an authenticating agent appointed by the Trustee shall authenticate and deliver, a new Note, bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated Note, or in lieu of and in substitution for the Note so destroyed, lost or stolen. In every case the applicant for a substituted Note shall furnish to the Company, to the Trustee and, if applicable, to such authenticating agent such security or indemnity as may be required by them to hold each of them harmless for any loss, liability, cost or expense caused by or connected with such substitution, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company, to the Trustee and, if applicable, to such authenticating agent evidence to their satisfaction of the destruction, loss or theft of such Note and of the ownership thereof. Following receipt by the Trustee or such authenticating agent, as the case may be, of satisfactory security or indemnity and evidence, as described in the preceding paragraph, the Trustee or such authenticating agent may authenticate any such substituted Note and deliver such Note. Upon the issuance of any substituted Note, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. In case any Note which has matured or is about to mature or has been called for redemption or is about to be converted into Common Stock shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Note, pay or authorize the payment of or convert or authorize the conversion of the same (without surrender thereof except in the case of a mutilated Note), as the case may be, if the applicant for such payment or conversion shall furnish to the Company, to the Trustee and, if applicable, to such authenticating agent such security or indemnity as may be required by them to save each of them harmless for any loss, liability, cost or expense caused by or connected with such substitution, and, in case of destruction, loss or theft, evidence satisfactory to the Company, the Trustee and, if applicable, any paying agent or conversion agent of the destruction, loss or theft of such Note and of the ownership thereof. Every substitute Note issued pursuant to the provisions of this Section 2.6 by virtue of the fact that any Note is destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the apparently destroyed, lost or stolen Note shall be found at any time, and shall be entitled to all the benefits of (but shall be subject to all the limitations set forth in) this Indenture equally and proportionately with any and all 21 32 other Notes duly issued hereunder. To the extent permitted by law, all Notes shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment or conversion of mutilated, destroyed, lost or stolen Notes and shall preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment or conversion of negotiable instruments or other securities without their surrender. Section 2.7 Temporary Notes. Pending the preparation of Notes in certificated form, the Company may execute and the Trustee or an authenticating agent appointed by the Trustee shall, upon the request of the Company, authenticate and deliver temporary Notes (printed or lithographed). Temporary Notes shall be issuable in any authorized denomination, and substantially in the form of the Notes in certificated form, but with such omissions, insertions and variations as may be appropriate for temporary Notes, all as may be determined by the Company. Every such temporary Note shall be executed by the Company and authenticated by the Trustee or such authenticating agent upon the same conditions and in substantially the same manner, and with the same effect, as the Notes in certificated form. Without unreasonable delay the Company will execute and deliver to the Trustee or such authenticating agent Notes in certificated form (other than in the case of Notes in global form) and thereupon any or all temporary Notes (other than any such Note in global form) may be surrendered in exchange therefor, at each office or agency maintained by the Company pursuant to Section 5.2 and the Trustee or such authenticating agent shall authenticate and deliver in exchange for such temporary Notes an equal aggregate principal amount of Notes in certificated form. Such exchange shall be made by the Company at its own expense and without any charge therefor. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits and subject to the same limitations under this Indenture as Notes in certificated form authenticated and delivered hereunder. Section 2.8 Cancellation of Notes Paid, Etc. All Notes surrendered for the purpose of payment, redemption, conversion, exchange or registration of transfer, shall, if surrendered to the Company or any paying agent or any Note registrar or any conversion agent, be surrendered to the Trustee and promptly canceled by it, or, if surrendered to the Trustee, shall be promptly canceled by it, and no Notes shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. The Trustee shall destroy canceled Notes (unless the Company directs it to do otherwise) and, after such destruction, shall deliver a certificate of such destruction to the Company. If the Company shall acquire any of the Notes, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Notes unless and until the same are delivered to the Trustee for cancellation. 22 33 ARTICLE III REDEMPTION OF NOTES Section 3.1 Redemption Prices. The Notes will not be redeemable at the option of the Company prior to March 20, 2001. At any time on or after March 20, 2001 and prior to maturity, the Notes may (unless theretofore repaid or converted) be redeemed at the option of the Company as a whole, or from time to time in part, upon notice as set forth in Section 3.2, and at the following redemption prices (expressed as percentages of the principal amount), together in each case with accrued interest to, but excluding, the date fixed for redemption: if redeemed during the period beginning March 20, 2001 and ending on March 14, 2002 at a redemption price of 102.125%, if redeemed during the 12-month period beginning March 15, 2002 at a redemption price of 101.417%, if redeemed during the 12-month period beginning March 15, 2003 at a redemption price of 100.708% and 100% at March 15, 2004; provided that if the date fixed for redemption is on March 15 or September 15, then the interest payable on such date shall be paid to the holder of record on the next preceding March 1 or September 1, respectively. Section 3.2 Notice of Redemption; Selection of Notes. In case the Company shall desire to exercise the right to redeem all or, as the case may be, any part of the Notes pursuant to Section 3.1, it shall fix a date for redemption and it or, at its written request received by the Trustee not fewer than forty-five (45) days prior (or such shorter period of time as may be acceptable to the Trustee) to the date fixed for redemption, the Trustee in the name of the and at the expense of the Company, shall mail or cause to be mailed a notice of such redemption at least 30 days prior to the date fixed for redemption to the holders of Notes so to be redeemed as a whole or in part at their last addresses as the same appear on the Note register (provided that if the Company shall give such notice, it shall also give written notice, and written notice of the Notes to be redeemed, to the Trustee). Such mailing shall be by first class mail. The notice if mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the holder of any note designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Note. Each such notice of redemption shall specify the aggregate principal amount of Notes to be redeemed, the date fixed for redemption which shall be a Business Day, the redemption price at which Notes are to be redeemed, the place or places of payment, that payment will be made upon presentation and surrender of such Notes, that interest accrued to, but excluding, the date fixed for redemption will be paid as specified in said notice, and that on and after said date interest thereon or on the portions thereof to be redeemed will cease to accrue. Such notice shall also state the current Conversion Price and the date on which the right to convert such Notes or portions thereof into Common Stock will expire. If fewer than all the Notes are to be redeemed, the notice of redemption shall identify the Notes to be 23 34 redeemed. In case any Note is to be redeemed in part only, the notice of redemption shall state the portion of the principal amount thereof to be redeemed and shall state that on and after the date fixed for redemption, upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion thereof will be issued. On or before the date fixed for redemption specified in the notice of redemption given as provided in this Section 3.2, subject to the provisions of Article IV hereof, the Company will deposit with the Trustee or with one or more paying agents (or, if the Company is acting as its own paying agent, set aside, segregate and hold in trust as provided in Section 5.4) an amount of money sufficient to redeem on the date fixed for redemption all the Notes (or portions thereof) so called for redemption (other than those theretofore surrendered for conversion into Common Stock) at the appropriate redemption price, together with accrued interest to, but excluding, the date fixed for redemption; provided that if such payment is made on the date fixed for redemption it must be received by the Trustee or paying agent, as the case may be, by 11:00 a.m. New York City time, on such date. If any Note called for redemption is converted pursuant hereto, any money deposited with the Trustee or any paying agent or so segregated and held in trust for the redemption of such Note shall be paid to the Company upon its request, or, if then held by the Company shall be discharged from such trust. Whenever any Notes are to be redeemed, the Company will give the Trustee written notice in the form of an Officers' Certificate not fewer than forty-five (45) days (or such shorter period of time as may be acceptable to the Trustee) prior to the redemption date as to the aggregate principal amount of Notes to be redeemed. If less than all of the outstanding Notes are to be redeemed, the Trustee shall select the Notes to be redeemed in principal amounts of $1,000 or multiples thereof in compliance with the requirements, as certified to the Trustee by the Company in the form of an Officers' Certificate of the principal national securities exchange on which the Notes are listed, or if the Notes are not so listed, by lot, pro rata or by another method the Trustee considers fair and appropriate. If a portion of a holder's Notes is selected for partial redemption and such holder converts a portion of such Notes, such converted portion shall be deemed (so far as may be) to be the portion selected for redemption. The Notes (or portions thereof) so selected shall be deemed duly selected for redemption for all purposes hereof, notwithstanding that any such Note is converted as a whole or in part before the mailing of the notice of redemption. Upon any redemption of less than all Notes, the Company and the Trustee may (but need not) treat as outstanding any Notes surrendered for conversion during the period of fifteen (15) days next preceding the mailing of a notice of redemption and may (but need not) treat as outstanding any Note authenticated and delivered during such period in exchange for the unconverted portion of any Note converted in part during such period. Section 3.3 Payment of Notes Called for Redemption. If notice of redemption has been given as above provided, the Notes or portions of Notes with respect to 24 35 which such notice has been given shall, unless theretofore converted into Common Stock pursuant to the terms hereof, become due and payable on the date fixed for redemption and at the place or places stated in such notice at the applicable redemption price, together with interest accrued to, but excluding, the date fixed for redemption, and on and after said date (unless the Company shall default in the payment of such Notes at the redemption price, together with interest accrued to said date) interest on the Notes or portion of Notes so called for redemption shall cease to accrue and such Notes shall cease after the close of business on the Business Day immediately preceding the date fixed for redemption to be convertible into Common Stock and, except as provided in Sections 8.5 and 13.4, to be entitled to any benefit or security under this Indenture, and the holders thereof shall have no right in respect of such Notes except the right to receive the redemption price thereof and unpaid interest to, but excluding, the date fixed for redemption. On presentation and surrender of such Notes at a place of payment in said notice specified, the said Notes or the specified portions thereof shall be paid and redeemed by the Company at the applicable redemption price, together with interest accrued thereon to, but excluding, the date fixed for redemption; provided that, if the applicable date fixed for redemption is an interest payment date, the semi-annual payment of interest becoming due on such date shall be payable to the holders of such Notes registered as such on the relevant record date instead of the holders surrendering such Notes for redemption on such date. Upon presentation of any Note redeemed in part only, the Company shall execute and the Trustee shall authenticate and deliver to the holder thereof, at the expense of the Company, a new Note or Notes, of authorized denominations, in principal amount equal to the unredeemed portion of the Note so presented. Notwithstanding the foregoing, the Trustee shall not redeem any Notes or mail any notice of optional redemption during the continuance of a default in payment of interest or premium on the Notes or of any Event of Default. If any Note called for redemption shall not be so paid upon surrender thereof for redemption, the principal and premium, if any, shall, until paid or duly provided for, bear interest from the date fixed for redemption at the rate borne by the Note and such Note shall remain convertible into Common Stock until the principal and premium, if any, shall have been paid or duly provided for. Section 3.4 Conversion Arrangement on Call for Redemption. In connection with any redemption of Notes, the Company may arrange for the purchase and conversion of any Notes by an agreement with one or more investment bankers or other purchasers to purchase such Notes by paying to the Trustee in trust for the Noteholders, on or before the date fixed for redemption, an amount not less than the applicable redemption price, together with interest accrued to, but excluding, the date fixed for redemption, of such Notes. Notwithstanding anything to the contrary contained in this Article III, the obligation of the Company to pay the redemption price of such Notes, together with interest accrued to, but excluding, the date fixed for redemption, shall be deemed to be satisfied and discharged to the extent such amount is so paid by such purchasers. If such an agreement is entered into, a copy 25 36 of which will be filed with the Trustee prior to the date fixed for redemption, any Notes not duly surrendered for conversion by the holders thereof may, at the option of the Company, be deemed, to the fullest extent permitted by law, acquired by such purchasers from such holders and (notwithstanding anything to the contrary contained in Article XV) surrendered by such purchasers for conversion, all as of immediately prior to the close of business on the date fixed for redemption (and the right to convert any such Notes shall be extended through such time), subject to payment of the above amount as aforesaid. At the direction of the Company, the Trustee shall hold and dispose of any such amount paid to it in the same manner as it would monies deposited with it by the Company for the redemption of Notes. Without the Trustee's prior written consent, no arrangement between the Company and such purchasers for the purchase and conversion of any Notes shall increase or otherwise affect any of the powers, duties, responsibilities or obligations of the Trustee as set forth in this Indenture. Section 3.5 Redemption at Option of Holders. (a) If a Fundamental Change occurs at any time while Notes are outstanding, each holder of Notes shall have the right, at such holder's option, to require the Company to redeem all of such holder's Notes, or any portion thereof that is an integral multiple of $1,000 principal amount on the date (the "Repurchase Date") that is 30 days (or if such 30th day is not a Business Day, the next succeeding Business Day) after the date of the Company Notice of such Fundamental Change. The Company shall redeem such Notes at a price equal to 100% of the principal amount thereof; provided in each case that if the Applicable Price is less than the Reference Market Price, the Company shall redeem such Notes at a price equal to the foregoing redemption price multiplied by the fraction obtained by dividing the Applicable Price by the Reference Market Price; provided that if such repayment date is March 15 or September 15, then the interest payable on such date shall be paid to the holder of record of the Note on the next preceding March 1 or September 1. In each case, the Company shall also pay to such holders accrued interest to, but excluding, the Repurchase Date on the redeemed Notes. Upon presentation of any Note redeemed in part only, the Company shall execute, and, upon the Company's written direction to the Trustee, the Trustee shall authenticate and deliver to the holder thereof, at the expense of the Company, a new Note or Notes, of authorized denominations, in principal amount equal to the unredeemed portion of the Notes so presented. (b) On or before the tenth day after the occurrence of a Fundamental Change, the Company, or, at its written request (which must be received by the Trustee at least five Business Days prior to the date the Trustee is requested to give notice as described below), the Trustee in the name of and at the expense of the Company, shall mail or cause to be mailed to all holders of record on the date of the Fundamental Change a notice (the "Company Notice") of the occurrence of such Fundamental Change and of the redemption 26 37 right at the option of the holders arising as a result thereof. Such notice shall be mailed in the manner and with the effect set forth in the first paragraph of Section 3.2. The Company shall also use its best efforts to have a notice published at least once in each of Bloomberg Business News, Dow Jones News (DJN) and Reuter Financial Report in The City of New York on or before the tenth day after the occurrence of a Fundamental Change. The Company shall promptly deliver a copy of each of the published notices and Company Notice to the Trustee. Each published notice and Company Notice shall specify the circumstances constituting the Fundamental Change, the Repurchase Date, the price at which the Company shall be obligated to repay Notes, the latest time on the Repurchase Date by which the holder must exercise the redemption right (the "Fundamental Change Expiration Time"), that the holder shall have the right to withdraw any Notes surrendered prior to the Fundamental Change Expiration Time, a description of the procedure which a Noteholder must follow to exercise such redemption right and to withdraw any surrendered Notes, the place or places where the holder is to surrender such holder's Notes, and the amount of interest accrued on each Note to, but excluding, the Repurchase Date. No failure of the Company to give the foregoing notices and no defect therein shall limit the Noteholders' repayment rights or affect the validity of the proceedings for the repayment of the Notes pursuant to this Section 3.5. (c) For a Note to be so repaid at the option of the holder, the Company must receive at the office or agency of the Company maintained for that purpose or, at the option of such holder, the Corporate Trust Office, such Note with the form entitled "Option to Elect Repayment Upon A Fundamental Change" on the reverse thereof duly completed, together with such Notes duly endorsed for transfer, on or before the Fundamental Change Expiration Time. In order to exercise the repayment option with respect to any interest in a Note in global form, the beneficial holder must comply with the applicable procedures of the Depositary, furnish appropriate endorsements and documentation if required by the Company or the Trustee or paying agent and such notice shall not have been withdrawn. All questions as to the validity, eligibility (including time of receipt) and acceptance of any Note for repayment shall be determined by the Company, whose determination shall be final and binding absent manifest error. (d) On or before the Repurchase Date, subject to the provisions of Article IV hereof, the Company will deposit with the Trustee or with one or more paying agents (or, if the Company is acting as its own paying agent, set aside, segregate and hold in trust as provided in Section 5.4) an amount of money sufficient to repay on the Repurchase Date all the Notes which are to be repaid on such date at the appropriate redemption price, together with accrued interest to, but excluding, the Repurchase Date; provided that if such payment is made on the Repurchase Date it must be received by the Trustee or paying agent, as the case may be, by 11:00 a.m. New York City time, on such date. Payment for Notes 27 38 surrendered for redemption (and not withdrawn) prior to the Fundamental Change Expiration Time will be made promptly (but in no event more than five Business Days) following the Repurchase Date by mailing checks for the amount payable to the holders of such Notes entitled thereto as they shall appear on the Register; provided, however, that payments to the Depositary will be made by wire transfer of immediately available funds to the account of the Depositary or its nominee. (e) In the case of a consolidation, merger, conveyance, transfer or lease to which Section 15.6 applies, in which the Common Stock of the Company is changed or exchanged as a result into the right to receive securities, cash or other property which includes shares of Common Stock of the Company or another Person that are, or upon issuance will be, traded on a United States national securities exchange or approved for trading on an established automated over-the-counter trading market in the United States and such shares constitute at the time such change or exchange becomes effective in excess of 50% of the aggregate fair market value of such securities, cash and other property (as determined by the Company, which determination shall be conclusive and binding), then the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, shall execute and deliver to the Trustee a supplemental indenture (accompanied by an Opinion of Counsel that such supplemental indenture complies with the Trust Indenture Act as in force at the date of execution of such supplemental indenture) modifying the provisions of this Indenture relating to the right of holders of the Notes to cause the Company to repay the Notes following a Fundamental Change, including without limitation the applicable provisions of this Section 3.5 and the definitions of the Applicable Price, Common Stock, Fundamental Change and Reference Market Price, as appropriate, as determined in good faith by the Company (which determination shall be conclusive and binding), to make such provisions apply to the common stock and the issuer thereof if different from the Company and Common Stock of the Company (in lieu of the Company and the Common Stock of the Company). Section 3.6 Covenant to Comply with Securities Laws upon Purchase of Notes. In connection with any offer to purchase or redemption of Notes under Section 3.4 or 3.5 hereof, the Company shall (i) comply with Rule 13e-4 (which term, as used herein, includes any successor provision thereto) under the Exchange Act, if applicable, (ii) file the related Schedule 13E-4 (or any successor schedule, form or report) under the Exchange Act, if applicable, and (iii) otherwise comply with all Federal and state securities laws so as to permit the rights and obligations under Section 3.5 to be exercised in the time and in the manner specified in Section 3.5. 28 39 Section 3.7 No Sinking Fund. The Notes shall not be entitled to the benefit of any sinking fund. ARTICLE IV SUBORDINATION OF NOTES Section 4.1 Agreement of Subordination. The Company covenants and agrees, and each holder of Notes issued hereunder by such holder's acceptance thereof likewise covenants and agrees, that all Notes shall be issued subject to the provisions of this Article IV; and each Person holding any Note, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions. The payment of the principal of, premium, if any, and interest (including Liquidated Damages, if any) on all Notes (including, but not limited to, the redemption price with respect to the Notes called for redemption in accordance with Section 3.2 or submitted for redemption in accordance with Section 3.5, as the case may be, as provided in the Indenture) issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and subject in right of payment to the prior payment in full of all Senior Indebtedness, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article IV shall prevent the occurrence of any default or Event of Default hereunder. Section 4.2 Payments to Noteholders. No payment shall be made and no funds shall be set aside for payment with respect to the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Notes (including, but not limited to, the redemption price with respect to the Notes to be called for redemption in accordance with Section 3.2 or submitted for redemption in accordance with Section 3.5, as the case may be, as provided in this Indenture), except payments and distributions made by the Trustee as permitted by the first or second paragraph of Section 4.5, if: (i) a default in the payment when due, whether at maturity or a date fixed for prepayment, or by declaration of acceleration or otherwise, of principal, premium, if any, interest, rent or other obligations in respect of Senior Indebtedness occurs and is continuing (or, in the case of Senior Indebtedness for which there is a period of grace, in the event of such a default that continues beyond the period of grace, if any, specified in the instrument or lease evidencing such Senior Indebtedness) (a "Payment Default"), unless and until such Payment Default shall have been cured or waived or shall have ceased to exist; or 29 40 (ii) a default, other than a Payment Default, on any Designated Senior Indebtedness occurs and is continuing that then permits holders of such Designated Senior Indebtedness to accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from a holder of Designated Senior Indebtedness, a Representative of Designated Senior Indebtedness or the Company (a "Non-Payment Default"). If the Trustee receives any Payment Blockage Notice pursuant to clause (ii) above, no subsequent Payment Blockage Notice shall be effective for purposes of this Section 4.2 unless and until at least 365 days shall have elapsed since the initial effectiveness of the immediately prior Payment Blockage Notice. No Non-Payment Default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice. The Company may and shall resume payments on and distributions in respect of the Notes upon the earlier of: (1) in the case of a Payment Default, the date upon which any such Payment Default is cured or waived or ceases to exist, or (2) in the case of a Non-Payment Default, the earlier of (a) the date upon which such default is cured or waived or ceases to exist or (b) 179 days after the date on which the applicable Payment Blockage Notice is received if the maturity of such Designated Senior Indebtedness has not been accelerated, unless this Article IV otherwise prohibits the payment or distribution at the time of such payment or distribution. Upon any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding up or liquidation or reorganization of the Company or any similar proceeding, or any assignment by the Company for the benefit of its creditors or any other marshalling of the assets of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due or to become due upon all Senior Indebtedness shall first be paid in full in cash or other payment satisfactory to the holders of such Senior Indebtedness, or payment thereof in accordance with its terms provided for in cash or other payment satisfactory to the holders of such Senior Indebtedness before any payment is made on account of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Notes (except payments made pursuant to Article XIII from monies deposited with the Trustee pursuant thereto prior to commencement of proceedings for such dissolution, winding up, liquidation or reorganization); and upon any such dissolution or winding up or liquidation or reorganization of the Company or bankruptcy, insolvency, receivership or other proceeding, any payment by the Company, or distribution of assets of the 30 41 Company of any kind or character, whether in cash, property or securities, to which the holders of the Notes or the Trustee would be entitled, except for the provision of this Article IV, shall (except as aforesaid) be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the holders of the Notes or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders, or as otherwise required by law or a court order) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay all Senior Indebtedness in full, in cash or other payment satisfactory to the holders of such Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness, before any payment or distribution is made to the holders of the Notes or to the Trustee. For purposes of this Article IV, the words, "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article IV with respect to the Notes to the payment of all Senior Indebtedness which may at the time be outstanding; provided that (i) the Senior Indebtedness is assumed by the new corporation, if any, resulting from any reorganization or readjustment, and (ii) the rights of the holders of Senior Indebtedness (other than leases which are not assumed by the Company or the new corporation, as the case may be) are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided for in Article XII shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 4.2 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article XII. In the event of the acceleration of the Notes because of an Event of Default, no payment or distribution shall be made to the Trustee or any holder of Notes in respect of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Notes (including, but not limited to, the redemption price with respect to the Notes called for redemption in accordance with Section 3.2 or submitted for redemption in accordance with Section 3.5, as the case may be, as provided in the Indenture), except payments and distributions made by the Trustee as permitted by the first or second paragraph of Section 4.5, until all Senior Indebtedness has been paid in full in cash or other payment satisfactory to the holders of Senior Indebtedness or such acceleration is rescinded in accordance with the terms of this Indenture. If payment of the Notes is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Indebtedness of the acceleration. 31 42 In the event that, notwithstanding the foregoing provisions, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (including, without limitation, by way of setoff or otherwise), prohibited by the foregoing provisions in this Section 4.2, shall be received by the Trustee or the holders of the Notes before all Senior Indebtedness is paid in full in cash or other payment satisfactory to the holders of such Senior Indebtedness, or provision is made for such payment thereof in accordance with its terms in cash or other payment satisfactory to the holders of such Senior Indebtedness, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, as calculated by the Company, for application to the payment of any Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in cash or other payment satisfactory to the holders of such Senior Indebtedness, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness. Nothing in this Section 4.2 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 8.6. This Section 4.2 shall be subject to the further provisions of Section 4.5. Section 4.3 Subrogation of Notes. Subject to the payment in full of all Senior Indebtedness, the rights of the holders of the Notes shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness pursuant to the provisions of this Article IV (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinated to other indebtedness of the Company to substantially the same extent as the Notes are subordinated and is entitled to like rights of subrogation) to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Indebtedness until the principal of, premium, if any, and interest (including Liquidated Damages, if any) on the Notes shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the holders of the Notes or the Trustee would be entitled except for the provisions of this Article IV, and no payment over pursuant to the provisions of this Article IV, to or for the benefit of the holders of Senior Indebtedness by holders of the Notes or the Trustee, shall, as between the Company, its creditors other than holders of Senior Indebtedness, and the holders of the Notes, be deemed to be a payment by the Company to or on account of the Senior Indebtedness; and no payments or distributions of cash, property or securities to or for the benefit of the holders of the Notes pursuant to the subrogation provisions of this Article IV, which would otherwise have been paid to the holders of Senior Indebtedness, shall be deemed to be a payment by the Company to or for the account of the Notes. It is understood that the provisions of this Article IV are and are intended solely for the 32 43 purpose of defining the relative rights of the holders of the Notes, on the one hand, and the holders of the Senior Indebtedness, on the other hand. Nothing contained in this Article IV or elsewhere in this Indenture or in the Notes is intended to or shall impair, as between the Company, its creditors other than the holders of Senior Indebtedness, and the holders of the Notes, the obligation of the Company, which is absolute and unconditional, to pay to the holders of the Notes the principal of, premium, if any, and interest (including Liquidated Damages, if any) on the Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of the Notes and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or the holder of any Note from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article IV of the holders of Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Article IV, the Trustee, subject to the provisions of Section 8.1, and the holders of the Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such bankruptcy, dissolution, winding-up, liquidation, insolvency, receivership or reorganization proceedings or any similar proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, delivered to the Trustee or to the holders of the Notes, for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article IV. Section 4.4 Authorization by Noteholders. Each holder of a Note by its acceptance thereof authorizes and directs the Trustee in such holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article IV and appoints the Trustee to act as such holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in the third paragraph of Section 7.2 hereof at least thirty (30) days before the expiration of the time to file such claim, the holders of any Senior Indebtedness or their representatives are hereby authorized to file an appropriate claim for and on behalf of the holders of the Notes. Section 4.5 Notice to Trustee. The Company shall give prompt written notice in the form of an Officers' Certificate to a Responsible Officer of the Trustee and to any paying agent of any fact known to the Company which would prohibit the making of any payment of monies to or by the Trustee or any paying agent in respect of the Notes pursuant to the provisions of this Article IV. Notwithstanding the provisions of this Article IV or any 33 44 other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment of monies to or by the Trustee in respect of the Notes pursuant to the provisions of this Article IV, unless and until a Responsible Officer of the Trustee shall have received written notice thereof at the Corporate Trust Office from the Company (in the form of an Officers' Certificate) or a Representative or a holder or holders of Senior Indebtedness or from any trustee therefor; and before the receipt of any such written notice, the Trustee, subject to the provisions of Section 8.1, shall be entitled in all respects to assume that no such facts exist; provided that if on a date not fewer than two Business Days prior to the date upon which by the terms hereof any such monies may become payable for any purpose (including, without limitation, the payment of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on any Note) the Trustee shall not have received, with respect to such monies, the notice provided for in this Section 4.5, then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such monies and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such prior date. Notwithstanding anything in this Article IV to the contrary, nothing shall prevent any payment by the Trustee to the Noteholders of monies deposited with it pursuant to Section 13.1, and any such payment shall not be subject to the provisions of Section 4.1 or 4.2. The Trustee, subject to the provisions of Section 8.1, shall be entitled to rely on the delivery to it of a written notice by a Representative or a Person representing himself to be a holder of Senior Indebtedness (or a trustee on behalf of such holder) to establish that such notice has been given by a Representative or a holder of Senior Indebtedness or a trustee on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article IV, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article IV, and if such evidence is not furnished the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Section 4.6 Trustee's Relation to Senior Indebtedness. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article IV in respect of any Senior Indebtedness at any time held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in Section 8.13 or elsewhere in this Indenture shall deprive the Trustee of any of its rights as such holder. 34 45 With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article IV, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and, subject to the provisions of Section 8.1, the Trustee shall not be liable to any holder of Senior Indebtedness (i) for any failure to make any payments or distributions to such holder or (ii) if it shall pay over or deliver to holders of Notes, the Company or any other Person money or assets to which any holder of Senior Indebtedness shall be entitled by virtue of this Article IV or otherwise. Section 4.7 No Impairment of Subordination. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. Section 4.8 Certain Conversions Deemed Payment. For the purposes of this Article IV only, (1) the issuance and delivery of junior securities upon conversion of Notes in accordance with Article XV shall not be deemed to constitute a payment or distribution on account of the principal of, or premium, if any, or interest (including Liquidated Damages, if any) on Notes or on account of the purchase or other acquisition of Notes, and (2) the payment, issuance or delivery of cash (except in satisfaction of fractional shares pursuant to Section 15.2), property or securities (other than junior securities) upon conversion of a Note shall be deemed to constitute payment on account of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on such Note. For the purposes of this Section 4.8, the term "junior securities" means (a) shares of any stock of any class of the Company, or (b) securities of the Company which are subordinated in right of payment to all Senior Indebtedness which may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Notes are so subordinated as provided in this Article. Nothing contained in this Article IV or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among the Company, its creditors (other than holders of Senior Indebtedness) and the Noteholders, the right, which is absolute and unconditional, of the holder of any Note to convert such Note in accordance with Article XV. Section 4.9 Article Applicable to Paying Agents. If at any time any paying agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall (unless the context otherwise requires) be construed as extending to and including such paying agent within its meaning as fully for all intents and purposes as if such paying agent were named in this Article in addition to or in place of the Trustee; provided, however, that the first paragraph of Section 4.5 shall 35 46 not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as paying agent. The Trustee shall not be responsible for the actions or inactions of any other paying agents (including the Company if acting as its own paying agent) and shall have no control of any funds held by such other paying agents. Section 4.10 Senior Indebtedness Entitled to Rely. The holders of Senior Indebtedness (including, without limitation, Designated Senior Indebtedness) shall have the right to rely upon this Article IV, and no amendment or modification of the provisions contained herein shall diminish the rights of such holders unless such holders shall have agreed in writing thereto. ARTICLE V PARTICULAR COVENANTS OF THE COMPANY Section 5.1 Payment of Principal, Premium and Interest. The Company covenants and agrees that it will duly and punctually pay or cause to be paid the principal of and premium, if any, and interest (including Liquidated Damages, if any) on each of the Notes at the places, at the respective times and in the manner provided herein and in the Notes. Each installment of interest on the Notes due on any semi-annual interest payment date may be paid either (i) by check mailed to the address of the Person entitled thereto as it appears on the Register or (ii) by wire transfer for immediately available funds to an account maintained by such Person located in the United States; provided, however, that payments to the Depositary will be made by wire transfer of immediately available funds to the account of the Depositary or its nominee. Section 5.2 Offices for Notices and Payments. So long as any of the Notes remain outstanding, the Company will maintain in New York, New York, an office or agency where the Notes may be presented for payment, and an office or agency where the Notes may be presented for registration of transfer and for exchange and conversion as provided for in this Indenture and an office or agency where notices and demands to or upon the Company in respect of the Notes or of this Indenture may be served. The Company will give to the Trustee written notice of the location of each such office or agency and of any change in the location thereof. If the Company shall fail to maintain any such office or agency or shall fail to give such notice of the location or of any change in the location thereof, presentations and demands may be made and notices may be served at the Corporate Trust Office and office of the Trustee at 55 Water Street, New York, New York 10041. 36 47 The Company may also from time to time designate co-registrars and one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. The Company will give prompt written notice of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby initially designates the Trustee as paying agent, Note registrar, Custodian and conversion agent, and the Corporate Trust Office and the office of the Trustee at 55 Water Street, New York, New York 10041 as the offices of the Company for each of the aforesaid purposes. So long as the Trustee is the Note registrar, the Trustee agrees to mail, or cause to be mailed, the notices set forth in Section 8.10(a) and the third paragraph of Section 8.11. If co-registrars have been appointed in accordance with this Section, the Trustee shall only mail such notices to the Company and the holders of Notes it can identify from its records. Section 5.3 Appointments to Fill Vacancies in Trustee's Office. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 8.10, a Trustee, so that there shall at all times be a Trustee hereunder. Section 5.4 Provisions as to Paying Agent. (a) If the Company shall appoint a paying agent other than the Trustee, it will cause such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 5.4: (1) that it will hold all sums held by it as such agent for the payment of the principal of and premium, if any, or interest (including Liquidated Damages, if any) on the Notes (whether such sums have been paid to it by the Company or by any other obligor on the Notes) in trust for the benefit of the holders of the Notes; (2) that it will give the Trustee notice of any failure by the Company (or by any other obligor on the Notes) to make any payment of the principal of and premium, if any, or interest (including Liquidated Damages, if any) on the Notes when the same shall be due and payable; and (3) that at any time during the continuance of an Event of Default, upon request of the Trustee, it will forthwith pay to the Trustee all sums so held in trust. 37 48 The Company shall, on or before each due date of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Notes, deposit with the paying agent a sum sufficient to pay such principal, premium, if any, or interest, and (unless such paying agent is the Trustee) the Company will promptly notify the Trustee of any failure to take such action. (b) If the Company shall act as its own paying agent, it will, on or before each due date of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Notes, set aside, segregate and hold in trust for the benefit of the holders of the Notes a sum sufficient to pay such principal, premium, if any, or interest (including Liquidated Damages, if any) so becoming due and will notify the Trustee of any failure to take such action and of any failure by the Company (or by any other obligor under the Notes) to make any payment of the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Notes when the same shall become due and payable. (c) Anything in this Section 5.4 to the contrary notwithstanding, the Company may, at any time, for the purpose of obtaining a satisfaction and discharge of this Indenture, or for any other reason, pay or cause to be paid to the Trustee all sums held in trust by the Company or any paying agent hereunder as required by this Section 5.4, such sums to be held by the Trustee upon the trusts herein contained and upon such payment by the Company or any paying agent to the Trustee, the Company or such paying agent shall be released from all further liability with respect to such money. Section 5.5 Corporate Existence. Subject to Article XII, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence. Section 5.6 Maintenance of Properties. The Company will cause all properties used or useful in the conduct of its business or the business of any of its subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any of its subsidiaries and not disadvantageous in any material respect to the holders. Section 5.7 Payment of Taxes and Other Claims. The Company will pay or discharge, or cause to be paid or discharged, before the same may become delinquent, (i) all taxes, assessments and governmental charges levied or imposed upon the Company or any of its subsidiaries or upon the income, profits or property of the Company or any of its 38 49 subsidiaries, (ii) all claims for labor, materials and supplies which, if unpaid, might by law become a lien or charge upon the property of the Company or any of its subsidiaries and (iii) all stamps and other duties, if any, which may be imposed by the United States or any political subdivision thereof or therein in connection with the issuance, transfer, exchange or conversion of any Notes or with respect to this Indenture; provided, however, that, in the case of clauses (i) and (ii), the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim (A) if the failure to do so will not, in the aggregate, have a material adverse impact on the Company, or (B) if the amount, applicability or validity is being contested in good faith by appropriate proceedings. Section 5.8 Rule 144A Information Requirement. Within the period prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), the Company covenants and agrees that it shall, during any period in which it is not subject to Section 13 or 15(d) under the Exchange Act, make available to any holder or beneficial holder of Notes or any Common Stock issued upon conversion thereof which continue to be Restricted Securities in connection with any sale thereof and any prospective purchaser of Notes or such Common Stock from such holder or beneficial holder, the information required pursuant to Rule 144A(d)(4) under the Securities Act upon the request of any holder or beneficial holder of the Notes or such Common Stock and it will take such further action as any holder or beneficial holder of such Notes or such Common Stock may reasonably request, all to the extent required from time to time to enable such holder or beneficial holder to sell its Notes or Common Stock without registration under the Securities Act within the limitation of the exemption provided by Rule 144A, as such Rule may be amended from time to time. Upon the request of any holder or any beneficial holder of the Notes or such Common Stock, the Company will deliver to such holder a written statement as to whether it has complied with such requirements. Section 5.9 Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest (including Liquidated Damages, if any) on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture and the Company (to the extent it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law has been enacted. Section 5.10 Compliance Certificate. The Company shall deliver to the Trustee, within one hundred twenty (120) days after the end of each fiscal year of the Company, a certificate signed by either the principal executive officer, principal financial officer or principal accounting officer of the Company, stating whether or not to the best 39 50 knowledge of the signer thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which the signer may have knowledge. The Company will deliver to the Trustee, forthwith upon becoming aware of any default in the performance or observance of any covenant, agreement or condition contained in this Indenture, or any Event of Default, an Officers' Certificate specifying with particularity such default or Event of Default and further stating what action the Company has taken, is taking or proposes to take with respect thereto. Any notice required to be given under this Section 5.10 shall be delivered to the Trustee at its Corporate Trust Office. ARTICLE VI NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE Section 6.1 Noteholders' Lists. The Company covenants and agrees that it will furnish or cause to be furnished to the Trustee, semiannually, not more than fifteen (15) days after each March 15 and September 15 in each year beginning with October 1, 1998, and at such other times as the Trustee may request in writing, within thirty (30) days after receipt by the Company of any such request, a list in such form as the Trustee may reasonably require of the names and addresses of the holders of Notes as of a date not more than fifteen days prior to the time such information is furnished, except that no such list need be furnished so long as the Trustee is acting as Note registrar. Section 6.2 Preservation and Disclosure of Lists. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of Notes contained in the most recent list furnished to it as provided in Section 6.1 or maintained by the Trustee in its capacity as Note registrar in respect of the Notes, if so acting. The Trustee may destroy any list furnished to it as provided in Section 6.1 upon receipt of a new list so furnished. (b) The rights of Noteholders to communicate with other holders of Notes with respect to their rights under this Indenture or under the Notes, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act. 40 51 (c) If the Trustee shall be required by law to disclose any information contained in any list of Noteholders maintained by it, then each and every holder of the Notes by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any paying agent nor the Note registrar shall be held accountable by reason of any disclosure of information as to names and addresses of holders of Notes made pursuant to the Trust Indenture Act. Section 6.3 Reports by Trustee. (a) Within 60 days after May 31 of each year commencing with the year 1998, the Trustee shall transmit to holders of Notes such reports dated as of May 31 of the year in which such reports are made concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (b) A copy of such report shall, at the time of such transmission to holders of Notes, be filed by the Trustee with each stock exchange and automated quotation system upon which the Notes are listed and with the Company. The Company will notify the Trustee in writing within a reasonable time when the Notes are listed on any stock exchange or automated quotation system. Section 6.4 Reports by Company. The Company shall file with the Trustee (and the Commission if at any time after the Indenture becomes qualified under the Trust Indenture Act), and transmit to holders of Notes, such information, documents and other reports and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act, whether or not the Notes are governed by such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. ARTICLE VII REMEDIES OF THE TRUSTEE AND NOTEHOLDERS IN THE EVENT OF DEFAULT Section 7.1 Events of Default. In case one or more of the following Events of Default (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall have occurred and be continuing: 41 52 (a) default in the payment of the principal of or premium, if any (upon redemption or otherwise), on the Notes, whether or not such payment is permitted under Article IV hereof; or (b) default in the payment of any installment of interest (including Liquidated Damages, if any), on the Notes as and when the same shall become due and payable, and continuance of such default for a period of thirty (30) days, whether or not such payment is permitted under Article IV hereof; or (c) failure on the part of the Company duly to observe or perform any other of the covenants or agreements on the part of the Company in the Notes or in this Indenture (other than a covenant or agreement a default in whose performance or whose breach is elsewhere in this Section 7.1 specifically dealt with) continued for a period of sixty (60) days after the date on which written notice of such failure, requiring the Company to remedy the same, shall have been given to the Company by the Trustee, or to the Company and the Trustee by the holders of at least 25% in aggregate principal amount of the Notes at the time outstanding determined in accordance with Section 9.4; or (d) the Company or any of its subsidiaries shall have commenced a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian, or other similar official of it or any substantial part of its property, or shall have consented to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due; or (e) an involuntary case or other proceeding shall be commenced against the Company or any of its subsidiaries seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of ninety (90) consecutive days; or (f) failure by the Company to make any payment at maturity, including any applicable grace period, in respect of Indebtedness in an outstanding principal amount in excess of $25.0 million in the aggregate for all such issues and continuance of such failure for a period of 45 days after written notice thereof to the Company by the Trustee, or to the Company and the Trustee by the holders of not less than 25% in principal amount of the Notes then outstanding; or 42 53 (g) default with respect to any Indebtedness of the Company or any of its subsidiaries, which default results in the acceleration of Indebtedness in an amount in excess of $25.0 million in the aggregate for all such issues of all such Persons without such Indebtedness having been discharged or such acceleration having been cured, waived, rescinded or annulled for a period of 45 days after written notice thereof to the Company by the Trustee, or to the Company and the Trustee by the holders of not less than 25% in principal amount of the Notes; then and in each and every such case (other than an Event of Default specified in Section 7.1(d) or (e)), unless the principal of all of the Notes shall have already become due and payable, either the Trustee or the holders of not less than 25 percent in aggregate principal amount of the Notes then outstanding hereunder determined in accordance with Section 9.4, by notice in writing to the Company (and to the Trustee if given by Noteholders), may declare the principal of, and premium, if any, on, all the Notes and the interest (including Liquidated Damages, if any) accrued thereon to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Notes contained to the contrary notwithstanding. If an Event of Default specified in Section 7.1(d) or (e) occurs, the principal of all the Notes and the interest accrued thereon (including Liquidated Damages, if any) shall be immediately and automatically due and payable without necessity of further action. This provision, however, is subject to the condition that if, at any time after the principal of the Notes shall have been so declared due and payable, and before any judgment or decree for the payment of the monies due shall have been obtained or entered as hereinafter provided, subject to the provisions of Article IV hereof, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest (including Liquidated Damages, if any) upon all the Notes and the principal of and premium, if any, on any and all Notes which shall have become due otherwise than by acceleration (with interest on overdue installments of interest (including Liquidated Damages, if any) (to the extent that payment of such interest is enforceable under applicable law) and on such principal and premium, if any, at the rate borne by the Notes, to the date of such payment or deposit) and amounts due to the Trustee pursuant to Section 8.6, and if any and all defaults under this Indenture, other than the nonpayment of principal of and premium, if any, and accrued interest (including Liquidated Damages, if any) on Notes which shall have become due by acceleration, shall have been cured or waived pursuant to Section 7.7 -- then and in every such case the holders of a majority in aggregate principal amount of the Notes then outstanding, by written notice to the Company and to the Trustee, may waive all defaults or Events of Default and rescind and annul such declaration and its consequences; but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or Event of Default, or shall impair any right consequent thereon. The Trustee shall not be charged with knowledge and shall not be deemed to have notice of any default or Event of Default, except an Event of Default under Section 7.1(a) or (b) in cases where the Trustee is acting as paying agent, unless written notice thereof stating that such notice is a "Notice of Default" shall have been given to a Responsible Officer by the Company or a Noteholder or 43 54 any agent of a Noteholder; and, in the absence of such written notice, the Trustee may conclusively assume that there is no default or Event of Default. In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned because of such waiver or rescission and annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company, the holders of Notes, and the Trustee shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Company, the holders of Notes, and the Trustee shall continue as though no such proceeding had been taken. Section 7.2 Payment of Notes on Default; Suit Therefor. The Company covenants that (a) in case default shall be made in the payment of any installment of interest (including Liquidated Damages, if any) upon any of the Notes as and when the same shall become due and payable, and such default shall have continued for a period of thirty (30) days, or (b) in case default shall be made in the payment of the principal of or premium, if any, on any of the Notes as and when the same shall have become due and payable, whether at maturity of the Notes, or in connection with any redemption, by declaration or otherwise -- then, upon demand of the Trustee, subject to the provisions of Article IV hereof, the Company will pay to the Trustee, for the benefit of the holders of the Notes, the whole amount that then shall have become due and payable on all such Notes for principal and premium, if any, or interest (including Liquidated Damages, if any), or both, as the case may be, with interest upon the overdue principal and premium, if any, and (to the extent that payment of such interest is enforceable under applicable law) upon the overdue installments of interest (including Liquidated Damages, if any) at the rate borne by the Notes; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including a reasonable compensation to the Trustee, its agents, attorneys and counsel, and any expenses or liabilities incurred by the Trustee hereunder other than through its negligence or bad faith. Until such demand by the Trustee, the Company may pay the principal of and premium, if any, and interest (including Liquidated Damages, if any) on the Notes to the registered holders, whether or not the Notes are overdue. In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or any other obligor on the Notes and collect in the manner provided by law out of the property of the Company or any other obligor on the Notes wherever situated the monies adjudged or decreed to be payable. In case there shall be pending proceedings for the bankruptcy or for the reorganization of the Company or any other obligor on the Notes under Title 11 of the United 44 55 States Code, or any other applicable law, or in case a receiver, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Company or such other obligor, the property of the Company or such other obligor, or in the case of any other similar judicial proceedings relative to the Company or such other obligor upon the Notes, or to the creditors or property of the Company or such other obligor, the Trustee, irrespective of whether the principal of the Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section 7.2, shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount of principal, premium, if any, and interest (including Liquidated Damages, if any) owing and unpaid in respect of the Notes, and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the Noteholders allowed in such judicial proceedings relative to the Company or any other obligor on the Notes, its or their creditors, or its or their property, and to collect and receive any monies or other property payable or deliverable on any such claims, and to distribute the same after the deduction of any amounts due the Trustee under Section 8.6; and any receiver, assignee or trustee in bankruptcy or reorganization, liquidator, custodian or similar official is hereby authorized by each of the Noteholders to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to the Noteholders, to pay to the Trustee any amount due it for compensation, expenses, advances and disbursements including counsel fees incurred by it up to the date of such distribution. To the extent that such payment of reasonable compensation, expenses, advances and disbursements out of the estate in any such proceedings shall be denied for any reason, payment of the same shall be secured by a lien on, and shall be paid out of, any and all distributions, dividends, monies, securities and other property which the holders of the Notes may be entitled to receive in such proceedings, whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or adopt on behalf of any Noteholder any plan of reorganization or arrangement, affecting the Notes or the rights of any Noteholder, or to authorize the Trustee to vote in respect of the claim of any Noteholder in any such proceeding. All rights of action and of asserting claims under this Indenture, or under any of the Notes, may be enforced by the Trustee without the possession of any of the Notes, or the production thereof for any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the holders of the Notes. 45 56 In any proceedings brought by the Trustee (and in any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party) the Trustee shall be held to represent all the holders of the Notes, and it shall not be necessary to make any holders of the Notes parties to any such proceedings. Section 7.3 Application of Monies Collected by Trustee. Any monies collected by the Trustee pursuant to this Article VII shall be applied in the order following, at the date or dates fixed by the Trustee for the distribution of such monies, upon presentation of the several Notes, and stamping thereon the payment, if only partially paid, and upon surrender thereof if fully paid: First: To the payment of all amounts due the Trustee under Section 8.6; Second: Subject to the provisions of Article IV, in case the principal of the outstanding Notes shall not have become due and be unpaid, to the payment of interest (including Liquidated Damages, if any) on the Notes then owing and unpaid in the order of the maturity of the installments of such interest, with interest (to the extent that such interest has been collected by the Trustee) upon the overdue installments of interest (including Liquidated Damages, if any) at the rate borne by the Notes, such payments to be made ratably to the Persons entitled thereto; Third: Subject to the provisions of Article IV, in case the principal of the outstanding Notes shall have become due, by declaration or otherwise, and be unpaid to the payment of the whole amount then owing and unpaid upon the Notes for principal and premium, if any, and interest (including Liquidated Damages, if any), with interest on the overdue principal and premium, if any, and (to the extent that such interest has been collected by the Trustee) upon overdue installments of interest (including Liquidated Damages, if any) at the rate borne by the Notes; and in case such monies shall be insufficient to pay in full the whole amounts so due and unpaid upon the Notes, then to the payment of such principal and premium, if any, and interest (including Liquidated Damages, if any) without preference or priority of principal and premium, if any, over interest (including Liquidated Damages, if any), or of interest (including Liquidated Damages, if any) over principal and premium, if any, or of any installment of interest over any other installment of interest, or of any Note over any other Note, ratably to the aggregate of such principal and premium, if any, and accrued and unpaid interest (including Liquidated Damages, if any); and Fourth: Subject to the provisions of Article IV, to the payment of the remainder, if any, to the Company or any other Person lawfully entitled thereto. Section 7.4 Proceedings by Noteholder. No holder of any Note shall have any right by virtue of or by availing of any provision of this Indenture to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Indenture, or for 46 57 the appointment of a receiver, trustee, liquidator, custodian or other similar official, or for any other remedy hereunder, unless such holder previously shall have given to the Trustee written notice of an Event of Default and of the continuance thereof, as hereinbefore provided, and unless also the holders of not less than 25 percent in aggregate principal amount of the Notes then outstanding hereunder determined in accordance with Section 9.4 shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee for sixty (60) days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding and no direction inconsistent with such written request shall have been given to the Trustee pursuant to Section 7.7; it being understood and intended, and being expressly covenanted by the taker and holder of every Note with every other taker and holder and the Trustee, that no one or more holders of Notes shall have any right in any manner whatsoever by virtue of or by availing of any provision of this Indenture to affect, disturb or prejudice the rights of any other holder of Notes, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Notes (except as otherwise provided herein). For the protection and enforcement of this Section 7.4, each and every Noteholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Notwithstanding any other provisions of this Indenture and any provision of any Note, the right of any holder of any Note to receive payment of the principal of and premium, if any, and interest (including Liquidated Damages, if any) on such Note, on or after the respective due dates expressed in such Note, or to institute suit for the enforcement of any such payment on or after such respective dates against the Company shall not be impaired or affected without the consent of such holder. Anything in this Indenture or the Notes to the contrary notwithstanding, the holder of any Note, without the consent of either the Trustee or the holder of any other Note, in his own behalf and for his own benefit, may enforce, and may institute and maintain any proceeding suitable to enforce, his rights of conversion as provided herein. Section 7.5 Proceedings by Trustee. In case of an Event of Default hereunder the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either by suit in equity or by action at law or by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. 47 58 Section 7.6 Remedies Cumulative and Continuing. Except as provided in Section 2.6, all powers and remedies given by this Article VII to the Trustee or to the Noteholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any thereof or of any other powers and remedies available to the Trustee or the holders of the Notes, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Indenture, and no delay or omission of the Trustee or of any holder of any of the Notes to exercise any right or power accruing upon any default or Event of Default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein; and, subject to the provisions of Section 7.4, every power and remedy given by this Article VII or by law to the Trustee or to the Noteholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Noteholders. Section 7.7 Direction of Proceedings and Waiver of Defaults by Majority of Noteholders. The holders of a majority in aggregate principal amount of the Notes at the time outstanding determined in accordance with Section 9.4 shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee; provided, however, that (subject to the provisions of Section 8.1) (a) such direction shall not be in conflict with any rule of law or with this Indenture, (b) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction and (c) the Trustee may decline to take any action that would benefit some Noteholder to the detriment of other Noteholders. The holders of a majority in aggregate principal amount of the Notes at the time outstanding determined in accordance with Section 9.4 may on behalf of the holders of all of the Notes waive any past default or Event of Default hereunder and its consequences except (i) a default in the payment when due of interest or premium, if any, on, or the principal of, the Notes, (ii) a failure by the Company to convert any Notes into Common Stock, (iii) a default in the payment of redemption price pursuant to Article III or (iv) a default in respect of a covenant or provision hereof which under Article XI cannot be modified or amended without the consent of the holders of all Notes then outstanding. Upon any such waiver the Company, the Trustee and the holders of the Notes shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. Whenever any default or Event of Default hereunder shall have been waived as permitted by this Section 7.7, said default or Event of Default shall for all purposes of the Notes and this Indenture be deemed to have been cured and to be not continuing; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. Section 7.8 Notice of Defaults. The Trustee shall, within sixty (60) days after the occurrence of a default, mail to all Noteholders, as the names and addresses of such holders appear upon the Register, notice of all defaults actually known to a Responsible Officer of the Trustee, unless such defaults shall have been cured or waived before the giving of such notice (the term "defaults" for the purpose of this Section 7.8 being hereby defined to be the 48 59 events specified in clauses (a), (b), (c), (d), (e), (f) and (g) of Section 7.1, not including periods of grace, if any, or the giving of any notice, or both provided for therein); and provided that, except in the case of default in the payment when due of the principal of or premium, if any, or interest (including Liquidated Damages, if any) on any of the Notes, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interests of the Noteholders. Section 7.9 Undertaking to Pay Costs. All parties to this Indenture agree, and each holder of any Note by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; provided, that the provisions of this Section 7.9 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Noteholder, or group of Noteholders, holding in the aggregate more than ten percent in principal amount of the Notes at the time outstanding determined in accordance with Section 9.4, or to any suit instituted by any Noteholder for the enforcement of the payment of the principal of or premium, if any, or interest on any Note on or after the due date expressed in such Note or to any suit for the enforcement of the right to convert any Note in accordance with the provisions of Article XV. ARTICLE VIII CONCERNING THE TRUSTEE Section 8.1 Duties and Responsibilities of Trustee. The Trustee, prior to the occurrence of an Event of Default and after the curing of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. In case an Event of Default has occurred (which has not been cured or waived) the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that 49 60 (a) prior to the occurrence of an Event of Default and after the curing or waiving of all Events of Default which may have occurred: (1) the duties and obligations of the Trustee shall be determined solely by the express provisions of this Indenture and the Trust Indenture Act, and the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture and the Trust Indenture Act against the Trustee; and (2) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but, in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture; (b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (c) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the holders of not less than a majority in principal amount of the Notes at the time outstanding determined as provided in Section 9.4 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; and (d) whether or not therein provided, every provision of this Indenture relating to the conduct or affecting the liability of, or affording protection to, the Trustee shall be subject to the provisions of this Section. None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers. 50 61 Section 8.2 Reliance on Documents, Opinions, Etc. Except as otherwise provided in Section 8.1, (a) the Trustee may rely and shall be protected in acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, coupon or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by an Officers' Certificate (unless other evidence in respect thereof be herein specifically prescribed); and any resolution of the Board of Directors may be evidenced to the Trustee by a copy thereof certified by the Secretary or the Treasurer of the Company; (c) the Trustee may consult with counsel and any advice or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel; (d) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Noteholders pursuant to the provisions of this Indenture, unless such Noteholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; (e) the Trustee shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; (f) prior to the occurrence of an Event of Default hereunder and after the curing or waiving of all Events of Default, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, coupon or other paper or document unless requested in writing to do so by the holders of not less than a majority in principal amount of the Notes then outstanding, provided that the Trustee may, in its discretion, make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation it shall be entitled, during regular business hours and after two days prior written notice to examine the books, records and premises of the Company personally or by agent or attorney; provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of any investigation pursuant to this clause (f) is, in the opinion of the Trustee, not reasonably assured to the 51 62 Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such expense or liability as a condition to so proceeding; the reasonable expenses of every such examination shall be paid by the Company or, if paid by the Trustee or any predecessor Trustee, shall be repaid by the Company upon demand; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it with due care hereunder; (h) the permissive rights of the Trustee to do things enumerated in this Indenture shall not be construed as a duty unless so specified herein; (i) before the Trustee acts or refrains from acting, it may require an Officer's Certificate or an Opinion of Counsel or both and the Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or Opinion of Counsel; and (j) except as otherwise expressly provided herein, the Trustee shall not be bound to ascertain or inquire as to the performance of observance of any of the terms, conditions, covenants or agreements herein or of any of the documents executed in connection with the Notes or as to the existence of an Event of Default thereunder. Section 8.3 No Responsibility for Recitals, Etc. The recitals contained herein and in the Notes (except in the Trustee's certificate of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity, sufficiency or priority of this Indenture or of the Notes. The Trustee shall not be accountable for the use or application by the Company of any Notes or the proceeds of any Notes authenticated and delivered by the Trustee in conformity with the provisions of this Indenture. Section 8.4 Trustee, Paying Agents, Conversion Agents or Registrar May Own Notes. The Trustee, any paying agent, any conversion agent or Note registrar, in its individual or any other capacity, may become the owner or pledgee of Notes with the same rights it would have if it were not Trustee, paying agent, conversion agent or Note registrar. Section 8.5 Monies to Be Held in Trust. Subject to the provisions of Section 13.4 and Section 4.2, all monies received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder. 52 63 Section 8.6 Compensation and Expenses of Trustee. The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation for all services rendered by it hereunder in any capacity (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust), and the Company will pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel, its agents and of all Persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Company also covenants to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense (including attorneys' fees and expenses) incurred without negligence or bad faith on the part of the Trustee and arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of enforcing the Indenture against the Company (including this Section 8.6) and defending itself against or investigating any claim (whether asserted by the Company, any holder or other Person). The obligations of the Company under this Section 8.6 to compensate or indemnify the Trustee and to pay or reimburse the Trustee for expenses, disbursements and advances shall be secured by a lien prior to that of the Notes upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Notes. The obligation of the Company under this Section 8.6 and the liens created hereunder shall survive the resignation or removal of the Trustee, the satisfaction and discharge of this Indenture and the termination of this Indenture. All indemnifications and releases from liability granted herein to the Trustee shall extend to the directors, officers, employees and agents of the Trustee and to the Paying Agent and Note registrar. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 7.1(d) or (e) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any bankruptcy law. Section 8.7 Officers' Certificate and Opinion of Counsel as Evidence. Whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or omitting any action hereunder, such matter (unless additional evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate or an Opinion of Counsel or both delivered to the Trustee, such certificate or opinion, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken or omitted by it under the provisions of this Indenture upon the faith thereof. Section 8.8 Conflicting Interests of Trustee. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall 53 64 either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. Section 8.9 Eligibility of Trustee. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has (or, in the case of a corporation included in a bank holding company system, the related bank holding company shall have) a combined capital and surplus of at least $50,000,000. If such Person or bank holding company publishes reports of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority (or bank holding company), then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. Section 8.10 Resignation or Removal of Trustee. (a) The Trustee may at any time resign by giving written notice of such resignation to the Company and by mailing notice thereof to the holders of Notes at their addresses as they shall appear on the Register. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within sixty (60) days after the mailing of such notice of resignation to the Noteholders, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee, or any Noteholder who has been a bona fide holder of a Note or Notes for at least six months may, subject to the provisions of Section 7.9, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. (b) In case at any time any of the following shall occur: (1) the Trustee shall fail to comply with Section 8.8 after written request therefor by the Company or by any Noteholder who has been a bona fide holder of a Note or Notes for at least six months; or (2) the Trustee shall cease to be eligible in accordance with the provisions of Section 8.9 and shall fail to resign after written request therefor by the Company or by any such Noteholder, or 54 65 (3) the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case the Company may remove the Trustee and appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or, subject to the provisions of Section 7.9, any Noteholder who has been a bona fide holder of a Note or Notes for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (c) The holders of a majority in aggregate principal amount of the Notes at the time outstanding may at any time remove the Trustee and nominate a successor trustee which shall be deemed appointed as successor trustee unless within ten (10) days after notice to the Company of such nomination the Company objects thereto, in which case the Trustee so removed or any Noteholder, upon the terms and conditions and otherwise as in Section 8.10(a) provided, may petition any court of competent jurisdiction for an appointment of a successor trustee. (d) Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section 8.10 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 8.11. Section 8.11 Acceptance by Successor Trustee. Any successor trustee appointed as provided in Section 8.10 shall execute, acknowledge and deliver to the Company and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as trustee herein; but, nevertheless, on the written request of the Company or of the successor trustee, the trustee ceasing to act shall, upon payment of any amounts then due it pursuant to the provisions of Section 8.6, execute and deliver an instrument transferring to such successor trustee all the rights and powers of the trustee so ceasing to act. Upon request of any such successor trustee, the Company shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. Any trustee ceasing to act shall, nevertheless, retain a lien upon all property or funds held or collected by such trustee as such trustee to secure any amounts then due it pursuant to the provisions of Section 8.6. 55 66 No successor trustee shall accept appointment as provided in this Section 8.11 unless at the time of such acceptance such successor trustee shall be qualified under the provisions of Section 8.8 and be eligible under the provisions of Section 8.9. Upon acceptance of appointment by a successor trustee as provided in this Section 8.11, the Company (or the former trustee) shall mail or cause to be mailed notice of the succession of such trustee hereunder to the holders of Notes at their addresses as they shall appear on the Register. If the Company fails to mail such notice within ten (10) days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of the Company. Section 8.12 Succession by Merger, Etc. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the trust business of the Trustee (including any trust created by this Indenture), shall be the successor to the Trustee hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that in the case of any corporation succeeding to all or substantially all of the trust business of the Trustee such corporation shall be qualified under the provisions of Section 8.8 and eligible under the provisions of Section 8.9. In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture any of the Notes shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee or authenticating agent appointed by such predecessor trustee, and deliver such Notes so authenticated; and in case at that time any of the Notes shall not have been authenticated, any successor to the Trustee or an authenticating agent appointed by such successor trustee may authenticate such Notes either in the name of any predecessor trustee hereunder or in the name of the successor trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Notes or in this Indenture provided that the certificate of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or authenticate Notes in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. Section 8.13 Limitation on Rights of Trustee as Creditor. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Notes), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of the claims against the Company (or any such other obligor). 56 67 ARTICLE IX CONCERNING THE NOTEHOLDERS Section 9.1 Action by Noteholders. Whenever in this Indenture it is provided that the holders of a specified percentage in aggregate principal amount of the Notes may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action), the fact that at the time of taking any such action, the holders of such specified percentage have joined therein may be evidenced (a) by any instrument or any number of instruments of similar tenor executed by Noteholders in person or by agent or proxy appointed in writing, or (b) by the record of the holders of Notes voting in favor thereof at any meeting of Noteholders duly called and held in accordance with the provisions of Article X, or (c) by a combination of such instrument or instruments and any such record of such a meeting of Noteholders. Whenever the Company or the Trustee solicits the taking of any action by the holders of the Notes, the Company or the Trustee may fix in advance of such solicitation, a date as the record date for determining holders entitled to take such action. The record date shall be not more than fifteen (15) days prior to the date of commencement of solicitation of such action. Section 9.2 Proof of Execution by Noteholders. Subject to the provisions of Sections 8.1, 8.2 and 10.5, proof of the execution of any instrument by a Noteholder or his agent or proxy shall be sufficient if made in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. The holding of Notes shall be proved by the registry of such Notes or by a certificate of the Note registrar. The record of any Noteholders' meeting shall be proved in the manner provided in Section 10.6. Section 9.3 Who Are Deemed Absolute Owners. The Company, the Trustee, any authentication agent, any paying agent, any conversion agent and any Note registrar may deem the Person in whose name such Note shall be registered upon the Register to be, and may treat him as, the absolute owner of such Note (whether or not such Note shall be overdue and notwithstanding any notation of ownership or other writing thereon made by anyone other than the Company or any Note registrar) for the purpose of receiving payment of or on account of the principal of and premium, if any, and interest on such Note, for conversion of such Note and for all other purposes; and neither the Company nor the Trustee nor any other authenticating agent nor any paying agent nor any conversion agent nor any Note registrar shall be affected by any notice to the contrary. All such payments so made to any holder for the time being, or upon his order, shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for monies payable upon any such Note. 57 68 Section 9.4 Company-Owned Notes Disregarded. In determining whether the holders of the requisite aggregate principal amount of Notes have concurred in any direction, consent, waiver or other action under this Indenture, Notes which are owned by the Company or any other obligor on the Notes or any Affiliate of the Company or any other obligor on the Notes shall be disregarded and deemed not to be outstanding for the purpose of any such determination; provided that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, consent, waiver or other action only Notes which a Responsible Officer knows are so owned shall be so disregarded. Notes so owned which have been pledged in good faith may be regarded as outstanding for the purposes of this Section 9.4 if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Notes and that the pledgee is not the Company, any other obligor on the Notes or any Affiliate of the Company or any such other obligor. In the case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Upon request of the Trustee, the Company shall furnish to the Trustee promptly an Officers' Certificate listing and identifying all Notes, if any, known by the Company to be owned or held by or for the account of any of the above described persons; and, subject to Section 8.1, the Trustee shall be entitled to accept such Officers' Certificate as conclusive evidence of the facts therein set forth and of the fact that all Notes not listed therein are outstanding for the purpose of any such determinations. Section 9.5 Revocation of Consents; Future Holders Bound. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 9.1, of the taking of any action by the holders of the percentage in aggregate principal amount of the Notes specified in this Indenture in connection with such action, any holder of a Note which is shown by the evidence to be included in the Notes the holders of which have consented to such action may, by filing written notice with the Trustee at the Corporate Trust Office and upon proof of holding as provided in Section 9.2, revoke such action so far as concerns such Note. Except as aforesaid, any such action taken by the holder of any Note shall be conclusive and binding upon such holder and upon all future holders and owners of such Note and of any Notes issued in exchange or substitution therefor, irrespective of whether any notation in regard thereto is made upon such Note or any Note issued in exchange or substitution therefor. 58 69 ARTICLE X NOTEHOLDERS' MEETINGS Section 10.1 Purposes of Meetings. A meeting of Noteholders may be called at any time and from time to time pursuant to the provisions of this Article X for any of the following purposes: (1) to give any notice to the Company or to the Trustee or to give any directions to the Trustee, or to consent to the waiving of any default hereunder and its consequences, or to take any other action authorized to be taken by Noteholders pursuant to any of the provisions of Article VII; (2) to remove the Trustee and nominate a successor trustee pursuant to the provisions of Article VIII; (3) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 11.2; or (4) to take any other action authorized to be taken by or on behalf of the holders of any specified aggregate principal amount of the Notes under any other provision of this Indenture or under applicable law. Section 10.2 Call of Meetings by Trustee. The Trustee may at any time call a meeting of Noteholders to take any action specified in Section 10.1, to be held at such time and at such place as the Trustee shall determine. Notice of every meeting of the Noteholders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting and the establishment of any record date pursuant to Section 9.1, shall be mailed to holders of Notes at their addresses as they shall appear on the Register. Such notice shall also be mailed to the Company. Such notices shall be mailed not less than twenty (20) nor more than ninety (90) days prior to the date fixed for the meeting. Any meeting of Noteholders shall be valid without notice if the holders of all Notes then outstanding are present in person or by proxy or if notice is waived before or after the meeting by the holders of all Notes outstanding, and if the Company and the Trustee are either present by duly authorized representatives or have, before or after the meeting, waived notice. Section 10.3 Call of Meetings by Company or Noteholders. In case at any time the Company, pursuant to a resolution of its Board of Directors, or the holders of at least ten percent in aggregate principal amount of the Notes then outstanding, shall have requested the Trustee to call a meeting of Noteholders, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the 59 70 notice of such meeting within twenty (20) days after receipt of such request, then the Company or such Noteholders may determine the time and the place for such meeting and may call such meeting to take any action authorized in Section 10.1, by mailing notice thereof as provided in Section 10.2. Section 10.4 Qualifications for Voting. To be entitled to vote at any meeting of Noteholders a Person shall (a) be a holder of one or more Notes or (b) be a Person appointed by an instrument in writing as proxy by a holder of one or more Notes. The only Persons who shall be entitled to be present or to speak at any meeting of Noteholders shall be the Persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. Section 10.5 Regulations. Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Noteholders, in regard to proof of the holding of Notes and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think fit. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Noteholders as provided in Section 10.3, in which case the Company or the Noteholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the holders of a majority in principal amount of the Notes represented at the meeting and entitled to vote at the meeting. Subject to the provisions of Section 9.4, at any meeting each Noteholder or proxyholder shall be entitled to one vote for each $1,000 principal amount of Notes held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Note challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Notes held by him or instruments in writing as aforesaid duly designating him as the person to vote on behalf of other Noteholders. Any meeting of Noteholders duly called pursuant to the provisions of Section 10.2 or 10.3 may be adjourned from time to time by a majority of those present, whether or not constituting a quorum, and the meeting may be held as so adjourned without further notice. Section 10.6 Voting. The vote upon any resolution submitted to any meeting of Noteholders shall be by written ballot on which shall be subscribed the signatures of the holders of Notes or of their representatives by proxy and the principal amount of the Notes held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in 60 71 duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Noteholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 10.2. The record shall show the principal amount of the Notes voting in favor of or against any resolution. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one of the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. Section 10.7 No Delay of Rights by Meeting. Nothing in this Article X contained shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Noteholders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Noteholders under any of the provisions of this Indenture or of the Notes. ARTICLE XI SUPPLEMENTAL INDENTURES Section 11.1 Supplemental Indentures Without Consent of Noteholders. The Company, when authorized by the resolutions of the Board of Directors, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto for one or more of the following purposes: (a) to make provision with respect to the conversion rights of the holders of Notes pursuant to the requirements of Section 15.6 and the redemption obligations of the Company pursuant to the requirements of Section 3.5(e); (b) subject to Article IV, to convey, transfer, assign, mortgage or pledge to the Trustee as security for the Notes, any property or assets; (c) to evidence the succession of another corporation to the Company, or successive successions, and the assumption by the successor corporation of the covenants, agreements and obligations of the Company pursuant to Article XII; (d) to add to the covenants of the Company such further covenants, restrictions or conditions as the Board of Directors and the Trustee shall consider to be 61 72 for the benefit of the holders of Notes, and to make the occurrence, or the occurrence and continuance, of a default in any such additional covenants, restrictions or conditions a default or an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth; provided, however, that in respect of any such additional covenant, restriction or condition such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default; (e) to provide for the issuance under this Indenture of Notes in coupon form (including Notes registrable as to principal only) and to provide for exchangeability of such Notes with the Notes issued hereunder in fully registered form and to make all appropriate changes for such purpose; (f) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture which shall not adversely affect the interests of the holders of the Notes in any material respect; (g) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Notes; or (h) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualification of this Indenture under the Trust Indenture Act, or under any similar federal statute hereafter enacted. The Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations which may be therein contained and to accept the conveyance, transfer and assignment of any property thereunder, but the Trustee shall not be obligated to, but may in its discretion, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provisions of this Section 11.1 may be executed by the Company and the Trustee without the consent of the holders of any of the Notes at the time outstanding, notwithstanding any of the provisions of Section 11.2. Section 11.2 Supplemental Indentures with Consent of Noteholders. With the consent (evidenced as provided in Article IX) of the holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding, the Company, when 62 73 authorized by the resolutions of the Board of Directors, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner the rights of the holders of the Notes; provided, however, that no such supplemental indenture shall (i) extend the fixed maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or premium, if any, thereon, or reduce any amount payable on redemption thereof, or impair or affect the right of any Noteholder to institute suit for the payment thereof, or make the principal thereof or interest (including Liquidated Damages, if any) or premium, if any, thereon payable in any coin or currency other than that provided in the Notes, or modify the provisions of this Indenture with respect to the subordination of the Notes in a manner adverse to the Noteholders, or change the obligation of the Company to redeem any Note upon the happening of a Fundamental Change in a manner adverse to the holder of Notes, or impair the right to convert the Notes into Common Stock subject to the terms set forth herein, including Section 15.6, without the consent of the holder of each Note so affected, or (ii) reduce the aforesaid percentage of Notes, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Notes then outstanding. Upon the request of the Company, accompanied by a copy of the resolutions of the Board of Directors certified by its Secretary or Treasurer authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Noteholders as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Noteholders under this Section 11.2 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. Section 11.3 Effect of Supplemental Indenture. Any supplemental indenture executed pursuant to the provisions of this Article XI shall comply with the Trust Indenture Act, as then in effect; provided that this Section 11.3 shall not require such supplemental indenture or the Trustee to be qualified under the Trust Indenture Act prior to the time such qualification is in fact required under the terms of the Trust Indenture Act or the Indenture has been qualified under the Trust Indenture Act, nor shall it constitute any admission or acknowledgment by any party to such supplemental indenture that any such qualification is required prior to the time such qualification is in fact required under the terms of the Trust Indenture Act or the Indenture has been qualified under the Trust Indenture Act. Upon the execution of any supplemental indenture pursuant to the provisions of this Article XI, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitation of rights, obligations, duties and immunities under this Indenture 63 74 of the Trustee, the Company and the holders of Notes shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 11.4 Notation on Notes. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article XI may bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company or the Trustee shall so determine, new Notes so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any modification of this Indenture contained in any such supplemental indenture may be prepared and executed by the Company, authenticated by the Trustee (or an authenticating agent duly appointed by the Trustee pursuant to Section 16.11) and delivered in exchange for the Notes then outstanding, upon surrender of such Notes then outstanding. Section 11.5 Evidence of Compliance of Supplemental Indenture to Be Furnished Trustee. The Trustee, subject to the provisions of Sections 8.1 and 8.2, may receive an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant hereto complies with the requirements of this Article XI. ARTICLE XII CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE Section 12.1 Company May Consolidate Etc. on Certain Terms. Subject to the provisions of Section 12.2, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of the Company with or into any other corporation or corporations (whether or not affiliated with the Company), or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties, or shall prevent any sale, conveyance or lease (or successive sales, conveyances or leases) of all or substantially all of the property of the Company, to any other corporation (whether or not affiliated with the Company) authorized to acquire and operate the same and which shall be organized under the laws of a State of the United States or the District of Columbia; provided, however, and the Company hereby covenants and agrees, that upon any such consolidation, merger, sale, conveyance or lease, the due and punctual payment of the principal of and premium, if any, and interest (including Liquidated Damages, if any) on all of the Notes, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Company, shall be expressly assumed, by supplemental indenture satisfactory in form to the Trustee, executed and delivered to the Trustee by the corporation (if other than the Company) formed by such consolidation, or into which the Company shall have been merged, or by the corporation which shall have 64 75 acquired or leased such property, and such supplemental indenture shall provide for the applicable conversion rights set forth in Section 15.6. Section 12.2 Successor Corporation to Be Substituted. In case of any such consolidation, merger, sale, conveyance or lease and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the due and punctual payment of the principal of and premium, if any, and interest (including Liquidated Damages, if any) on all of the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Company, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the party of the first part. Such successor corporation thereupon may cause to be signed, and may issue either in its own name or in the name of CKE Restaurants, Inc. any or all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor corporation instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver, or cause to be authenticated and delivered, any Notes which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Notes which such successor corporation thereafter shall cause to be signed and delivered to the Trustee for that purpose. All the Notes so issued shall in all respects have the same legal rank and benefit under this Indenture as the Notes theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Notes had been issued at the date of the execution hereof. In the event of any such consolidation, merger, sale, conveyance or lease, the Person named as the "Company" in the first paragraph of this Indenture or any successor which shall thereafter have become such in the manner prescribed in this Article XII may be dissolved, wound up and liquidated at any time thereafter and such Person shall be released from its liabilities as obligor and maker of the Notes and from its obligations under this Indenture. In case of any such consolidation, merger, sale, conveyance or lease, such changes in phraseology and form (but not in substance) may be made in the Notes thereafter to be issued as may be appropriate. Section 12.3 Opinion of Counsel to Be Given Trustee. The Trustee shall receive an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale, conveyance or lease and any such assumption complies with the provisions of this Article XII. 65 76 ARTICLE XIII SATISFACTION AND DISCHARGE OF INDENTURE Section 13.1 Discharge of Indenture. When (a) the Company shall deliver to the Trustee for cancellation all Notes theretofore authenticated (other than any Notes which shall have been destroyed, lost or stolen and in lieu of or in substitution for which other Notes shall have been authenticated and delivered) and not theretofore canceled, or (b) all the Notes not theretofore canceled or delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and the Company shall deposit with the Trustee, in trust, funds sufficient to pay at maturity or upon redemption of all of the Notes (other than any Notes which shall have been mutilated, destroyed, lost or stolen and in lieu of or in substitution for which other Notes shall have been authenticated and delivered) not theretofore canceled or delivered to the Trustee for cancellation, including principal and premium, if any, and interest (including Liquidated Damages, if any) due or to become due to such date of maturity or date fixed for redemption, as the case may be, and if in either case the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then this Indenture shall cease to be of further effect (except as to (i) remaining rights of registration of transfer, substitution and exchange and conversion of Notes, (ii) rights hereunder of Noteholders to receive payments of principal of and premium, if any, and interest (including Liquidated Damages, if any) on, the Notes and the other rights, duties and obligations of Noteholders, as beneficiaries hereof with respect to the amounts, if any, so deposited with the Trustee and (iii) the rights, obligations and immunities of the Trustee hereunder), and the Trustee, on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel as required by Section 16.5 and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture; the Company, however, hereby agreeing to reimburse the Trustee for any costs or expenses thereafter reasonably and properly incurred by the Trustee and to compensate the Trustee for any services thereafter reasonably and properly rendered by the Trustee in connection with this Indenture or the Notes. Section 13.2 Deposited Monies to Be Held in Trust by Trustee. Subject to Section 13.4, all monies deposited with the Trustee pursuant to Section 13.1, shall be held in trust and applied by it to the payment, either directly or through any paying agent (including the Company if acting as its own paying agent), to the holders of the particular Notes for the payment or redemption of which such monies have been deposited with the Trustee, of all sums due and to become due thereon for principal and interest (including Liquidated Damages, if any) and premium, if any. Section 13.3 Paying Agent to Repay Monies Held. Upon the satisfaction and discharge of this Indenture, all monies then held by any paying agent of the Notes (other than the Trustee) shall, upon demand of the Company, be repaid to it or paid to the Trustee, and 66 77 thereupon such paying agent shall be released from all further liability with respect to such monies. Section 13.4 Return of Unclaimed Monies. Anything contained herein to the contrary notwithstanding, any monies deposited with or paid to the Trustee for payment of the principal of, premium, if any, or interest on Notes and not applied but remaining unclaimed by the holders of Notes for two years after the date upon which the principal of, premium, if any, or interest on such Notes, as the case may be, shall have become due and payable, shall be repaid to the Company by the Trustee within 60 days of such date and all liability of the Trustee shall thereupon cease with respect to such monies; and the holder of any of the Notes shall thereafter look only to the Company for any payment which such holder may be entitled to collect. The Trustee shall not be liable to the Company or any Noteholder for interest on funds held by it for the payment and discharge of the interest, or premium (if any) on or principal of any of the Notes to any holder. The Company shall not be liable for any interest on the sums paid to it pursuant to this paragraph and shall not be regarded as a trustee of such money. Section 13.5. Reinstatement. If the Trustee or the paying agent is unable to apply any money in accordance with Section 13.2 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 13.1 until such time as the Trustee or the paying agent is permitted to apply all such money in accordance with Section 13.2; provided, however, that if the Company makes any payment of interest on or principal of any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the holders of such Notes to receive such payment from the money held by the Trustee or paying agent. ARTICLE XIV IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS Section 14.1 Indenture and Notes Solely Corporate Obligations. No recourse for the payment of the principal of or premium, if any, or interest (including Liquidated Damages, if any) on any Note, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture or in any supplemental indenture, or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or 67 78 otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Notes. ARTICLE XV CONVERSION OF NOTES Section 15.1 Right to Convert. Subject to and upon compliance with the provisions of this Indenture, including, without limitation, Article IV, the holder of any Note shall have the right, at such holder's option, at any time after ninety (90) days following the latest date of original issuance thereof and prior to the close of business on March 15, 2004 (except that, with respect to any Note or portion of a Note which shall be called for redemption such right shall terminate, except as provided in Section 15.2 or Section 3.4, at the close of business on the Business Day next preceding the date fixed for redemption of such Note or portion of a Note unless the Company shall default in payment due upon redemption thereof) to convert the principal amount of any such Note, or any portion of such principal amount which is $1,000 or a multiple thereof, into that number of fully paid and non-assessable shares of Common Stock (as such shares shall then be constituted) at the date of conversion obtained, by dividing the principal amount of the Note or portion thereof surrendered for conversion by the Conversion Price in effect at such time, by surrender of the Note so to be converted in whole or in part in the manner provided, together with any required funds, in Section 15.2. A Note in respect of which a holder is exercising the option to require redemption upon a Fundamental Change pursuant to Section 3.5 may be converted only if such holder withdraws its election to exercise in accordance with Section 3.5 hereof. A holder of Notes is not entitled to any rights of a holder of Common Stock until such holder has converted his Notes to Common Stock, and only to the extent such Notes are deemed to have been converted to Common Stock under this Article XV. Section 15.2 Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends. In order to exercise the conversion privilege with respect to any Note in certificated form, the holder of any such Note to be converted in whole or in part shall surrender such Note, duly endorsed, at an office or agency maintained by the Company pursuant to Section 5.2, accompanied by the funds, if any, required by the penultimate paragraph of this Section 15.2, and shall give written notice of conversion in the form provided on the Notes (or such other notice which is acceptable to the Company) to the Company at such office or agency that the holder elects to convert such Note or the portion thereof specified in said notice. Such notice shall also state the name or names (with address or addresses) in which the certificate or certificates for shares of Common Stock which shall be issuable on such conversion shall be issued, and shall be accompanied by transfer taxes, if required pursuant to Section 15.7. Each such Note surrendered for conversion shall, unless the shares issuable on conversion are to be issued in the same name as 68 79 the registration of such Note, be duly endorsed by, or be accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or its duly authorized attorney. In order to exercise the conversion privilege with respect to any interest in a Note in global form, the beneficial holder must complete the appropriate instruction form for conversion pursuant to the Depositary's book-entry conversion program, deliver by book-entry delivery an interest in such Note in global form, furnish appropriate endorsements and transfer documents if required by the Company or the Trustee or conversion agent, and pay the funds, if any, required by this Section 15.2 and any transfer taxes if required pursuant to Section 15.7. As promptly as practicable after satisfaction of the requirements for conversion set forth above, subject to compliance with any restrictions on transfer if shares issuable on conversion are to be issued in a name other than that of the Noteholder (as if such transfer were a transfer of the Note or Notes (or portion thereof) so converted), the Company shall issue and shall deliver at such office or agency to such holder, or on its written order, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of such Note or portion thereof in accordance with the provisions of this Article and a check in payment of any fractional interest in respect of a share of Common Stock arising upon such conversion, as provided in Section 15.3. In case any Note of a denomination greater than $1,000 shall be surrendered for partial conversion, and subject to Section 2.3, the Company shall execute and the Trustee shall authenticate and deliver to or upon the written order of the holder of the Note so surrendered, without charge to such holder, a new Note or Notes in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Note. Each conversion shall be deemed to have been effected as to any such Note (or portion thereof) on the date on which the requirements set forth above in this Section 15.2 have been satisfied as to such Note (or portion thereof), and the Person in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become on said date the holder of record of the shares represented thereby; provided, however, that any such surrender on any date when the stock transfer books of the Company shall be closed shall constitute the Person in whose name the certificates are to be issued as the record holder thereof for all purposes on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date upon which such Note shall have been surrendered. Any Note or portion thereof surrendered for conversion during the period from the close of business on the record date for any interest payment date to the close of business on the Business Day next preceding the following interest payment date shall (unless such Note or portion thereof being converted shall have been called for redemption on a date fixed for redemption which occurs during the period from the close of business on such record date to 69 80 the close of business on the Business Day next preceding the following interest payment date) be accompanied by payment, in New York Clearing House funds or other funds acceptable to the Company, of an amount equal to the interest otherwise payable on such interest payment date on the principal amount being converted; provided, however, that no such payment need be made if there shall exist at the time of conversion a default in the payment of interest on the Notes. An amount equal to such payment shall be paid by the Company on such interest payment date to the holder of such Note at the close of business on such record date; provided, however, that if the Company shall default in the payment of interest on such interest payment date, such amount shall be paid to the Person who made such required payment. Except as provided above in this Section 15.2, no payment or other adjustment shall be made for interest accrued on any Note converted or for dividends on any shares issued upon the conversion of such Note as provided in this Article. Upon the conversion of an interest in a Note in global form, the Trustee (or other conversion agent appointed by the Company), or the Custodian at the direction of the Trustee (or other conversion agent appointed by the Company), shall make a notation on such Note in global form as to the reduction in the principal amount represented thereby. The Company shall notify the Trustee in writing of any conversions of Notes effected through any conversion agent other than the Trustee. Section 15.3 Payments in Lieu of Fractional Shares. No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon conversion of Notes. If more than one Note shall be surrendered for conversion at one time by the same holder, the number of full shares which shall be issuable upon conversion shall be computed on the basis of the aggregate principal amount of the Notes (or specified portions thereof to the extent permitted hereby) so surrendered. If any fractional share of stock would be issuable upon the conversion of any Note or Notes, the Company shall make an adjustment therefor in cash at the current market value thereof to the holder of Notes. For these purposes, the current market value of a share of Common Stock shall be the Closing Price on the first Business Day immediately preceding the day on which the Notes (or specified portions thereof) are deemed to have been converted. Section 15.4 Conversion Price. The conversion price shall be as specified in the form of Note (herein called the "Conversion Price") attached as Exhibit A hereto, subject to adjustment as provided in this Article XV. Section 15.5 Adjustment of Conversion Price. The Conversion Price shall be adjusted from time to time by the Company as follows: (a) In case the Company shall hereafter pay a dividend or make a distribution to all holders of the outstanding Common Stock in shares of Common Stock, the Conversion Price in effect at the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or 70 81 other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. If any dividend or distribution of the type described in this Section 15.5(a) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared. (b) In case the Company shall issue rights or warrants to all holders of its Common Stock entitling them (for a period expiring within 45 days after the record date mentioned below) to subscribe for or purchase Common Stock at a price per share less than the Current Market Price (as defined below) on the date fixed for the determination of stockholders entitled to receive such rights or warrants, the Conversion Price in effect immediately prior thereto shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date fixed for determination of stockholders entitled to receive such rights or warrants by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on the date fixed for determination of stockholders entitled to receive such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Current Market Price, and of which the denominator shall be the number of shares of Common Stock outstanding on the date fixed for determination of stockholders entitled to receive such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase. Such adjustment shall be made successively whenever any such rights or warrants are issued, and shall become effective immediately after the opening of business on the day following the date fixed for determination of stockholders entitled to receive such rights or warrants. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received by the Company for such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. To the extent that no shares of Common Stock are so delivered after the expiration of such rights or warrants, the Conversion Price shall be readjusted to the Conversion Price which would then be in 71 82 effect if such date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. (c) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (d) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock shares of any class of capital stock of the Company (other than any dividends or distributions to which Section 15.5(a) applies) or evidences of its indebtedness or assets (including securities, but excluding any rights or warrants referred to in Section 15.5(b), and excluding any dividend or distribution (x) paid exclusively in cash or (y) referred to in Section 15.5(a) (any of the foregoing hereinafter in this Section 15.5(d) called the "Securities")), then, in each such case (unless the Company elects to reserve such Securities for distribution to the Noteholders upon the conversion of the Notes so that any such holder converting Notes will receive upon such conversion, in addition to the shares of Common Stock to which such holder is entitled, the amount and kind of such Securities which such holder would have received if such holder had converted its Notes into Common Stock immediately prior to the Record Date (as defined in Section 15.5(i) for such distribution of the Securities)), the Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the Conversion Price in effect on the Record Date with respect to such distribution by a fraction of which the numerator shall be the Current Market Price per share of the Common Stock on such Record Date less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a resolution of the Board of Directors) on the Record Date of the portion of the Securities so distributed applicable to one share of Common Stock and the denominator shall be the Current Market Price per share of the Common Stock, such reduction to become effective immediately prior to the opening of business on the day following such Record Date; provided, however, that in the event the fair market value (as so determined) of the portion of the Securities so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Noteholder shall have the right to receive upon conversion the amount of Securities such holder would have received had such holder converted each Note on the Record Date. In the event that such dividend or distribution 72 83 is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. If the Board of Directors determines the fair market value of any distribution for purposes of this Section 15.5(d) by reference to the actual or when issued trading market for any securities, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price of the Common Stock. Rights or warrants distributed by the Company to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("Trigger Event"): (i) are deemed to be transferred with such shares of Common Stock; (ii) are not exercisable; and (iii) are also issued in respect of future issuances of Common Stock, shall be deemed not to have been distributed for purposes of this Section 15.5 (and no adjustment to the Conversion Price under this Section 15.5 will be required) until the occurrence of the earliest Trigger Event, whereupon such rights and warrants shall be deemed to have been distributed and an appropriate adjustment (if any is required) to the Conversion Price shall be made under this Section 15.5(d). If any such right or warrant, including any such existing rights or warrants distributed prior to the date of this Indenture, are subject to events, upon the occurrence of which such rights or warrants become exercisable to purchase different securities, evidences of indebtedness or other assets, then the date of the occurrence of any and each such event shall be deemed to be the date of distribution and record date with respect to new rights or warrants with such rights (and a termination or expiration of the existing rights or warrants without exercise by any of the holders thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger Event or other event (of the type described in the preceding sentence) with respect thereto that was counted for purposes of calculating a distribution amount for which an adjustment to the Conversion Price under this Section 15.5 was made, (1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder or holders of Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants which shall have expired or been terminated without exercise by any holders thereof, the Conversion Price shall be readjusted as if such rights and warrants had not been issued. Notwithstanding the foregoing, in the event that the Company shall distribute rights or warrants to subscribe for additional shares of the Common Stock 73 84 (other than rights or warrants described in Section 15.5(b)), pro rata to holders of Common Stock, and in the case of the rights issued pursuant to the Company's stockholder rights agreement in existence as of the date hereof, the Company may, in lieu of making any adjustment pursuant to this Section 15.5(d), make proper provision (in the case of the Company's stockholder rights agreement in existence as of the date thereof, to the extent it does not make proper provision) so that each holder of a Note who converts such Note (or any portion thereof) after the record date for such distribution shall be entitled to receive upon such conversion, in addition to the shares of Common Stock issuable upon such conversion (the "Conversion Shares"), a number of rights or warrants to be determined as follows: (i) if such conversion occurs on or prior to the date for the distribution to the holders of such rights or warrants of separate certificates evidencing such rights or warrants (the "Distribution Date"), the same number of rights or warrants to which a holder of a number of shares of Common Stock equal to the number of Conversion Shares is entitled at the time of such conversion in accordance with the terms and provisions of and applicable to such rights or warrants; and (ii) if such conversion occurs after the Distribution Date, the same number of rights or warrants to which a holder of the number of shares of Common Stock into which the principal amount of the Note so converted was convertible immediately prior to the Distribution Date would have been entitled on the Distribution Date in accordance with the terms and provisions of, and applicable to such rights or warrants. For purposes of this Section 15.5(d) and Sections 15.5(a) and (b), any dividend or distribution to which this Section 15.5(d) is applicable that also includes shares of Common Stock, or rights or warrants to subscribe for or purchase shares of Common Stock (or both), shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, assets or shares of capital stock other than such shares of Common Stock or rights or warrants (and any Conversion Price reduction required by this Section 15.5(d) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights or warrants (and any further Conversion Price reduction required by Sections 15.5(a) and (b) with respect to such dividend or distribution shall then be made), except (A) the Record Date of such dividend or distribution shall be substituted as "the date fixed for the determination of stockholders entitled to receive such dividend or other distribution" and "the date fixed for such determination" within the meaning of Sections 15.5(a) and (b) and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of Section 15.5(a). (e) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding (x) any quarterly cash dividend on the Common Stock to the extent the aggregate cash dividend per share of Common Stock in any fiscal quarter does not exceed the greater of (A) the amount per share of Common 74 85 Stock of the next preceding quarterly cash dividend on the Common Stock to the extent such preceding quarterly dividend did not require any adjustment of the Conversion Price pursuant to this subsection (e) (as adjusted to reflect subdivisions or combinations of the Common Stock), and (B) 3.75% of the average of the Closing Price (determined as set forth in Section 15.5(i)) during the ten Trading Days (as defined in Section 15.5(i)) next preceding the date of declaration of such dividend and (y) any dividend or distribution in connection with the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary), then, in such case, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on such Record Date by a fraction of which the numerator shall be the Current Market Price of the Common Stock on the Record Date less the amount of cash so distributed (and not excluded as provided above) applicable to one share of Common Stock and the denominator shall be such Current Market Price of the Common Stock, such reduction to be effective immediately prior to the opening of business on the day following the Record Date; provided, however, that in the event the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Noteholder shall have the right to receive upon conversion the amount of cash such holder would have received had such holder converted each Note on the Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. If any adjustment is required to be made as set forth in this subsection (e) as a result of a distribution that is a quarterly dividend, such adjustment shall be based upon the amount by which such distribution exceeds the amount of the quarterly cash dividend permitted to be excluded pursuant hereto. If an adjustment is required to be made as set forth in this subsection (e) above as a result of a distribution that is not a quarterly dividend, such adjustment shall be based upon the full amount of the distribution. (f) In case a tender or exchange offer made by the Company or any subsidiary of the Company for all or any portion of the Common Stock shall expire and such tender or exchange offer (as amended upon the expiration thereof) shall require the payment by the Company or such subsidiary to stockholders of consideration per share of Common Stock having a fair market value (as determined by the Board of Directors, or to the extent permitted by applicable law, a duly authorized committee thereof, whose determination shall be conclusive, and described in a resolution of the Board of Directors or such duly authorized committee thereof), as the case may be, at the last time (the "Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, the Conversion Price shall be reduced so that the same shall equal the price 75 86 determined by multiplying the Conversion Price in effect immediately prior to the Expiration Time by a fraction of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) on the Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) on the Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Time. In the event that the Company is obligated to purchase shares pursuant to any such tender or exchange offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such tender or exchange offer had not been made. (g) In case of a tender or exchange offer made by a Person other than the Company or any of its subsidiaries for an amount which increases the offeror's ownership of Common Stock to more than 35% of the Common Stock outstanding and shall involve the payment by such Person of consideration per share of Common Stock having a fair market value (as determined by the Board of Directors, or to the extent permitted by applicable law, a duly authorized committee thereof, whose determination shall be conclusive, and described in a resolution of the Board of Directors) at the last time (the "Offer Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds the Current Market Price of the Common Stock on the Trading Day next succeeding the Offer Expiration Time, and in which, as of the Offer Expiration Time the Board of Directors is not recommending rejection of the offer, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the Offer Expiration Time by a fraction of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) on the Offer Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Offer Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Offer Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Accepted Purchased Shares") and (y) the product of the number of 76 87 shares of Common Stock outstanding (less any Accepted Purchased Shares) on the Offer Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Offer Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Offer Expiration Time. In the event that such Person is obligated to purchase shares pursuant to any such tender or exchange offer, but such Person is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such tender or exchange offer had not been made. Notwithstanding the foregoing, the adjustment described in this subsection (g) shall not be made if, as of the Offer Expiration Time, the offering documents with respect to such offer disclose a plan or intention to cause the Company to engage in any transaction described in Article XII. (h) In case the Company shall issue Common Stock or securities convertible into, or exchangeable for, Common Stock at a price per share (or having a conversion or exchange price per share) that is less than the then Current Market Price of the Common Stock (but excluding, among other things, issuances: (a) pursuant to any bona fide plan for the benefit of employees, directors, consultants or other individuals in connection with employee incentive plans of the Company now or hereafter in effect; (b) to acquire all or any portion of a business in an arm's-length transaction between the Company and an unaffiliated third party including, if applicable, issuances upon exercise of options or warrants assumed in connection with such an acquisition; (c) in a bona fide public offering pursuant to a firm commitment underwriting (or a similar type of offering made pursuant to Rule 144A and/or Regulation S under the Securities Act) or sales at the market pursuant to a continuous offering stock program; (d) pursuant to the exercise of warrants, rights (including, without limitation, earnout rights) or options, or upon the conversion of convertible securities, which are issued and outstanding on the date hereof, or which may be issued in the future at fair value and with an exercise price or conversion price at least equal to the Current Market Price of the Common Stock at the time of issuance of such warrant, right, option or convertible security; and (e) pursuant to a dividend reinvestment plan or other plan hereafter adopted for the reinvestment of dividends or interest provided that such Common Stock is issued at a price at least equal to 95% of the market price of the Common Stock at the time of such issuance), the Conversion Price shall be adjusted so that the holder of each Note shall be entitled to receive, upon the conversion thereof, the number of shares of Common Stock determined by multiplying (i) the Conversion Price on the day immediately prior to such date of issuance by (ii) a fraction, the numerator of which shall be the sum of (1) the number of shares of Common Stock outstanding on such date and (2) the number of shares of Common Stock which the aggregate consideration receivable by the Company for the total number of shares of Common Stock so issued (or into which the convertible securities may convert) would purchase at such Conversion Price on such date, and the denominator of which shall be 77 88 the sum of (A) the number of shares of Common Stock outstanding on such date and (B) the number of additional shares of Common Stock issued (or into which the convertible securities may convert). An adjustment made pursuant to this subsection (g) shall be made on the next Business Day following the date on which any such issuance is made and shall be effective retroactively immediately after the close of business on such date. For purposes of this subsection (g), the aggregate consideration receivable by the Company in connection with the issuance of shares of Common Stock or of securities convertible into shares of Common Stock shall be deemed to be equal to the sum of the aggregate offering price (before deduction of underwriting discounts or commissions and expenses payable to third parties) of all such securities plus the minimum aggregate amount, if any, payable upon conversion of any such convertible securities into shares of Common Stock. (i) For purposes of this Section 15.5, the following terms shall have the meaning indicated: (1) "Closing Price" with respect to any securities on any day shall mean the closing sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in each case on the New York Stock Exchange, or, if such security is not listed or admitted to trading on such Exchange, on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose, or a price determined in good faith by the Board of Directors or, to the extent permitted by applicable law, a duly authorized committee thereof, whose determination shall be conclusive. (2) "Current Market Price" shall mean the average of the daily Closing Prices per share of Common Stock for the ten consecutive Trading Days immediately prior to the date in question; provided, however, that (1) if the "ex" date (as hereinafter defined) for any event (other than the issuance or distribution or Fundamental Change requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 15.5(a), (b), (c), (d), (e), (f), (g) or (h) occurs during such ten consecutive Trading Days, the Closing Price for each Trading Day prior to the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the same fraction by which the Conversion Price is so required to be adjusted as a result of such other event, 78 89 (2) if the "ex" date for any event (other than the issuance, distribution or Fundamental Change requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 15.5(a), (b), (c), (d), (e), (f), (g) or (h) occurs on or after the "ex" date for the issuance or distribution requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event, and (3) if the "ex" date for the issuance, distribution or Fundamental Change requiring such computation is prior to the day in question, after taking into account any adjustment required pursuant to clause (1) or (2) of this proviso, the Closing Price for each Trading Day on or after such "ex" date shall be adjusted by adding thereto the amount of any cash and the fair market value (as determined by the Board of Directors or, to the extent permitted by applicable law, a duly authorized committee thereof in a manner consistent with any determination of such value for purposes of Section 15.5(d), (f) or (g), whose determination shall be conclusive and described in a resolution of the Board of Directors or such duly authorized committee thereof, as the case may be) of the evidences of indebtedness, shares of capital stock or assets being distributed applicable to one share of Common Stock as of the close of business on the day before such "ex" date. For purposes of any computation under Section 15.5(f) or (g), the Current Market Price of the Common Stock on any date shall be deemed to be the average of the daily Closing Prices per share of Common Stock for such day and the next two succeeding Trading Days; provided, however, that if the "ex" date for any event (other than the tender or exchange offer requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 15.5(a), (b), (c), (d), (e), (f), (g) or (h) occurs on or after the Expiration Time or Offer Expiration Time, as the case may be, for the tender or exchange offer requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event. For purposes of this paragraph, the term "ex" date, (1) when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the relevant exchange or in the relevant market from which the Closing Price was obtained without the right to receive such issuance or distribution, (2) when used with respect to any subdivision or combination of shares of Common Stock, means the first date on which the Common Stock trades regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective, and (3) when used with respect to any tender or exchange offer means the first date on which the Common Stock trades regular way on 79 90 such exchange or in such market after the Expiration Time or Offer Expiration Time, as the case may be, of such offer. (3) "fair market value" shall mean the amount which a willing buyer would pay a willing seller in an arm's length transaction. (4) "Record Date" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of stockholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise). (5) "Trading Day" shall mean (x) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national security exchange, a day on which the New York Stock Exchange or another national security exchange is open for business or (y) if the applicable security is quoted on the Nasdaq National Market, a day on which trades may be made on thereon or (z) if the applicable security is not so listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. (j) The Company may make such reductions in the Conversion Price, in addition to those required by Sections 15.5 (a), (b), (c), (d), (e), (f), (g) or (h) as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. To the extent permitted by applicable law, the Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least twenty (20) days, the reduction is irrevocable during the period and the Board of Directors shall have made a determination that such reduction would be in the best interests of the Company, which determination shall be conclusive. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to holders of Notes at his address appearing on the Register a notice of the reduction at least fifteen (15) days prior to the date the reduced Conversion Price takes effect, and such notice shall state the reduced Conversion Price and the period during which it will be in effect. 80 91 (k) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this subsection (k) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article XV shall be made by the Company and shall be made to the nearest cent or to the nearest one hundredth of a share, as the case may be. No adjustment need be made for rights to purchase Common Stock pursuant to a Company plan for reinvestment of dividends or interest. To the extent the Notes become convertible into cash, assets, property or securities (other than capital stock of the Company), no adjustment need be made thereafter as to the cash, assets, property or such securities. Interest will not accrue on the cash. (l) Whenever the Conversion Price is adjusted, as herein provided, the Company shall promptly file with the Trustee and any conversion agent other than the Trustee an Officers' Certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Promptly after delivery of such certificate, the Company shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the date on which each adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Price to the holder of each Note at his last address appearing on the Register provided for in Section 2.5 of this Indenture, within 20 days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of any such adjustment. (m) In any case in which this Section 15.5 provides that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (i) issuing to the holder of any Note converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holder any amount in lieu of any fraction pursuant to Section 15.3. (n) For purposes of this Section 15.5, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. Section 15.6 Effect of Reclassification, Consolidation, Merger or Sale. If any of the following events occur, namely (i) any reclassification or change of the outstanding shares of Common Stock (other than a subdivision or combination to which Section 15.5(c) 81 92 applies), (ii) any consolidation, merger or combination of the Company with another corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, or (iii) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture) providing that such Note shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Notes (assuming, for such purposes, a sufficient number of authorized shares of Common Stock available to convert all such Notes) immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance assuming such holder of Common Stock did not exercise his rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance (provided that, if the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("nonelecting share")), then for the purposes of this Section 15.6 the kind and amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares. Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The Company shall cause notice of the execution of such supplemental indenture to be mailed to each holder of Notes, at his address appearing on the Register provided for in Section 2.5 of this Indenture within twenty (20) days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture. The above provisions of this Section 15.6 shall similarly apply to successive reclassifications, consolidations, mergers, combinations, and sales. If this Section 15.6 applies to any event or occurrence, Section 15.5 shall not apply. Section 15.7 Taxes on Shares Issued. The issue of stock certificates on conversions of Notes shall be made without charge to the converting Noteholder for any U.S. tax in respect of the issue thereof. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of stock 82 93 in any name other than that of the holder of any Note converted, and the Company shall not be required to issue or deliver any such stock certificate unless and until the Person or Persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. Section 15.8 Reservation of Shares; Shares to Be Fully Paid; Compliance with Governmental Requirements; Listing of Common Stock. The Company shall provide, free from preemptive rights, out of its authorized but unissued shares, sufficient shares of Common Stock to provide for the conversion of the Notes from time to time as such Notes are presented for conversion. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value, if any, of the shares of Common Stock issuable upon conversion of the Notes, the Company will take all corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue shares of such Common Stock at such adjusted Conversion Price. The Company covenants that all shares of Common Stock which may be issued upon conversion of Notes will upon issue be fully paid and non-assessable by the Company and free from all taxes, liens and charges with respect to the issue thereof. The Company covenants that if any shares of Common Stock to be provided for the purpose of conversion of Notes hereunder require registration with or approval of any governmental authority under any Federal or State law before such shares may be validly issued upon conversion, the Company will in good faith and as expeditiously as possible endeavor to secure such registration or approval, as the case may be. The Company further covenants that if at any time the Common Stock shall be listed on the New York Stock Exchange or any other national securities exchange or automated quotation system the Company will, if permitted by the rules of such exchange, list and keep listed so long as the Common Stock shall be so listed on such exchange or automated quotation system, all Common Stock issuable upon conversion of the Notes; provided, however, that if rules of such exchange or automated quotation system permit the Company to defer the listing of such Common Stock until the first conversion of the Notes into Common Stock in accordance with the provisions of this Indenture, the Company covenants to list such Common Stock issuable upon conversion of the Notes in accordance with the requirements of such exchange or automated quotation system at such time. Section 15.9 Responsibility of Trustee. The Trustee and any other conversion agent shall not at any time be under any duty or responsibility to any holder of Notes to determine the Conversion Price or whether any facts exist which may require any adjustment of the Conversion Price, or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed, or herein or in any 83 94 supplemental indenture provided to be employed, in making the same. The Trustee and any other conversion agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, which may at any time be issued or delivered upon the conversion of any Note; and the Trustee and any other conversion agent make no representations with respect thereto. Subject to the provisions of Section 8.1, neither the Trustee nor any conversion agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property or cash upon the surrender of any Note for the purpose of conversion or to comply with any of the duties, responsibilities or covenants of the Company contained in this Article. Without limiting the generality of the foregoing, neither the Trustee nor any conversion agent shall be under any responsibility to determine the correctness of any provisions contained in any supplemental indenture entered into pursuant to Section 15.6 relating either to the kind or amount of shares of stock or securities or property (including cash) receivable by Noteholders upon the conversion of their Notes after any event referred to in such Section 15.6 or to any adjustment to be made with respect thereto, but, subject to the provisions of Section 8.1, may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, the Officers' Certificate (which the Company shall be obligated to file with the Trustee prior to the execution of any such supplemental indenture) with respect thereto. Section 15.10 Notice to Holders Prior to Certain Actions. In case: (a) the Company shall declare a dividend (or any other distribution) on its Common Stock that would require an adjustment in the Conversion Price pursuant to Section 15.5; or (b) the Company shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any share of any class or any other rights or warrants; or (c) of any reclassification or reorganization of the Common Stock of the Company (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any shareholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company or any Subsidiary; or (d) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company or any Subsidiary; the Company shall cause to be filed with the Trustee and to be mailed to each holder of Notes at his address appearing on the Register, provided for in Section 2.5 of this Indenture, as promptly as possible but in any event at least fifteen (15) days prior to the applicable date 84 95 hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. ARTICLE XVI MISCELLANEOUS PROVISIONS Section 16.1 Provisions Binding on Company's Successors. All the covenants, stipulations, promises and agreements in this Indenture contained by the Company shall bind its successors and assigns whether so expressed or not. Section 16.2 Official Acts by Successor Corporation. Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or officer of the Company shall and may be done and performed with like force and effect by the like board, committee or officer of any corporation that shall at the time be the lawful sole successor of the Company. Section 16.3 Addresses for Notices, Etc. Any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Notes on the Company may be given or served by being deposited postage prepaid by registered or certified mail in a post office letter box addressed (until another address is filed by the Company with the Trustee) to CKE Restaurants, Inc., 3916 State Street, Suite 300, Santa Barbara, California 93105, Attention: Chief Financial Officer. Any notice, direction, request or demand hereunder to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or made in writing at the Corporate Trust Office, which office is, at the date as of which this Indenture is dated, located at 101 California Street, Suite 2725, San Francisco, California 94111. Section 16.4 Governing Law. This Indenture and each Note shall be deemed to be a contract made under the laws of New York, and for all purposes shall be construed in accordance with the laws of New York. 85 96 Section 16.5 Evidence of Compliance with Conditions Precedent; Certificates to Trustee. Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, and an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Section 16.6 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to Trust Indenture Act Section 314(a)(4)) shall comply with the provisions of Trust Indenture Act Section 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, in the opinion of such Person such condition or covenant has been satisfied. Section 16.7 Legal Holidays. In any case where the date of maturity of interest on or principal of the Notes or the date fixed for redemption of any Note will be a legal holiday or a day on which banking institutions in New York, New York or San Francisco, California are authorized by law or executive order to close ("Legal Holidays"), then payment of such interest on or principal of the Notes need not be made on such date but may be made on the next succeeding day not a Legal Holiday with the same force and effect as if made on the date of maturity or the date fixed for redemption and no interest shall accrue for the period from and after such date. Section 16.8 No Security Interest Created. Nothing in this Indenture or in the Notes, expressed or implied, shall be construed to constitute a security interest under the Uniform Commercial Code or similar legislation, as now or hereafter enacted and in effect, in any jurisdiction where property of the Company or its subsidiaries is located. Section 16.9 Benefits of Indenture. Nothing in this Indenture or in the Notes, expressed or implied, shall give to any Person, other than the parties hereto, any paying agent, 86 97 any authenticating agent, any Note registrar and their successors hereunder, the holders of Notes and the holders of Senior Indebtedness, any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 16.10 Table of Contents, Headings, Etc. The table of contents and the titles and headings of the articles and sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. Section 16.11 Authenticating Agent. The Trustee may appoint an authenticating agent which shall be authorized to act on its behalf and subject to its direction in the authentication and delivery of Notes in connection with the original issuance thereof and transfers and exchanges of Notes hereunder, including under Sections 2.4, 2.5, 2.6, 2.7, 3.3 and 3.5, as fully to all intents and purposes as though the authenticating agent had been expressly authorized by this Indenture and those Sections to authenticate and deliver Notes. For all purposes of this Indenture, the authentication and delivery of Notes by the authenticating agent shall be deemed to be authentication and delivery of such Notes "by the Trustee" and a certificate of authentication executed on behalf of the Trustee by an authenticating agent shall be deemed to satisfy any requirement hereunder or in the Notes for the Trustee's certificate of authentication. Such authenticating agent shall at all times be a Person eligible to serve as trustee hereunder pursuant to Section 8.9. Any corporation into which any authenticating agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any authenticating agent shall be a party, or any corporation succeeding to the corporate trust business of any authenticating agent, shall be the successor of the authenticating agent hereunder, if such successor corporation is otherwise eligible under this Section 16.12, without the execution or filing of any paper or any further act on the part of the parties hereto or the authenticating agent or such successor corporation. Any authenticating agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time terminate the agency of any authenticating agent by giving written notice of termination to such authenticating agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any authenticating agent shall cease to be eligible under this Section, the Trustee shall either promptly appoint a successor authenticating agent or itself assume the duties and obligations of the former authenticating agent under this Indenture, and upon such appointment of a successor authenticating agent, if made, shall give written notice of such appointment of a successor authenticating agent to the Company and shall mail notice of such appointment of a successor authenticating agent to all holders of Notes as the names and addresses of such holders appear on the Register. 87 98 The Trustee agrees to pay to the authenticating agent from time to time reasonable compensation for its services (to the extent pre-approved by the Company in writing), and the Trustee shall be entitled to be reimbursed for such pre-approved payments, subject to Section 8.6. The provisions of Sections 8.2, 8.3, 8.4, 9.3 and this Section 16.11 shall be applicable to any authenticating agent. Section 16.12 Execution in Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. Chase Manhattan Bank and Trust Company, National Association, hereby accepts the trusts in this Indenture declared and provided, upon the terms and conditions hereinabove set forth. [Signature page follows] 88 99 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of March 13, 1998. CKE RESTAURANTS, INC. By /s/ CARL A. STRUNK ------------------------------------- Name: Carl A. Strunk Title: EVP [CORPORATE SEAL] Attest: By -------------------------------- CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION By /s/ CECIL D. BOBEY ------------------------------------- Name: Cecil D. Bobey Title: AVP 89 100 EXHIBIT A [FORM OF REVERSE OF NOTE] [For global Note only: UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE "DEPOSITARY," WHICH TERM INCLUDES ANY SUCCESSOR DEPOSITARY FOR THE CERTIFICATES) TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DEPOSITARY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. (OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] [For Restricted Securities only: THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR"); (2) AGREES THAT IT WILL NOT, PRIOR TO EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO CKE RESTAURANTS, INC. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO 101 THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (3) AGREES THAT PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE), IT WILL FURNISH TO CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (4) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED HEREBY PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE NOTE EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A U.S. PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE NOTE EVIDENCED HEREBY PURSUANT TO CLAUSE 2(F) ABOVE OR UPON ANY TRANSFER OF THE NOTES EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.] 2 102 CKE RESTAURANTS, INC. 4 1/4% CONVERTIBLE SUBORDINATED NOTE DUE 2004 CUSIP No. $ CKE Restaurants, Inc., a corporation duly organized and validly existing under the laws of the State of Delaware (herein called the "Company"), which term includes any successor corporation under the Indenture referred to on the reverse hereof, for value received hereby promises to pay to ____________________ or registered assigns, the principal sum of ____________ ($________ ) DOLLARS on March 15, 2004, at the office or agency of the Company maintained for that purpose in accordance with the terms of the Indenture, or, at the option of the holder of this Note, at the Corporate Trust Office, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually on March 15 and September 15 of each year, commencing September 15, 1998, on said principal sum at said office or agency, in like coin or currency, at the rate per annum of 4 1/4%, from March 15 or September 15, as the case may be, next preceding the date of this Note to which interest has been paid or duly provided for, unless the date hereof is a date to which interest has been paid or duly provided for, in which case from the date of this Note, or unless no interest has been paid or duly provided for on the Notes, in which case from March 13, 1998, until payment of said principal sum has been made or duly provided for. Notwithstanding the foregoing, if the date hereof is after any March 1 or September 1, as the case may be, and before the following March 15 or September 15, this Note shall bear interest from such March 15 or September 15; provided, however, that if the Company shall default in the payment of interest due on such March 15 or September 15, then this Note shall bear interest from the next preceding March 15 or September 15 to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for on such Note, from March 13, 1998. The interest payable on the Note pursuant to the Indenture on any March 15 or September 15 will be paid to the person entitled thereto as it appears on the Register at the close of business on the record date, which shall be the March 1 or September 1 (whether or not a Business Day) next preceding such March 15 or September 15, as provided in the Indenture; provided that any such interest not punctually paid or duly provided for shall be payable as provided in the Indenture. Interest may, at the option of the Company, be paid either (i) by check mailed to the registered address of such person or (ii) by transfer to an account maintained by such person located in the United States. 3 103 Interest on the Notes shall be computed on the basis of a 360-day year comprised of twelve 30-day months. Reference is made to the further provisions of this Note set forth on the reverse hereof, including, without limitation, provisions subordinating the payment of principal of and premium, if any, and interest on the Notes to the prior payment in full of all Senior Indebtedness, as defined in the Indenture, and provisions giving the holder of this Note the right to convert this Note into Common Stock of the Company on the terms and subject to the limitations referred to on the reverse hereof and as more fully specified in the Indenture. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Note shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with and governed by the laws of said State. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been manually signed by the Trustee or a duly authorized authenticating agent under the Indenture. 4 104 IN WITNESS WHEREOF, the Company has caused this Note to be duly executed under its corporate seal. Dated: CKE RESTAURANTS, INC. By: _____________________________________ Name: Title: Attest: _________________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Notes described in the within-named Indenture. CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee By:___________________________________________________ Authorized Officer By:___________________________________________________ As Authenticating Agent (if different from Trustee) 5 105 [FORM OF REVERSE OF NOTE] CKE RESTAURANTS, INC. 4 1/4% CONVERTIBLE SUBORDINATED NOTE DUE 2004 This Note is one of a duly authorized issue of Notes of the Company, designated as its 4 1/4% Convertible Subordinated Notes due 2004 (herein called the "Notes"), limited to the aggregate principal amount of $197,225,000 all issued or to be issued under and pursuant to an indenture dated as of March 13, 1998 (herein called the "Indenture"), between the Company and Chase Manhattan Bank and Trust Company, National Association, as trustee (herein called the "Trustee"), to which the Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Notes. Capitalized terms used in this Note and not defined herein have the meaning ascribed thereto in the Indenture. Chase Manhattan Bank and Trust Company, National Association, the Trustee under the Indenture, has been appointed by the Company as paying agent, conversion agent, Note registrar and Custodian with regard to the Notes. In case an Event of Default shall have occurred and be continuing, the principal of and accrued interest (including Liquidated Damages, if any) on all Notes may be declared, and upon said declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. With the consent of the holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding, the Company, when authorized by resolutions of the Board of Directors, and the Trustee from time to time and at any time may enter into an indenture or indentures supplemental to the Indenture for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Notes; provided, however, that no such supplemental indenture shall (i) extend the fixed maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or premium, if any, thereon, or reduce any amount payable on redemption or on repayment thereof, or impair or affect the right of any Noteholder to institute suit for the payment thereof, or make the principal thereof or interest (including Liquidated Damages, if any) or premium, if any, thereon payable in any coin or currency other than that provided in the Notes, or modify the provisions of the Indenture with respect to the subordination of the Notes in a manner adverse to the Noteholders, or change the obligation of the Company to make repayment of any Note on a Repurchase Date in a manner adverse to the holder of the Notes, or impair the right to convert the Notes into Common Stock subject to the 106 terms set forth in the Indenture, including Section 15.6 thereof, without the consent of the holder of each Note so affected or (ii) reduce the aforesaid percentage of Notes, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Notes then outstanding. If any Event of Default shall have occurred and be continuing, the Trustee or the holders of not less than 25 percent in aggregate principal amount of the Notes then outstanding, by notice in writing to the Company (and to the Trustee if given by Noteholders), may declare the principal of, and premium, if any, on all the Notes and the interest (including Liquidated Damages, if any) accrued thereon to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in the Indenture or in this Note contained to the contrary notwithstanding. It is also provided in the Indenture that, prior to any declaration accelerating the maturity of the Notes, the holders of a majority in aggregate principal amount of the Notes at the time outstanding may on behalf of the holders of all of the Notes waive any past default or Event of Default under the Indenture and its consequences except a default in the payment when due of principal of and premium, if any, and accrued interest (including Liquidated Damages, if any) on Notes, a default in the payment of redemption price pursuant to Article III thereof, a failure by the Company to convert any Notes into Common Stock or a default in respect of a covenant or provision in the Indenture which under Article XI thereof cannot be modified or amended without the consent of holders of all Notes outstanding. The holders of a majority in aggregate principal amount of the Notes then outstanding shall have the right to direct the time, method of conducting any proceedings for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee subject to certain limitations specified in the Indenture. Any such consent or waiver by the holder of this Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Note and any Notes which may be issued in exchange or substitute hereof, irrespective of whether or not any notation thereof is made upon this Note or such other Notes. The indebtedness evidenced by the Notes is, to the extent and in the manner provided in the Indenture, expressly subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness of the Company, as defined in the Indenture, whether outstanding at the date of the Indenture or thereafter incurred, and this Note is issued subject to the provisions of the Indenture with respect to such subordination. Each holder of this Note, by accepting the same, agrees to and shall be bound by such provisions and authorizes the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and appoints the Trustee its attorney-in-fact for such purpose. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and premium, if any, and interest (including Liquidated Damages, if any) on this Note at the place, at the respective times, at the rate and in the coin or currency herein prescribed. 2 107 The Notes are issuable in registered form without coupons in denominations of $1,000 and any integral multiple of $1,000. At the office or agency of the Company referred to on the face hereof, and in the manner and subject to the limitations provided in the Indenture, without payment of any service charge but with payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration or exchange of Notes, Notes may be exchanged for a like aggregate principal amount of Notes of other authorized denominations. The Notes will not be redeemable at the option of the Company prior to March 20, 2001. At any time on or after March 20, 2001 and prior to maturity, subject to the terms of the Indenture, the Notes may (unless theretofore repaid or converted) be redeemed at the option of the Company as a whole, or from time to time in part, upon mailing of a notice of such redemption not less than 30 days before the date fixed for redemption to the holders of Notes at their last registered addresses, all as provided in the Indenture, at the following redemption prices (expressed as percentages of the principal amount), together in each case with accrued interest to, but excluding, the date fixed for redemption: if redeemed during the period beginning March 20, 2001 and ending on March 14, 2002 at a redemption price of 102.125%, if redeemed during the 12-month period beginning March 15, 2002 at a redemption price of 101.417%, if redeemed during the 12- month period beginning March 15, 2003 at a redemption price of 100.708% and 100% at March 15, 2004; provided that if the date fixed for redemption is on March 15 or September 15, then the interest payable on such date shall be paid to the holder of record on the next preceding March 1 or September 1, respectively. The Notes are not subject to redemption through the operation of any sinking fund. If a Fundamental Change occurs at any time while Notes are outstanding, each holder of Notes shall have the right, at such holder's option, subject to the terms of the Indenture, to require the Company to redeem all of such holder's Notes on the date that is 30 days (or, if such 30th day is not a Business Day, the next succeeding Business Day) after the Company Notice (as defined below) of such Fundamental Change. The Company shall redeem such Notes at a price equal to 100% of the principal amount thereof; provided in each case that if the Applicable Price is less than the Reference Market Price, the Company shall redeem such Notes at a price equal to the foregoing repayment price multiplied by the fraction obtained by dividing the Applicable Price by the Reference Market Price; provided that if such repayment date is March 15 or September 15, then the interest payable on such date shall be paid to the holder of record of the Note on the next preceding March 1 or September 1. In each case, the Company shall also pay to such holder accrued interest to, but excluding, the Repurchase Date on the redeemed Notes. On or before the tenth day after the occurrence of a Fundamental Change, the Company, or, at its written request, the Trustee in the name of and at the expense of the Company, shall mail or cause to be mailed to all holders of record on the date of the Fundamental Change a notice (the "Company Notice") of the occurrence of such Fundamental Change and of the redemption right at the option of the holders arising as a result thereof. The 3 108 Company shall also use its best efforts to have a notice published at least once in each of Bloomberg Business News, Dow Jones News (DJN) and Reuter Financial Report in The City of New York on or before the tenth day after the occurrence of a Fundamental Change. The Company shall promptly deliver a copy of each of the published notices and Company Notice to the Trustee. No failure of the Company to give the foregoing notices and no defect therein shall limit the Noteholders' redemption rights or affect the validity of the proceedings for the redemption of the Notes. For a Note to be repaid at the option of the holder resulting from a Fundamental Change, the Company must receive at the office or agency of the Company maintained for that purpose in accordance with the terms of the Indenture, or at the option of such holder, the Corporate Trust Office, such Note with a form entitled "Option to Elect Repayment Upon a Fundamental Change" on the reverse thereof duly completed together with such Note, duly endorsed at any time on or before the 30th day after the Company Notice (or if such 30th day is not a Business Day, the immediately preceding Business Day). In order to exercise the repayment option with respect to any interest in a Note in global form, the beneficial holder must comply with the applicable procedures of the Depositary, furnish appropriate endorsements and documentation if required by the Company or the Trustee or paying agent and such notice shall not have been withdrawn. Subject to and upon compliance with the provisions of the Indenture, the holder hereof shall have the right, at its option, at any time after 90 days following the latest date of original issuance of the Notes and prior to the close of business on March 15, 2004, or, as to all or any portion hereof called for redemption, prior to the close of business on the Business Day immediately preceding the date fixed for redemption (unless the Company shall default in payment due upon redemption thereof), to convert the principal hereof or any portion of such principal which is $1,000 or an integral multiple hereof, into that number of shares of Common Stock (as said shares shall then be constituted) at the date of conversion, obtained by dividing the principal amount of this Note or portion hereof surrendered for by $48.204 (the "Conversion Price") or such Conversion Price as adjusted from time to time as provided in the Indenture, upon surrender of this Note, together with a conversion notice as provided in the Indenture, to the Company at the office or agency of the Company maintained for that purpose in accordance with the terms of the Indenture, or at the option of such holder, the Corporate Trust Office, and, unless the shares issuable on conversion are to be issued in the same name as this Note, duly endorsed by, or accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or by its duly authorized attorney. No adjustment in respect of interest or dividends will be made upon any conversion; provided, however, that if this Note shall be surrendered for conversion during the period from the close of business on any record date for the payment of interest to the close of business on the Business Day next preceding the interest payment date, this Note (unless it or the portion being converted shall have been called for redemption on a date fixed for redemption which occurs during the period from the close of business on any record date for the payment of interest to the close of business on the Business Day next preceding the interest payment date) must be accompanied 4 109 by an amount, in New York Clearing House funds or other funds acceptable to the Company, equal to the interest payable on such interest payment date on the principal amount being converted. No fractional shares will be issued upon any conversion, but an adjustment in cash will be made, as provided in the Indenture, in respect of any fraction of a share which would otherwise be issuable upon the surrender of any Note or Notes for conversion. Any Notes called for redemption, unless surrendered for conversion on or before the close of business on the date fixed for redemption, may be deemed to be purchased from the holder of such Notes at an amount equal to the applicable redemption price, together with accrued interest (including Liquidated Damages, if any) to (but excluding) the date fixed for redemption, by one or more investment bankers or other purchasers who may agree with the Company to purchase such Notes from the holders thereof and convert them into Common Stock of the Company and to make payment for such Notes as aforesaid to the Trustee in trust for such holders. Upon due presentment for registration of transfer of this Note at the office or agency of the Company maintained for that purpose in accordance with the terms of the Indenture, or at the option of the holder of this Note, at the Corporate Trust Office, a new Note or Notes of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange thereof; subject to the limitations provided in the Indenture, without charge except for any tax or other governmental charge imposed in connection therewith. The Company, the Trustee, any authenticating agent, any paying agent, any conversion agent and any Note registrar may deem the Person in whose name this Note shall be registered upon the Register to be, and treat him as the absolute owner of this Note (whether or not this Note shall be overdue and notwithstanding any notation of ownership or other writing hereon made by anyone other than the Company or any Note registrar), for the purpose of receiving payment hereof, or on account of the principal of and premium, if any, and interest (including Liquidated Damages, if any) on this Note, for the conversion hereof and for all other purposes, and neither the Company nor the Trustee nor any other authenticating agent nor any paying agent nor any other conversion agent nor any Note registrar shall be affected by any notice to the contrary. All payments made to or upon the order of such registered holder shall be valid, and, to the extent of the sum or sums paid, effectual to satisfy and discharge liability for monies payable on this Note. No recourse for the payment of the principal of or premium, if any, or interest (including Liquidated Damages, if any) on this Note, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer or director or subsidiary, as such, past, present or future, of the Company or of any successor corporation, either directly or 5 110 through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. 6 111 ABBREVIATIONS The following abbreviations, when used in the inscription of the face of this Note, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT -- ___________ Custodian of __________ TEN ENT - as tenants by the (Cust) (Minor) entireties Under Uniform Gifts to Minors Act JT TEN - as joint tenants with right of survivorship ______________________________________________ and not as tenants in (State) common
Additional abbreviations may also be used though not in the above list. 7 112 CONVERSION NOTICE To: CKE RESTAURANTS, INC. The undersigned registered owner of this Note hereby irrevocably exercises the option to convert this Note, or the portion hereof (which is $1,000 or an integral multiple thereof) below designated, into shares of Common Stock of CKE Restaurants, Inc. in accordance with the terms of the Indenture referred to in this Note, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Notes representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Note not converted are to be issued in the name of a person other than the undersigned, the undersigned will complete the appropriate section below and pay all transfer taxes payable with respect thereto. Any amount required to be paid to the undersigned on account of interest accompanies this Note. Dated:____________________ --------------------------------- --------------------------------- Signature(s) Signature(s) must be guaranteed by an eligible guarantor institution (banks, stock brokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program) pursuant to SEC Rule 17Ad-15 if shares of Common Stock are to be issued, or Notes to be delivered, other than to and in the name of the registered holder. --------------------------------- Signature Guarantee 8 113 Fill in for registration of shares of Common Stock if to be issued, and Notes if to be delivered, other than to and in the name of the registered holder: - ----------------------------- (Name) - ----------------------------- (Street Address) - ----------------------------- (City, State and Zip Code) Please print name and address Principal amount to be converted (if less than all): $___________ --------------------------------- Social Security or Other Taxpayer Identification Number 9 114 OPTION TO ELECT REPAYMENT UPON A FUNDAMENTAL CHANGE To: CKE RESTAURANTS, INC. The undersigned registered owner of this Note hereby irrevocably acknowledges receipt of a notice from CKE Restaurants, Inc. (the "Company") as to the occurrence of a Fundamental Change with respect to the Company and requests and instructs the Company to repay the entire principal amount of this Note below designated, in accordance with the terms of the Indenture referred to in this Note at the repayment price, together with accrued interest to, but excluding, such date, to the registered holder hereof. Dated: ______________________ _____________________________________ _____________________________________ Signature(s) NOTICE: The above signatures of the holder(s) hereof must correspond with the name as written upon the face of the Note in every particular without alteration or enlargement or any change whatever. Principal amount to be repaid (not less than all for Notes in certificated form): $______ ______________________________________ Social Security or Other Taxpayer Identification Number 10 115 ASSIGNMENT For value received ________________________ hereby sell(s), assign(s) and transfer(s) unto _____________________ (Please insert social security or other Taxpayer Identification Number of assignee) the within Note, and hereby irrevocably constitutes and appoints ________________ attorney to transfer the said Note on the books of CKE Restaurants, Inc. with full power of substitution in the premises. [For Restricted Securities only: In connection with any transfer of the Note within the period prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act of 1933, as amended (or any successor provision), the undersigned confirms that such Note is being transferred: [ ] To CKE Restaurants, Inc. or a subsidiary thereof; or [ ] Pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or [ ] Pursuant to and in compliance with Regulation S under the Securities Act of 1933, as amended; or [ ] Pursuant to and in compliance with Rule 144 under the Securities Act of 1933, as amended; and unless the box below is checked, the undersigned confirms that such Note is not being transferred to an "affiliate" of CKE Restaurants, Inc. as defined in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate"). 11 116 [ ] The transferee is an Affiliate of CKE Restaurants, Inc.] Dated:____________________ _________________________________ _________________________________ Signature(s) Signature(s) must be guaranteed by an eligible guarantor institution (banks, stock brokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program) pursuant to SEC Rule 17Ad-15 if shares of Common Stock are to be issued, or Notes to be delivered, other than to and in the name of the registered holder. _________________________________ Signature Guarantee 12 EX-4.3 4 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 4.3 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered into as of March 13, 1998, by and among CKE Restaurants, Inc., a Delaware corporation (the "Company"), and Morgan Stanley & Co. Incorporated, BT Alex. Brown Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Schroder & Co. Inc. (collectively, the "Initial Purchasers") pursuant to the Purchase Agreement, dated as of March 9, 1998 (the "Purchase Agreement"), between the Company and the Initial Purchasers. In order to induce the Initial Purchasers to enter into the Purchase Agreement the Company has agreed to provide the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing under the Purchase Agreement. The Company agrees with the Initial Purchasers, (i) for their benefit as Initial Purchasers and (ii) for the benefit of the holders (including the Initial Purchasers) from time to time of the Notes (as defined herein) and the holders from time to time of the Common Stock (as defined herein) issued upon conversion of the Notes (each of the foregoing a "Holder" and together the "Holders"), as follows: 1. Definitions. Capitalized terms used herein without definition shall have their respective meanings set forth in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: "Affiliate" shall mean, with respect to any specified person, (i) any other person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such specified person or (ii) any officer or director of such other person. For purposes of this definition, the term "control" (including the terms "controlling," "controlled by" and "under common control with") of a person means the possession, direct or indirect, of the power (whether or not exercised) to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise. "Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in The City of New York are authorized or obligated by law or executive order to close. "Common Stock" shall mean the shares of common stock, $.01 par value per share, of the Company and any other shares of common stock as may constitute "Common Stock" for purposes of the Indenture, in each case, as issuable or issued upon conversion of the Notes. "Damages Accrual Period" shall have the meaning specified in Section 2(e) hereof. 2 "Damages Payment Date" shall mean each of the semi-annual interest payment dates specified in the Indenture. "Deferral Period" shall have the meaning specified in Section 2(d) hereof. "Effectiveness Period" shall mean the period commencing on the date hereof and ending on the date that all Registrable Securities have ceased to be Registrable Securities in accordance with the terms hereof. "Event" shall have the meaning specified in Section 2(e) hereof. "Event Date" shall have the meaning specified in Section 2(e) hereof. "Exchange Act" the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. "Filing Date" shall have the meaning specified in Section 2(a) hereof. "Holder" shall have the meaning specified in the second paragraph of this Agreement. "Indenture" shall mean the Indenture, dated as of March 13, 1998, between the Company and Chase Manhattan Bank and Trust Company, National Association, pursuant to which the Notes are being issued, as amended, modified or supplemented from time to time in accordance with the terms hereof. "Initial Purchasers" shall mean Morgan Stanley & Co. Incorporated, BT Alex. Brown Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Schroder & Co. Inc. "Initial Shelf Registration" shall have the meaning specified in Section 2(a) hereof. "Liquidated Damages" shall have the meaning specified in Section 2(e) hereof. "Losses" shall have the meaning specified in Section 6 hereof. "Managing Underwriters" shall mean the investment banking firm that shall manage or co-manage an Underwritten Offering. "Notes" shall mean the 4 1/4% Convertible Subordinated Notes due 2004 of the Company being issued and sold pursuant to the Purchase Agreement and the Indenture. 2 3 "Notice Holder" shall have the meaning specified in Section 2(d)(i) hereof. "Prospectus" shall mean the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any amendment or prospectus supplement, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. "Purchase Agreement" shall have the meaning specified in the first paragraph of this Agreement. "Questionnaire" shall mean a written notice delivered to the Company containing substantially the information called for by the form of notice and questionnaire attached as Annex A to the Offering Memorandum of the Company dated March 9, 1998 relating to the Notes. "Record Holder" shall mean (i) with respect to any Damages Payment Date relating to any Note as to which any such Liquidated Damages have accrued, the registered holder of such Note on the record date with respect to the interest payment date under the Indenture on which such Damages Payment Date shall occur and (ii) with respect to any Damages Payment Date relating to any Common Stock as to which any such Liquidated Damages have accrued, the registered holder of such Common Stock on the date that is 15 days prior to the next succeeding Damages Payment Date. "Registrable Securities" shall mean (A) the Common Stock into which the Notes are convertible or converted, whether or not such Notes have been converted, and at all times subsequent thereto, and any Common Stock issued with respect thereto upon any stock dividend, split or similar event until, in the case of any such Common Stock, (i) it is effectively registered under the Securities Act and disposed of in accordance with the Registration Statement covering it, (ii) it is saleable by the holder thereof pursuant to Rule 144(k) or (iii) it is sold to the public pursuant to Rule 144, and, as a result of the event or circumstance described in any of the foregoing clauses (i) through (iii), the legends with respect to transfer restrictions required under the Indenture (other than any such legends required solely as the consequence of the fact that such Common Stock (or the Notes, upon the conversion of which, such Common Stock was issued or is issuable) is owned by, or was previously owned by, the Company or an Affiliate of the Company) are removed or removable in accordance with the terms of the Indenture; (B) the Notes, until, in the case of each such Note, (i) it is converted into shares of Common Stock in accordance with the terms of the Indenture, (ii) it is effectively registered under the Securities Act and disposed of in accordance with the Registration 3 4 Statement covering it, (iii) it is saleable by the holder thereof pursuant to Rule 144(k) or (iv) it is sold to the public pursuant to Rule 144, and, as a result of the event or circumstance described in any of the foregoing clauses (ii) through (iv), the legends with respect to transfer restrictions required under the Indenture (other than any such legends required solely as the consequence of the fact that such Note is owned by, or was previously owned by, the Company or an Affiliate of the Company) are removed or removable in accordance with the terms of the Indenture. "Registration Expenses" shall have the meaning specified in Section 5 hereof. "Registration Statement" shall mean any registration statement of the Company which covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "Rule 144" shall mean Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. "Rule 144A" shall mean Rule 144A under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. "SEC" shall mean the Securities and Exchange Commission. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder. "Shelf Registration" shall have the meaning specified in Section 2(a) hereof. "Special Counsel" shall mean Shearman & Sterling or such successor counsel as shall be specified by the Holders of a majority of the Registrable Securities, the fees and expenses of which will be paid by the Company pursuant to Section 5 hereof. "Subsequent Shelf Registration" shall mean the meaning specified in Section 2(b) hereof. "TIA" shall mean the Trust Indenture Act of 1939, as amended. "Trustee" shall mean the Trustee under the Indenture. 4 5 "Underwritten Registration or Underwritten Offering shall mean a registration in which securities of the Company are sold to an underwriter for reoffering to the public. 2. Shelf Registration. (a) The Company shall prepare and file with the SEC, as soon as practicable but in any event on or prior to the date ninety (90) days following the latest date of original issuance of the Notes (the "Filing Date"), a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act (a "Shelf Registration") registering the resale from time to time by Holders thereof of all of the Registrable Securities (the "Initial Shelf Registration"). The Initial Shelf Registration shall be on Form S-3 or another appropriate form permitting registration of such Registrable Securities for resale by the Holders in the manner or manners designated by them. The manner of sale may include, without limitation, one or more Underwritten Offerings or a sale to a dealer acting as principal for resale to the public. The Company shall use its best efforts to cause the Initial Shelf Registration to be declared effective under the Securities Act as soon as practicable and to keep the Initial Shelf Registration continuously effective under the Securities Act until the earlier of the expiration of the Effectiveness Period or the date a Subsequent Shelf Registration covering all of the Registrable Securities has been declared effective under the Securities Act. (b) If the Initial Shelf Registration or any Subsequent Shelf Registration ceases to be effective for any reason as a result of the issuance of a stop order by the SEC at any time during the Effectiveness Period, the Company shall use its best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within thirty (30) days of such cessation of effectiveness amend the Shelf Registration in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional Shelf Registration covering all of the Registrable Securities (a "Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed, the Company shall use its best efforts to cause the Subsequent Shelf Registration to be declared effective as soon as practicable after such filing and to keep such Registration Statement continuously effective until the end of the Effectiveness Period. (c) The Company shall supplement and amend the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the Initial Purchasers or by the Trustee on behalf of a majority of the Holders of the Registrable Securities covered by such Registration Statement or by any Managing Underwriter of such Registrable Securities in the event of an Underwritten Offering of the Registerable Securities. (d) Each Holder of Registrable Securities agrees that if such Holder wishes to sell its Registrable Securities pursuant to a Shelf Registration and related Prospectus, it will 5 6 do so only in accordance with this Section 2(d). Each Holder of Registrable Securities wishing to sell Registrable Securities agrees to deliver a Notice and Questionnaire to the Company at least three Business Days prior to any intended distribution of Registrable Securities under the Shelf Registration. In the event the Holder fails to provide the Questionnaire, the Company will promptly request such Holder to provide such Questionnaire. As soon as practicable after the date such Questionnaire is provided, and in any event within five Business Days after such date, the Company shall either: (i) (A) If necessary, prepare and file with the Commission a post-effective amendment to the Shelf Registration or a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required document in order that such Registration Statement will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and in order that, as thereafter delivered to purchasers of the Registrable Securities being sold thereunder, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (B) provide each Notice Holder copies of any documents filed pursuant to Section 2(d)(i)(A); and (C) inform each Notice Holder that the Company has complied with its obligations in Section 2(d)(i)(A) (or that, if the Company has filed a post-effective amendment to the Shelf Registration which has not yet been declared effective, the Company will notify the Notice Holder to that effect, will use its best efforts to secure the effectiveness of such post-effective amendment and will immediately notify the Notice Holder when the amendment has become effective). (ii) in the event (A) of the happening of any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v), or 3(c)(vi) hereof or (B) that, in the judgment of the Company, it is advisable to suspend use of the Prospectus for a discrete period of time due to pending material corporate developments or similar material events that have not yet been publicly disclosed and as to which the Company believes public disclosure will be prejudicial to the Company, the Company shall deliver a certificate in writing, signed by an authorized executive officer of the Company, to the Notice Holders, the Special Counsel and the Managing Underwriters, if any, to the effect of the foregoing and, upon receipt of such certificate, each such Notice Holder shall not sell any Registerable Securities and shall not use the Prospectus until such Notice Holder's receipt of copies of the supplemented or amended Prospectus provided for in Section 2(d)(i)(A) hereof, or until it is advised in writing by the Company that the Prospectus may be used and such Notice Holder has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such Prospectus. The Company will use its best efforts to ensure that the use of the Prospectus may be resumed, and sales of Registerable Securities may commence, as soon as practicable and, in the case of a pending development or event 6 7 referred to in Section 2(d)(ii)(B) hereof, as soon as the earlier of (x) public disclosure of such pending material corporate development or similar material event or (y) in the judgment of the Company, public disclosure of such material corporate development or similar material event would not be prejudicial to the Company. Notwithstanding any other provision in this Agreement, the Company shall not under any circumstances be entitled to exercise its right under this Section 2(d)(ii) to defer sales of Registerable Securities except as follows: the Company may defer sales of Registerable Securities in accordance with this Section 2(d)(ii) for a period not to exceed 30 days in any three-month period, or not to exceed an aggregate of 60 days in any 12-month period, and the period in which sales of Registerable Securities are suspended shall not exceed fifteen (15) days unless the Company shall deliver to such Notice Holders a second notice to the effect set forth above, which shall have the effect of extending the period during which sales of Registerable Securities are deferred by up to an additional fifteen (15) days, or such shorter period of time as is specified in such second notice. In no event shall the Company be permitted to extend the period during which sales of Registerable Securities are deferred (a "Deferral Period") beyond such thirty (30) day period from and after the date a Notice Holder provides a Questionnaire to the Company in accordance with this Section 2(d). (e) The parties hereto agree that the Holders of Registrable Securities will suffer damages, and that it would not be feasible to ascertain the extent of such damages with precision, if (i) the Initial Shelf Registration has not been filed with the SEC on or prior to the Filing Date, (ii) prior to the end of the Effectiveness Period, the SEC shall have issued a stop order suspending the effectiveness of the Shelf Registration or proceedings have been initiated with respect to the Shelf Registration pursuant to Section 8(d) or 8(e) of the Securities Act, (iii) the aggregate number of days in any one Deferral Period exceeds the number permitted pursuant to Section 2(d)(ii) hereof or (iv) the number of Deferral Periods exceeds the number permitted pursuant to Section 2(d)(ii) hereof (each of the events of a type described in any of the foregoing clauses (i) through (iv) are individually referred to herein as an "Event," and the Filing Date in the case of clause (i), the date on which the effectiveness of the Shelf Registration has been suspended or proceedings with respect to the Shelf Registration pursuant to Section 8(d) or 8(e) of the Securities Act have been commenced in the case of clause (ii), the date on which the duration of a Deferral Period exceeds the number permitted by Section 2(d)(ii) hereof in the case of clause (iii), and the date of the commencement of a Deferral Period that causes the limit on the number of Deferral Periods under Section 2(d)(ii) hereof to be exceeded in the case of clause (iv), being referred to herein as an "Event Date"). Events shall be deemed to continue until the date of the termination of such Event, which shall be the following dates with respect to the respective types of Events: the date the Initial Registration Statement is filed in the case of an Event of the type described in clause (i), the date that all stop orders suspending effectiveness of the Shelf Registration have been removed and the proceedings initiated with respect to the Shelf Registration pursuant to Section 8(d) or 8(e) of the Securities Act have terminated, as the case may be, in the case of Events of the types described in clause (ii), termination of the Deferral Period which caused the aggregate number 7 8 of days in any one Deferral Period to exceed the number permitted by Section 2(d)(ii) to be exceeded in the case of Events of the type described in clause (iii), and termination of the Deferral Period the commencement of which caused the number of Deferral Periods permitted by Section 2(d)(ii) to be exceeded in the case of Events of the type described in clause (iv). Accordingly, upon the occurrence of any Event and until such time as there are no Events which have occurred and are continuing (a "Damages Accrual Period"), commencing on the Event Date on which such Damages Accrual Period began, the Company agrees to pay, as liquidated damages, and not as a penalty, an additional amount (the "Liquidated Damages"): (A)(i) to each holder of a Note that is a Notice Holder, accruing at a rate equal to one-half of one percent per annum (50 basis points) on the aggregate principal amount of Notes held by such Notice Holder and (ii) to each holder of Common Stock that is a Notice Holder, accruing at a rate equal to one-half of one percent per annum (50 basis points) calculated on an amount equal to the product of (x) the then-applicable Conversion Price (as defined in the Indenture), multiplied by (y) the number of shares of Common Stock held by such holder; and (B) if the Damages Accrual Period continues for a period in excess of thirty (30) days from the Event Date, from and after the end of such thirty (30) days until such time as there are no Events which have occurred and are continuing, (i) to each holder of a Note (whether or not a Notice Holder), accruing at a rate equal to one-half of one percent per annum (50 basis points) on the aggregate principal amount of Notes held by such holder and (ii) to each holder of Common Stock (whether or not a Notice Holder), accruing at a rate equal to one-half of one percent per annum (50 basis points) calculated on an amount equal to the product of (x) the then applicable Conversion Price (as defined in the Indenture), multiplied by (y) the number of shares of Common Stock held by such holder. Notwithstanding the foregoing, no Liquidated Damages shall accrue under clause (A) of the preceding sentence during any period for which Liquidated Damages accrue under clause (B) of the preceding sentence or as to any Registrable Securities from and after the expiration of the Effectiveness Period. The rate of accrual of the Liquidated Damages with respect to any period shall not exceed the rate provided for in this paragraph notwithstanding the occurrence of multiple concurrent Events. The Company shall pay the Liquidated Damages due on any Notes or Common Stock by depositing with the Trustee under the Indenture, in trust, for the benefit of the holders of Notes or Common Stock or Notice Holders, as the case may be, entitled thereto, at least one Business Day prior to the applicable Damages Payment Date, sums sufficient to pay the Liquidated Damages accrued or accruing since the last preceding Damages Payment Date through such next applicable Damages Payment Date. The Liquidated Damages shall be paid by the Company to the Record Holders on each Damages Payment Date by wire transfer of immediately available funds to the accounts specified by them or by mailing checks to their registered addresses as they appear in the Note Register (as defined in the Indenture), in the case of the Notes, and in the register of the Company for the Common Stock, in the case of the Common Stock, if no such accounts have been specified on or before the Damage Payment Date; provided, however, that any Liquidated Damages accrued with respect to any Note or 8 9 portion thereof called for redemption on a redemption date, redeemed or repurchased in connection with a Fundamental Change (as defined in the Indenture) on a redemption date, repurchase date, or converted into Common Stock on a conversion date prior to the Damages Payment Date, shall, in any such event, be paid instead to the Holder who submitted such Note or portion thereof for redemption, repurchase or conversion on the applicable redemption date, repurchase date or conversion date, as the case may be, on such date (or promptly following the conversion date, in the case of conversion of a Note). The Trustee shall be entitled, on behalf of the holders of Notes, holders of Common Stock and Notice Holders, to seek any available remedy for the enforcement of this Agreement, including for the payment of such Liquidated Damages. Notwithstanding the foregoing, the parties agree that the sole damages payable for a violation of the terms of this Agreement with respect to which Liquidated Damages are expressly provided shall be such Liquidated Damages. Nothing shall preclude a Notice Holder or Holder of Registrable Securities from pursuing or obtaining specific performance or other equitable relief with respect to this Agreement, in addition to the payment of Liquidated Damages. All of the Company's obligations set forth in this Section 2(e) which are outstanding with respect to any Registrable Securities at the time such security ceases to be a Registrable Security shall survive until such time as all such obligations with respect to such security have been satisfied in full (notwithstanding termination of the Agreement pursuant to Section 8(o)). The parties hereto agree that the Liquidated Damages provided for in this Section 2(e) constitute a reasonable estimate of the damages that may be incurred by Holders of Registrable Securities (other than the Initial Purchasers) by reason of the failure of the Shelf Registration to be filed, declared effective or otherwise available (absolutely or as a practical matter) for effecting resales of Registrable Securities, as the case may be, in accordance with the provisions hereof. 3. Registration Procedures. In connection with the Company's registration obligations under Section 2 hereof, the Company shall effect such registrations to permit the sale of the Registrable Securities in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company shall as expeditiously as possible: (a) Prepare and file with the SEC a Registration Statement or Registration Statements on any appropriate form under the Securities Act available for the sale of the Registrable Securities by the Holders thereof in accordance with the intended method or methods of distribution thereof, and use its best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, that before filing any such Registration Statement or Prospectus or any amendments or supplements thereto (other than documents that would be incorporated or deemed to be incorporated therein by reference and that the Company is required by applicable securities laws or securities exchange requirements to file) the Company shall furnish to the Initial Purchasers, the Special 9 10 Counsel and the Managing Underwriters of such offering, if any, copies of all such documents proposed to be filed, which documents will be subject to the review of the Initial Purchasers, the Special Counsel and such Managing Underwriters, and the Company shall not file any such Registration Statement or amendment thereto or any Prospectus or any supplement thereto (other than such documents which, upon filing, would be incorporated or deemed to be incorporated by reference therein and that the Company is required by applicable securities laws or securities exchange requirements to file) to which the Holders of a majority of the Registrable Securities covered by such Registration Statement, the Initial Purchasers, the Special Counsel or the Managing Underwriters, if any, shall reasonably object in writing within two full Business Days. (b) Prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement continuously effective for the applicable period specified in Section 2; cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement and Prospectus during the applicable period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or such Prospectus as so supplemented. (c) Notify the Notice Holders, the Initial Purchasers, the Special Counsel and the Managing Underwriters, if any, promptly, and (if requested by any such person) confirm such notice in writing, (i) when a Prospectus, any Prospectus supplement, a Registration Statement or a post-effective amendment to a Registration Statement has been filed with the SEC, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC or any other federal or state governmental authority for amendments or supplements to a Registration Statement or related Prospectus or for additional information, (iii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement or the initiation or threatening of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (v) of the existence of any fact or happening of any event which makes any statement of a material fact in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue or which would require the making of any changes in the Registration Statement or Prospectus in order that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not 10 11 misleading, and (vi) of the Company's determination that a post-effective amendment to a Registration Statement would be appropriate. Notice of the filing and effectiveness of the Initial Registration Statement and any Subsequent Registration Statement shall be made by the Company by release made to Reuters Economic Services and Bloomberg Business News. (d) Use its best efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement, or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest possible moment. (e) If reasonably requested by the Initial Purchasers or the Managing Underwriters, if any, or the Holders of a majority of the Registrable Securities being sold, (i) promptly incorporate in a Prospectus supplement or post-effective amendment to a Registration Statement such information as the Initial Purchasers, the Special Counsel, the Managing Underwriters, if any, or such Holders, in connection with any offering of Registrable Securities, agree should be included therein as required by applicable law, and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment; provided, that the Company shall not be required to take any actions under this Section 3(e) that are not, in the reasonable opinion of counsel for the Company, in compliance with applicable law. (f) Furnish to each Notice Holder, the Special Counsel, the Initial Purchasers and each Managing Underwriter, if any, without charge, at least one conformed copy of the Registration Statement or Statements and any amendment thereto, including financial statements but excluding schedules, all documents incorporated or deemed to be incorporated therein by reference and all exhibits (unless requested in writing by such Notice Holder, counsel, the Initial Purchasers or underwriters). (g) Deliver to each Notice Holder, the Special Counsel, the Initial Purchasers and each Managing Underwriter, if any, in connection with any offering of Registrable Securities, without charge, as many copies of the Prospectus or Prospectuses relating to such Registrable Securities (including each preliminary prospectus) and any amendment or supplement thereto as such persons may reasonably request; and the Company hereby consents to the use of such Prospectus or each amendment or supplement thereto by each of the Notice Holders of Registrable Securities and the underwriters, if any, in connection with any offering and sale of the Registrable Securities covered by such Prospectus or any amendment or supplement thereto. (h) Prior to any offering of Registrable Securities, to register or qualify or cooperate with the Notice Holders, the Managing Underwriters, if any, and the Special Counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the 11 12 securities or Blue Sky laws of such jurisdictions within the United States as any Notice Holder or Managing Underwriter reasonably requests in writing; keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the applicable Registration Statement; provided, that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified or (ii) take any action that would subject it to general service of process in suits or to taxation in any such jurisdiction where it is not then so subject. (i) Cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities within the United States, except as may be required solely as a consequence of the nature of such Notice Holder, in which case the Company will cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals, as may be necessary to enable the Notice Holder or Holders thereof or the Managing Underwriters, if any, to consummate the disposition of such Registrable Securities. (j) Other than during a Deferral Period, immediately upon the existence of any fact or the occurrence of any event as a result of which a Registration Statement shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or a Prospectus shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, promptly prepare and file (subject to the proviso in Section 3(a)) a post-effective amendment to each Registration Statement or a supplement to the related Prospectus or any document incorporated therein by reference or file any other required document (such as a Current Report on Form 8-K) that would be incorporated by reference into the Registration Statement in order that the Registration Statement shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and in order that the Prospectus will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, and, in the case of a post-effective amendment to a Registration Statement, use its best efforts to cause such post-effective amendment to become effective as soon as practicable. (k) Enter into such agreements (including, in the event of an Underwritten Offering, an underwriting agreement in form, scope and substance as is customary in Underwritten Offerings) and take all such other actions in connection therewith (including, in the event of an Underwritten Offering, those reasonably requested by the Managing Underwriters, if any, or the Holders of a majority of the Registrable Securities being sold) in 12 13 order to expedite or facilitate the disposition of such Registrable Securities and in such connection, whether or not an underwriting agreement is entered into, and if the registration is an underwritten registration, (i) make such representations and warranties, subject to the Company's ability to do so, to the Holders of such Registrable Securities and the underwriters with respect to the business of the Company and its subsidiaries, the Registration Statement, Prospectus and documents incorporated by reference or deemed incorporated by reference, if any, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings (provided that the scope and substance shall not be materially different than those contained in the Purchase Agreement) and confirm the same if and when requested; (ii) use its best efforts to obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the Managing Underwriters, if any, Special Counsel and the Holders of a majority of the Registrable Securities being sold) addressed to each of the underwriters covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Special Counsel and Managing Underwriters; (iii) use its best efforts to obtain "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other certified public accountants of any business acquired or to be acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each of the Managing Underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings; and (iv) deliver such documents and certificates as may be reasonably requested by the Holders of a majority of the Registrable Securities being sold, the Special Counsel and the Managing Underwriters, if any, to evidence the continued validity of the representations and warranties of the Company and its subsidiaries made pursuant to clause (i) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. The above shall be done at each closing under such underwriting or similar agreement as and to the extent required thereunder. Notwithstanding anything herein to the contrary, no disposition of Registrable Securities hereunder shall take the form of an Underwritten Offering without the prior agreement of the Company. (l) If requested in connection with a disposition of Registrable Securities pursuant to a Registration Statement, make available for inspection by a representative of the Holders of Registrable Securities being sold, any Managing Underwriter participating in any disposition of Registrable Securities, if any, and any attorney or accountant retained by such Notice Holders or underwriter, financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and cause the executive officers, directors and employees of the Company and its subsidiaries, to supply all information reasonably requested by any such representative, Managing Underwriter, attorney or accountant in connection with such disposition; subject to reasonable assurances by each such person that such information will only be used in connection with matters relating to such Registration Statement; provided, however, that such persons shall first agree in writing with the Company that any information 13 14 that is reasonably and in good faith designated by the Company in writing as confidential at the time of delivery of such information shall be kept confidential by such persons and shall be used solely for the purposes of exercising rights under this Agreement, unless (i) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities, (ii) disclosure of such information is required by law (including any disclosure requirements pursuant to federal securities laws in connection with the filing of any Registration Statement or the use of any prospectus referred to in this Agreement), (iii) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard by any such person or (iv) such information becomes available to any such person from a source other than the Company and such source is not bound by a confidentiality agreement. (m) Comply with all applicable rules and regulations of the SEC and make generally available to its securityholders earning statements (which need not be audited) satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company commencing after the effective date of a Registration Statement, which statements shall cover said 12-month periods. (n) Cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and enable such Registrable Securities to be in such denominations and registered in such names as such Holders may request. (o) Provide the Trustee under the Indenture and the transfer agent for the Common Stock with printed certificates for the Registrable Securities which are in a form eligible for deposit with The Depository Trust Company. (p) Cause the Common Stock covered by the Registration Statement to be listed on each securities exchange or quoted on each automated quotation system on which any of the Company's "Common Stock," as that term is defined in the Indenture, is then listed or quoted) no later than the date the Registration Statement is declared effective and, in connection therewith, to the extent applicable, to make such filings under the Exchange Act (e.g., the filing of a Registration Statement on Form 8-A) and to have such filings declared effective thereunder. (q) Cooperate and assist in any filings required to be made with the National Association of Securities Dealers, Inc. 14 15 4. Holder's Obligations. Each Holder agrees, by acquisition of the Notes and Registrable Securities, that no Holder of Registrable Securities shall be entitled to sell any of such Registrable Securities pursuant to a Registration Statement or to receive a Prospectus relating thereto, unless such Holder has furnished the Company with the Questionnaire required pursuant to Section 2(d) hereof and such other information regarding such Holder and the distribution of such Registrable Securities as may be required to be included in the Registration Statement or the Prospectus or as the Company may from time to time reasonably request in writing. The Company may exclude from such registration the Registrable Securities of any Holder who does not furnish such information provided above for so long as such information is not so furnished. Each Holder of Registrable Securities as to which any Registration Statement is being effected agrees promptly to furnish to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Holder not misleading. Any sale of any Registrable Securities by any Holder shall constitute a representation and warranty by such Holder that the information relating to such Holder and its plan of distribution is as set forth in the Prospectus delivered by such Holder in connection with such disposition, that such Prospectus does not as of the time of such sale contain any untrue statement of a material fact relating to such Holder or its plan of distribution and that such Prospectus does not as of the time of such sale omit to state any material fact relating to such Holder or its plan of distribution necessary to make the statements in such Prospectus, in light of the circumstances under which they were made, not misleading. 5. Registration Expenses. All fees and expenses incident to the Company's performance of or compliance with this Agreement shall be borne by the Company whether or not any of Registration Statement becomes effective. Such fees and expenses shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (x) with respect to filings required to be made with the SEC or the National Association of Securities Dealers, Inc. and (y) relating to compliance with federal or state securities or Blue Sky laws (including, without limitation, fees and disbursements of Special Counsel in connection with Blue Sky qualifications of the Registrable Securities under the laws of such jurisdictions as the Managing Underwriters, if any, or Holders of a majority of the Registrable Securities being sold may designate)), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by the Special Counsel or the Holders of a majority of the Registrable Securities included in any Registration Statement), (iii) the reasonable fees and disbursements of the Trustee and its counsel and of the registrar and transfer agent for the Common Stock, (iv) messenger, telephone and delivery expenses relating to the performance of the Company's obligations hereunder, (v) reasonable fees and disbursements of counsel for the Company and the Special Counsel in connection with the Shelf Registration (provided that the Company shall not be liable for the fees and expenses of more than one separate firm, in addition to counsel for the Company, for all parties participating in any transaction hereunder), (vi) fees and disbursements of all independent certified public accountants referred to in Section 3(k)(iii) hereof (including the expenses of any special audit and "cold comfort" letters 15 16 required by or incident to such performance and (vii) Securities Act liability insurance, to the extent obtained by the Company in its sole discretion. In addition, the Company shall pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties and auditors' fees), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange on which similar securities issued by the Company are then listed and the fees and expenses of any person, including special experts, retained by the Company. Notwithstanding the provisions of this Section 5, each seller of Registrable Securities shall pay all underwriting discounts, selling commissions and stock transfer taxes applicable to the Registerable Securities, all selling expenses and all registration expenses to the extent that the Company is prohibited by applicable Blue Sky laws from paying for or on behalf of such seller of Registrable Securities. 6. Indemnification. (a) Indemnification by the Company. The Company agrees to indemnify and hold harmless the Initial Purchasers, each Holder and each person, if any, who controls any Initial Purchaser or any Holder (within the meaning of either Section 15 of the Securities Act or Section 20(a) of the Exchange Act), from and against any and all losses, claims, liabilities, damages and expenses (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) (collectively, "Losses"), arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such Losses arise out of or are based upon the information relating to the Initial Purchasers or any Holder furnished to the Company in writing by the Initial Purchasers or such Holder expressly for use therein (including, without limitation, any information relating to the plan of distribution of Registerable Securities furnished by such person); provided, that the Company shall not be liable to any Holder of Registrable Securities (or any person controlling such Holder) to the extent that any such Losses arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus if either (A)(i) such Holder failed to send or deliver a copy of the Prospectus with or prior to the delivery of written confirmation of the sale by such Holder to the person asserting the claims from which such Losses arise and (ii) the Prospectus would have corrected such untrue statement or alleged untrue statement or such omission or alleged omission, or (B)(x) such untrue statement or alleged untrue statement, omission or alleged omission is corrected in an amendment or supplement to the Prospectus and (y) having previously been furnished by or on behalf of the Company with copies of the Prospectus as so amended or supplemented, such Holder thereafter fails to deliver such Prospectus as so amended or supplemented, with or prior to the delivery of written confirmation of the sale of a Registrable Security to the person asserting the claim from which such Losses arise. The Company shall also indemnify each 16 17 underwriter and each person who controls such person (within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act) to the same extent and with the same limitations as provided above with respect to the indemnification of the Initial Purchasers or the Holders of Registrable Securities. (b) Indemnification by Holder of Registrable Securities. Each Holder agrees, and such agreement shall be evidenced by the Holder delivering a Questionnaire, severally and not jointly, to indemnify and hold harmless the Initial Purchasers, the other Holders, the Company, its directors, its officers who sign a Registration Statement, and each person, if any, who controls the Company, the Initial Purchasers and any other Holder (within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act), from and against all Losses arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or preliminary prospectus or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in any information relating to such Holder so furnished in writing by such Holder to the Company expressly for use in such Registration Statement or Prospectus. In no event shall the liability of any Holder of Registrable Securities hereunder be greater in amount than the dollar amount of the proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for (a) the fees and expenses of more than one separate firm (in addition to any local counsel) for the Initial Purchasers and all persons, if any, who control the Initial Purchasers within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, (b) the fees and expenses of more than one separate firm (in addition to any local counsel) for all 17 18 Holders and all persons, if any, who control any Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, and (c) the fees and expenses of more than one separate firm (in addition to any local counsel) for the Company, its directors, its officers who sign a Registration Statement and each person, if any, who controls the Company within the meaning of either such Section, and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the Company, and such directors, officers and control persons of the Company, such firm shall be designated in writing by the Company. In such case involving the Initial Purchasers and persons who control the Initial Purchasers, such firm shall be designated in writing by Morgan Stanley & Co. Incorporated. In such case involving the Holders and such persons who control Holders, such firm shall be designated in writing by the Holders of the majority of Registrable Securities sold pursuant to the Registration Statement. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party, shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability or claims that are the subject matter of such proceeding. (d) Contribution. If the indemnification provided for in this Section 6 is unavailable to an indemnified party under Section 6(a) or 6(b) hereof in respect of any Losses or is insufficient to hold such indemnified party harmless, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Losses, (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party or parties on the other hand or (ii) if the allocation provided by clause 6(d)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 6(d)(i) above but also the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand in connection with the statements or omissions that resulted in such Losses, as well as any other relevant equitable considerations. Benefits received by the Company shall be deemed to be equal to the total net proceeds from the initial placement (before deducting expenses) of the Notes pursuant to the Purchase Agreement. Benefits 18 19 received by the Initial Purchasers shall be deemed to be equal to the total purchase discounts and commissions received by it pursuant to the Purchase Agreement and benefits received by any other Holders shall be deemed to be equal to the value of receiving Notes registered under the Securities Act. Benefits received by any underwriter shall be deemed to be equal to the total underwriting discounts and commissions, as set forth on the cover page of the Prospectus forming a part of the Registration Statement which resulted in such Losses. The relative fault of the Holders on the one hand and the Company on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Holders or by the Company and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Holders' respective obligations to contribute pursuant to this paragraph are several in proportion to the respective number of Registrable Securities they have sold pursuant to a Registration Statement, and not joint. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rata allocation or by any other method or allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the Losses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding this Section 6(d), an indemnifying party that is a selling Holder of Registrable Securities shall not be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities sold by such indemnifying party and distributed to the public were offered to the public exceeds the amount of any damages which such indemnifying party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The indemnity, contribution and expense reimbursement obligations of the Company hereunder shall be in addition to any liability the Company may otherwise have hereunder, under the Purchase Agreement or otherwise. The provisions of this Section 6 shall survive so long as Registrable Securities remain outstanding, notwithstanding any transfer of the Registrable Securities by any Holder or any termination of this Agreement. The indemnity and contribution provisions contained in this Section 6 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of the Initial Purchasers, any Holder or any person controlling any Holder, or the Company, its officers or directors or any person controlling the Company and (iii) the sale of any Registrable Securities by any Holder. 19 20 7. Information Requirements. (a) The Company shall file the reports required to be filed by it under the Securities Act and the Exchange Act, and if at any time the Company is not required to file such reports, it will, upon the request of any Holder of Registrable Securities, make publicly available other information so long as necessary to permit sales pursuant to Rule 144 and Rule 144A under the Securities Act. The Company further covenants that it will cooperate with any Holder of Registrable Securities and take such further reasonable action as any Holder of Registrable Securities may reasonably request (including, without limitation making such reasonable representations as any such Holder may reasonably request), all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 and Rule 144A under the Securities Act. Upon the request of any Holder of Registrable Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such filing requirements. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities under any section of the Exchange Act. (b) The Company shall file the reports required to be filed by it under the Exchange Act and shall comply with all other requirements set forth in the instructions to Form S-3 in order to allow the Company to be eligible to file registration statements on Form S-3. 8. Miscellaneous. (a) Remedies. In the event of a breach by the Company of its obligations under this Agreement, each Holder of Registrable Securities, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement; provided that the sole damages payable for a violation of the terms of this Agreement for which Liquidated Damages are expressly provided pursuant to Section 2(e) hereof shall be such Liquidated Damages. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (b) No Conflicting Agreements. The Company has not, as of the date hereof and shall not, on or after the date of this Agreement, enter into any agreement with respect to its securities which conflicts with the rights granted to the Holders of Registrable Securities in this Agreement. The Company represents and warrants that the rights granted to the Holders of Registrable Securities hereunder do not in any way conflict with the rights granted to the holders of the Company's securities under any other agreements. 20 21 (c) Amendments and Waivers. The provisions of this Agreement, including the provisions of this Section 8(c), may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of a majority of the then outstanding Common Stock constituting Registrable Securities (with Holders of Notes deemed to be the Holders, for purposes of this Section, of the number of outstanding shares of Common Stock into which such Notes are convertible); provided, however, that a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders of Registrable Securities may be given by Holders of at least a majority of the Registrable Securities being sold by such Holders; provided, further, however, that no amendment, modification, supplement, waiver or consent to any departure from the provisions of Section 6 hereof shall be effective as against any Holder of Registrable Securities unless consented to in writing by such Holder. (d) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing and shall be deemed given (i) when made, if made by hand delivery, (ii) upon confirmation, if made by telecopier or (iii) one business day after being deposited with a reputable next-day courier, postage prepaid, to the parties as follows: (x) if to a Holder of Registrable Securities, at the most current address given by such Holder to the Company in a Notice and Questionnaire. (y) if to the Company, to: CKE Restaurants, Inc. 3916 State Street Suite 300 Santa Barbara, California 93105 Attention: Chief Financial Officer Telephone: (805) 563-1566 Telecopy No.: (805) 898-7148 with a copy to: Stradling Yocca Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, California 92660-6441 Attention: Michael E. Flynn Telephone: (714) 725-4000 Telecopy No.: (714) 725-4100 21 22 and (z) if to the Special Counsel to: Shearman & Sterling 555 California Street San Francisco, California 94104-1522 Attention: William H. Hinman, Jr. Telephone: (415) 616-1221 Telecopy No: (415) 616-1199 or to such other address as such person may have furnished to the other persons identified in this Section 8(d) in writing in accordance herewith. (e) Owner of Registrable Securities. The Company will maintain, or will cause its registrar and transfer agent to maintain, a register with respect to the Registrable Securities in which all transfers of Registrable Securities of which the Company has received a Questionnaire will be recorded. The Company may deem and treat the person in whose name Registrable Securities are registered in such register of the Company as the owner thereof for all purposes, including without limitation, the giving of notices under this Agreement. (f) Approval of Holders. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, (i) Holders of Notes shall be deemed to be Holders, for such purposes, of the number of outstanding shares of Common Stock into which such Notes are convertible (as of the record date for such consent or approval) and (ii) Registrable Securities held by the Company or its affiliates (as such term is defined in Rule 405 under the Securities Act) (other than the Initial Purchasers or subsequent Holders of Registrable Securities if such subsequent Holders are deemed to be such affiliates solely by reason of their holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (g) Successors and Assigns. Any person who purchases any Registrable Securities from an Initial Purchaser shall be deemed, for purposes of this Agreement, to be an assignee of such Initial Purchaser. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties and shall inure to the benefit of and be binding upon each Holder of any Registrable Securities. (h) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be original and all of which taken together shall constitute one and the same agreement. 22 23 (i) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (j) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. (k) Severability. If any term, provision, covenant or restriction of this Agreement is held to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, illegal, void or unenforceable. (l) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and the registration rights granted by the Company with respect to the Registrable Securities. Except as provided in the Purchase Agreement and the Indenture, there are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by the Company with respect to the Registrable Securities. This Agreement supersedes all prior agreements and understandings among the parties with respect to such registration rights. (m) Attorneys' Fees. In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the prevailing party, as determined by the court, shall be entitled to recover reasonable attorneys' fees in addition to any other available remedy. (n) Further Assurances. Each of the parties hereto shall use all best efforts to take, or cause to be taken, all appropriate action, do or cause to be done all things reasonably necessary, proper or advisable under applicable law, and execute and deliver such documents and other papers, as may be required to carry out the provisions of this Agreement and the other documents contemplated hereby and consummate and make effective the transactions contemplated hereby. (o) Termination. This Agreement and the obligations of the parties hereunder shall terminate upon the end of the Effectiveness Period, except for any liabilities or 23 24 obligations under Sections 4, 5 or 6 hereof and the obligations to make payments of and provide for Liquidated Damages under Section 2(e) hereof to the extent such damages accrue prior to the end of the Effectiveness Period, each of which shall remain in effect in accordance with their terms. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. CKE RESTAURANTS, INC. By: /s/ CARL A. STRUNK ------------------------------------- Name: Carl A. Strunk Title: EVP Accepted as of the date first above written: MORGAN STANLEY & CO. INCORPORATED BT ALEX. BROWN INCORPORATED MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED SCHRODER & CO. INC. By: Morgan Stanley & Co. Incorporated By: /s/ C. DANIEL EWELL ----------------------------------- Name: C. Daniel Ewell Title: Managing Director 24 EX-10.8 5 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT, 11/1/1997 1 EXHIBIT 10.8 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT CARL KARCHER ENTERPRISES, INC. This First Amendment (the "Amendment") to Employment Agreement dated January 1, 1994, between Carl Karcher Enterprises, Inc. (the "Company") and Carl N. Karcher ("Founder"), is made effective as of November 1, 1997 (the "Effective Date"), by and between the Company and Founder. R E C I T A L S A. The Company and Founder entered into an Employment Agreement (the "Agreement") on January 1, 1994 whereby the Company agreed to employ the Founder for a term of five (5) years from the date of the Agreement. B. The Company and Founder now desire to amend the Agreement to extend the employment term and to modify other provisions thereof as set forth herein. A G R E E M E N T NOW, THEREFORE, in consideration of the foregoing recitals and the covenants and agreements set forth herein, the parties hereby agree as follows: 1. Employment Term. Section 3 of the Agreement shall be amended in its entirety to read as follows: "3. Employment Term. Founder shall be employed under this Agreement for a term of ten (10) 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 December 31, 2003, unless sooner terminated as provided in Section 7." 2. Management Bonus Pool. Commencing on the Effective Date and continuing through the Employment Term, Founder shall become eligible to participate in any management incentive compensation bonus pool plans, which at inception shall be the EPIC Bonus Pool, including cash or stock option bonus pool plans, approved by the Company's Board of Directors, such participation to be on terms comparable to those afforded to other executive management employees. Except for payments pursuant to predetermined formula bonus plans, the payment and amount of any bonus shall be based upon the recommendation of the Chief Executive Officer of the Company, and upon approval by the Compensation Committee of the Board of Directors based upon the performance of his duties under the Agreement, as amended. 2 3. Stock Options. In addition to Founder's rights to participate in the Company's option plan as set forth in Section 4.c. of the Agreement, on the expiration of the original term of the Agreement, January 1, 1999, the Founder shall receive a grant of fully vested options to purchase 100,000 shares of common stock of CKE Restaurants, Inc., a Delaware corporation and the parent of the Company ("CKE"), at a per share option exercise price equal to the fair market value of CKE's common stock at the time of the grant. 4. Termination Upon Death. Section 7.e. of the Agreement shall be amended in its entirety to read in full as follows: "7.e. Death. Upon the death of Founder, any compensation due to Founder for services rendered prior to the date of termination as a result of his death will be paid to Founder's estate within ten (10) days of termination, and thereafter, Margaret Karcher shall receive payment of Founder's salary for one full year following Founder's death and, thereafter, the Retirement Benefits for the balance of her life." 5. Additional Benefits. A new section, "Section 6.d. Prayer and Opening Remarks at Meetings of Shareholders." shall be added to the Agreement and shall read in full as follows: "6.d. Prayer and Opening Remarks at Meetings of Shareholders. Founder shall be entitled, at each meeting of shareholders of CKE, to say an opening prayer and to present a brief, positive opening statement. This Section 6.d. shall survive termination of this Agreement and shall continue to be in full force and effect for the duration of Founder's life." 6. Definitions. Terms used but not defined in this Amendment shall have the respective meanings assigned to them in the Agreement. 7. Counterparts. This amendment may be executed in multiple counterparts, each of which shall be deemed an original, and all of which shall constitute one Amendment. 8. Terms and Conditions of Agreement. Except as specifically amended by this Amendment, all terms and conditions of the Agreement shall remain in full force and effect. -2- 3 IN WITNESS WHEREOF, this Amendment is executed by the undersigned as of the date first written above. /s/ CARL N. KARCHER ---------------------------------------- Carl N. Karcher CARL KARCHER ENTERPRISES, INC. By: /s/ WILLIAM P. FOLEY ------------------------------------ William P. Foley, Chief Executive Officer -3- EX-10.12 6 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT, 9/30/1997 1 EXHIBIT 10.12 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT, effective as of September 30, 1997, is entered into by and between CKE RESTAURANTS, INC., a Delaware corporation (the "Company") and ROBERT E. WHEATON ("the Employee") and amends the current Employment Agreement between the Company and Employee, which current Employment Agreement was dated January 24, 1996. WHEREAS, the Company and Employee are parties to an Employment Agreement ("Agreement"), and WHEREAS, the Company and Employee wish to amend such Agreement as set forth below, NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the parties agree as follows: 1. Section 2 of the Agreement, entitled "Duties" is amended to add subsection (iv) which reads as follows: "(iv) serving as President, Chief Executive Officer and Director of Star Buffet, Inc.," 2. Section 4 of the Agreement, entitled "Compensation" is amended to delete the current subsection 4.a and replace it with the following: "4.a BASE COMPENSATION. The Company will pay Employee an annual base salary of $63,000 per annum, it being understood that Star Buffet, Inc. will pay Employee an annual base salary of $187,000." 2 Page 2-2-2-2 Employment Agreement Except as herein amended, all provisions of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this First Amendment to Employment Agreement as of the date set forth herein above. CKE RESTAURANTS, INC. /s/ ANDREW F. PUZDER ------------------------------------ By: Andrew F. Puzder ------------------------------- Its: Executive Vice President ------------------------------- ROBERT E. WHEATON /s/ ROBERT. E. WHEATON ------------------------------------ EX-10.35 7 EXCHANGE AGREEMENT, 12/8/1997 1 EXHIBIT 10.35 EXCHANGE AGREEMENT This EXCHANGE AGREEMENT (the "Agreement"), dated as of December 8, 1997, is made by and between RALLY'S HAMBURGERS, INC., a Delaware corporation (the "Company" or "Rally's"), on the one hand, and CKE RESTAURANTS, INC., a Delaware corporation ("CKE"), FIDELITY NATIONAL FINANCIAL, INC., a Delaware corporation ("FNF"), GIANT GROUP, LTD., a Delaware corporation ("GIANT") and the other parties set forth on Exhibit A attached hereto (referred to collectively herein as the "Sellers," and individually as a "Seller"), on the other hand, with reference to the following facts: A. Sellers are the owners of record, as of September 19, 1997, of an aggregate of 19,100,960 shares of Common Stock, par value $0.001 per share (the "Checkers Common Stock"), of Checkers Drive-In Restaurants, Inc., a Delaware corporation ("Checkers"). B. Each Seller desires to sell, and the Company desires to buy, the shares of Checkers Common Stock owned by such Seller as set forth on Exhibit A hereto on the terms and conditions set forth herein. C. As consideration for the shares of Checkers Common Stock acquired by the Company pursuant hereto, the Company will issue an aggregate of up to 3,909,336 shares of the Company's common stock, par value $0.10 per share (the "Rally's Common Stock"), and will authorize and issue an aggregate of up to 45,667 shares of the Company's Series A Preferred Stock, $0.10 par value per share (the "Series A Stock"), on the terms set forth in the form of Certificate of Designation attached hereto as Exhibit B (the "Certificate of Designation"). D. The number of shares of Rally's Common Stock and Series A Stock issued in exchange for the Checkers Common Stock bought and sold pursuant to this Agreement will be based on the ratio of 0.44375 shares of Rally's Common Stock for each share of Checkers Common Stock. NOW, THEREFORE, the parties agree as follows: ARTICLE 1 PURCHASE AND SALE 1.1. Purchase and Sale. Subject to the provisions of this Agreement, on the Closing Date (as defined herein), the Sellers will sell and transfer to the Company, and the Company will purchase from the Sellers, the number of shares of Checkers Common Stock set forth opposite the respective Seller's name on Exhibit A hereto (collectively, the "Checkers Shares"). 1.2. Consideration; Exchange of Stock. In exchange for the Checkers Shares transferred by each of the Sellers, the Company will issue and cause to be delivered to each Seller 2 the number of shares of Rally's Common Stock and Series A Stock set forth opposite the respective Seller's name on Exhibit A hereto (collectively, the "Rally's Shares"). 1.3. Closing; Closing Date. The purchase and sale of the Checkers Shares pursuant to Section 1.1 (the "Closing") shall take place at the offices of Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP, 2121 Avenue of the Stars, 18th Floor, Los Angeles, California 90067, or at such other place as may be agreed upon by the Company and Sellers, at 10:00 a.m. local time on the third business day after the later of termination or expiration of all waiting periods required for consummation of this Agreement under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR"), or receipt of the fairness opinion referred to in Section 5.1 hereof, or at such other time as may be mutually agreed upon by the Company and the Sellers (the "Closing Date"). 1.4. Transactions at Closing. At the Closing, (a) The Company shall deliver to each Seller or such Seller's representative: (i) A duly executed Compliance Certificate, substantially in the form of Exhibit C hereto; (ii) A duly executed Certificate of Designation, stamped to show that it has been filed with the Secretary of State of the State of Delaware; (iii) Certificates registered in the names of the Seller representing the number of Rally's Shares to be issued to such Seller pursuant to Section 1.2 hereof; (iv) A copy of the Notification of Listing of Additional Shares to be delivered to the NASDAQ National Market with respect to the Rally's Shares; and (v) Such other documents and instruments as the Sellers and their counsel may reasonably request relating to the consummation of this Agreement. (b) Each Seller shall deliver to the Company: (i) A duly executed Compliance Certificate, substantially in the form of Exhibit D hereto; (ii) Certificate(s) representing the Checkers Shares being delivered by such Seller pursuant to Section 1.1 hereof, duly endorsed for transfer or together with a stock power duly executed in blank, together with any opinions of counsel required by the transfer agent for the Checkers Common Stock in connection with the transfer of the Checkers Shares to the Company; and 2 3 (iii) Such other documents and instruments as the Company may reasonably request relating to the consummation of this Agreement. (c) The conditions set forth in Articles 5 and 6 hereof shall have been satisfied or waived as provided therein. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants that: 2.1. Organization, Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to own, lease and operate its property and assets and to conduct its business as presently and proposed to be conducted by it. The Company is in good standing under the laws of all jurisdictions in which the Company is required to qualify to do business, except where the failure to so qualify would not result in a Company Material Adverse Effect (as hereinafter defined). 2.2. Capitalization. (a) Authorized Capital Stock. Immediately prior to the Closing, the authorized capital stock of the Company will consist of: (i) Common Stock. 50,000,000 shares of Common Stock, par value $0.10 per share (the "Common Stock"), of which (A) 20,649,454 shares are issued and outstanding as of the date of this Agreement; and (B) 10,989,282 shares are initially reserved for issuance upon exercise of the warrants and options listed in Schedule 2.2(a)(i) hereto. The Company has reserved a sufficient number of shares of unissued Common Stock to enable it to issue the Common Stock being issued pursuant to this Agreement, both at Closing and upon conversion of the Series A Stock into Common Stock. (ii) Preferred Stock. 5,000,000 shares of Preferred Stock, $0.10 par value per share, of which 45,632 shares have been designated as Series A Stock pursuant to the Certificate of Designation and none of which will be issued and outstanding prior to the Closing Date. (b) Warrants, Options and Other Subscription Rights. Except as set forth in Schedule 2.2(a)(i) hereto and as contemplated herein, there are (i) no outstanding warrants, options, convertible securities or rights to subscribe for or purchase any capital stock or other securities from the Company, (ii) to the best knowledge of the Company, no voting trusts or voting agreements among, or irrevocable proxies executed by, stockholders of the Company, (iii) no existing rights of stockholders to require the Company to register any securities of the Company or to participate with the Company in any registration by the Company of its securities, 3 4 (iv) to the best knowledge of the Company, no agreements among stockholders providing for the purchase or sale of the Company's capital stock and (v) no obligations (contingent or otherwise) of the Company to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof. (c) Validity of Securities. Subject only to approval by the Company's stockholders of the matters set forth in Section 2 of the Certificate of Designation, the Rally's Shares, when issued, sold and delivered in accordance with the terms of this Agreement, and the Rally's Common Stock issuable upon conversion of the Series A Stock, when issued and delivered in accordance with the Certificate of Designation, will be duly authorized, validly issued, fully paid and non-assessable. When the Rally's Shares are sold in accordance with this Agreement, each Seller will have good title to the Rally's Shares sold to such Seller, free and clear of any liens, pledges, claims, options, restrictions or other encumbrances or rights of third parties ("Liens"), other than Liens resulting from the actions of Sellers and restrictions on transfer imposed by the Securities Act of 1933, as amended (the "Securities Act"), applicable state securities laws or this Agreement. The Series A Stock, when issued, sold and delivered in accordance with the terms of this Agreement, will have the rights, preferences and privileges specified in the Certificate of Designation. Holders of shares of the Company's capital stock have no preemptive rights. 2.3. Investment Representations. (a) The Company is acquiring the Checkers Shares for its own account, for investment purposes and not with a view to, or for sale in connection with, any distribution of the Checkers Shares in violation of the Securities Act or any applicable state securities law. (b) The Company acknowledges that the certificates representing Checkers Shares to be issued to the Company will bear Checker's standard restrictive legend for unregistered sales of securities. 2.4. Authorization; Enforceability. The Company has all requisite corporate power and authority to enter into and perform its obligations under this Agreement and to carry out the transactions contemplated by this Agreement. All corporate action on the part of the Company necessary for the authorization, execution, delivery and performance of all of its obligations under this Agreement, including the approval and authorization of this Agreement by a committee of Rally's Board of Directors comprised of persons unaffiliated with any of the Sellers (the "Independent Committee"), has been taken; provided, that the approval of the Independent Committee is subject to receipt of a written opinion of L.H. Friend, Weinress, Frankson & Presson, Inc. ("L.H. Friend") provided for in Section 5.1 hereof. This Agreement had been duly executed and delivered by the Company and constitutes the valid and legally binding obligation of the Company, except as the enforcement hereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally. 4 5 2.5. Filing of SEC Reports. The Company has filed with the Securities and Exchange Commission (the "Commission") all reports and registration statements (the "Company SEC Reports") required under the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder, except to the extent that the failure to file any Company SEC Report will not have a Company Material Adverse Effect (as hereinafter defined). As of their respective dates, the Company SEC Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein not misleading. 2.6. No Material Adverse Effects. Except as disclosed in a Company SEC Report or other publicly released announcement, no events have occurred since the end of the Company's last fiscal year that, singly or in the aggregate, would reasonably be expected to result in a material adverse change in the condition (financial or otherwise), net assets, business or prospects of the Company and its subsidiaries taken as a whole (a "Company Material Adverse Effect"). 2.7. Consents and Approvals. Except as set forth on Schedule 2.7 hereto, the execution and delivery by the Company of this Agreement and any related documents and instruments, the offer, issuance and delivery of the Rally's Shares, and the performance by the Company of its obligations under this Agreement and any related documents and instruments do not require the consent of any person or entity under any material agreement to which the Company is a party or otherwise binding on the Company. 2.8. No Conflict with Documents and Instruments. The execution and delivery by the Company of this Agreement and any related documents and instruments do not, and the performance by the Company of its obligations hereunder and thereunder will not, contravene or constitute a default under (a) the charter or by-laws of the Company, (b) any applicable law or regulation or (c) any agreement, judgment, injunction, order, decree or other instrument to which the Company is a party or by which the Company and its assets are otherwise bound, which in the case of (b) or (c) would constitute a Company Material Adverse Effect. 2.9. Full Disclosure. Neither this Agreement, nor any certificates delivered in connection herewith by the Company contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading, in view of the circumstances in which they were made. 2.10. Brokers and Finders. No person or entity has or will have any valid claim against the Seller as a result of the transactions contemplated herein for any commission, fee or other compensation as a broker or finder or in any similar capacity arising out of any act of the Company. 5 6 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLERS. Each Seller represents and warrants as to such Seller that: 3.1. Organization, Standing and Qualification. (a) If a corporation or other entity, such Seller is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and is in good standing under the laws of all jurisdictions in which such Seller is required to qualify to do business, except where the failure to so qualify would not result in a Seller Material Adverse Effect (as hereinafter defined). (b) To Seller's knowledge, Checkers is duly organized, validly existing and in good standing under the laws of the State of Delaware and is in good standing under the laws of all jurisdictions in which Checkers is required to qualify to do business, except where the failure to so qualify would not result in a Checkers Material Adverse Effect (as hereinafter defined). 3.2. Validity of Checkers Shares. The Checkers Shares held by Seller are duly authorized and validly issued in accordance with applicable law, fully paid and nonassessable and, when sold in accordance with this Agreement, the Company will have good title to the Checkers Shares, free and clear of any Liens, other than Liens resulting from the actions of the Company and restrictions on transfer imposed by the Securities Act, applicable state securities laws or this Agreement. 3.3. Investment Representations. (a) Seller is acquiring the Rally's Shares for Seller's own account, for investment purposes and not with a view to, or for sale in connection with, any distribution of the Rally's Shares in violation of the Securities Act or any applicable state securities law. (b) Seller acknowledges that the Rally's Shares, including the shares of Rally's Common Stock issuable upon conversion of the Series A Stock, will bear the Company's standard restrictive legend for unregistered sales of securities. 3.4. Authorization; Enforceability. If a corporation or other entity, such Seller has all requisite power and authority to enter into and perform its obligations under this Agreement and to carry out the transactions contemplated by this Agreement. If an individual, such Seller has full legal capacity to enter into this Agreement and to perform his or her obligations under this Agreement. All action on the part of Seller necessary for the authorization, execution, delivery and performance of all of its, his or her obligations under this Agreement has been taken. This Agreement has been duly executed and delivered by Seller and constitutes the valid and legally 6 7 binding obligation of Seller, except as the enforcement hereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally. 3.5. Filing of SEC Reports. To Seller's knowledge, Checkers has filed with the Commision all reports and registration statements (the "Checkers SEC Reports") required under the Securities Act and the Exchange Act and the rules and regulations promulgated thereunder, except to the extent that the failure to file any Checkers SEC Report will not have a Checkers Material Adverse Effect (as hereinafter defined). To Seller's knowledge, as of their respective dates, the Checkers SEC Reports did not contain any untrue statement of a material fact or omit to state a fact required to be stated therein or necessary to make the statements made therein not misleading. 3.6. No Material Adverse Effects. To Seller's knowledge, except as disclosed in a Company SEC Report or other publicly released announcement, no events have occurred since the end of Checkers' last fiscal year that, singly or in the aggregate, would reasonably be expected to result in a material adverse change in the condition (financial or otherwise), net assets, business or prospects of Checkers and its subsidiaries taken as a whole (a "Checkers Material Adverse Effect") or a material adverse effect on the ability of the Sellers to perform their obligations under this Agreement (a "Seller Material Adverse Effect"). 3.7. Consents and Approvals. Except as set forth on Schedule 3.7 hereto, the execution and delivery by the Seller of this Agreement and any related documents and instruments, the sale and delivery of the Checkers Shares, and the performance by the Seller of Seller's obligations under this Agreement and any related documents and instruments do not require the consent of any person or entity under any material agreement to which such Seller is a party or which is otherwise binding on such Seller. 3.8. No Conflict with Documents and Instruments. The execution and delivery by the Seller of this Agreement and any related documents and instruments do not, and the performance by the Seller of Seller's obligations hereunder and thereunder will not, contravene or constitute a default under (a) the charter or by-laws of the Seller, if any, or, to the knowledge of Seller, of Checkers, (b) any applicable law or regulation or (c) any agreement, judgment, injunction, order, decree or other instrument to which the Seller or, to the knowledge of Seller, Checkers is a party or by which the Seller and its assets or, to the knowledge of Seller, Checkers and its assets are otherwise bound, which in the case of (b) or (c) would constitute a Checkers Material Adverse Effect or a Seller Material Adverse Effect. 3.9. Full Disclosure. Neither this Agreement, nor any certificates delivered in connection herewith by the Seller contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading, in view of the circumstances in which they were made, as to such Seller. 7 8 3.10. Brokers and Finders. No person or entity has or will have any valid claim against the Company as a result of the transactions contemplated herein for any commission, fee or other compensation as a broker or finder or in any similar capacity arising out of any act of the Seller. ARTICLE 4 PRE-CLOSING COVENANTS. 4.1. Mutual Covenants. Each of the parties hereby covenants and agrees that such party will (a) proceed forthwith, but no later than five business days from the date hereof, to file, to the extent not already filed, all notices and documents required under HSR to consummate this Agreement, and (b) take all action reasonably within its power and authority to duly and timely carry out all of its, his or her obligations hereunder, to perform and comply with all of its, his or her covenants, agreements, representations and warranties hereunder and to cause all conditions to the obligations of the other parties to complete the transactions provided for herein to be satisfied as promptly as possible. 4.2. Covenants of Sellers. (a) Each Seller hereby undertakes and agrees that, between the effective date of this Agreement and the Closing Date, each will use its, his or her commercially reasonable best efforts to cause Checkers to: (i) do nothing to materially and adversely affect the prospects or continued viability of Checker's business; (ii) pay no extraordinary compensation to any of Checker's officers, directors or stockholders and not incur any additional debt other than in the ordinary course of business; (iii) except in order to satisfy outstanding options and/or warrants and/or other commitments, not issue or sell any of its securities or any securities of any of its subsidiaries, or any rights to acquire such securities; (iv) not pay any dividends, redeem any securities or otherwise cause any asset to be distributed to its stockholders in their capacities as such; (v) promptly inform the Company of any offer or proposal, directly or indirectly, with respect to the sale or transfer of all or any material part of Checker's stock or assets, and shall furnish such information with respect thereto as the Company may request; provided that nothing herein shall preclude Checkers or its Board of Directors from acting in good faith to comply with the Board's fiduciary obligations under applicable law; 8 9 (vi) use its best efforts to preserve intact Checker's business organization, its goodwill and its customers, suppliers, and others having business relations with it; and (vii) file, to the extent not already filed, all notices and documents required under HSR to consummate this Agreement. (b) Each Seller hereby undertakes and agrees to vote its shares of Rally's Common Stock in favor of the conversion provision contained in Section 9 of the Certificate of Designation. 4.3. Covenants of the Company. The Company undertakes and agrees that, between the effective date of this Agreement and the Closing Date, it will: (a) do nothing to materially and adversely affect the prospects or continued viability of the Company's business; (b) pay no extraordinary compensation to any of its officers, directors or stockholders and shall not incur any additional debt other than in the ordinary course of business; (c) except in order to satisfy outstanding options and/or warrants and/or other commitments, not issue or sell any of its securities or any securities of any of its subsidiaries, or any rights to acquire such securities; (d) not pay any dividends, redeem any securities or otherwise cause any asset to be distributed to its stockholders in their capacities as such; (e) promptly inform Sellers of any offer or proposal, directly or indirectly, with respect to the sale or transfer of all or any material part of the Company's stock or assets, and shall furnish such information with respect thereto as any Seller may request; provided that nothing herein shall preclude the Company or its Board of Directors from acting in good faith to comply with the Board's fiduciary obligations under applicable law; and (f) use its best efforts to preserve intact the Company's business organization, its goodwill and its customers, suppliers, and others having business relations with it. ARTICLE 5 CONDITIONS TO CLOSING OF SELLERS. The obligation of Sellers on the Closing Date to purchase the Rally's Shares under this Agreement shall be subject to each of the following conditions precedent, any one or more of which may be waived by each Seller as to itself, himself or herself: 5.1 Fairness Opinion. The Independent Committee shall have received from L.H. Friend a written opinion, satisfactory in form and substance to the Independent Committee, to the 9 10 effect that the transactions provided for herein and the terms and conditions of this Agreement are fair the Company and to the stockholders of the Company (other than the Sellers), from a financial point of view (the "Fairness Opinion"). 5.2 Representations and Warranties. The representations and warranties made by the Company herein shall be true and accurate on and as of the Closing Date as if made on such Closing Date. 5.3 Performance. The Company shall have performed and complied with all agreements and conditions contained herein or in other ancillary documents incident to the transactions contemplated by this Agreement required to be performed or complied with by it prior to or at the Closing. 5.4 Consents. (a) The Company and Sellers shall have secured all permits, consents and authorizations that shall be necessary to consummate this Agreement. (b) Any applicable waiting period under HSR, and the rules and regulations promulgated thereunder, shall have expired or been terminated. (c) The Certificate of Designation shall have been duly filed with the Secretary of State of the State of Delaware. 5.5 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to Sellers and their respective counsel, and Sellers and their counsel shall have received all such counterpart originals or certified or other copies of such documents as any Seller or its counsel may reasonably request. ARTICLE 6 CONDITIONS TO CLOSING OF COMPANY. The obligation of the Company on the Closing Date to issue and sell the Rally's Shares to be purchased under this Agreement shall be subject each of the following conditions precedent, any one or more of which may be waived by the Company: 6.1. Fairness Opinion. The Independent Committee shall have received the Fairness Opinion. 6.2 Representations and Warranties. The representations and warranties made by each Seller herein shall be true and accurate as to such Seller on and as of the Closing Date as if made on such Closing Date. 10 11 6.3 Performance. Each Seller shall have performed and complied with all agreements and conditions contained herein or in other ancillary documents incident to the transactions contemplated by this Agreement required to be performed or complied with by such Seller prior to or at the Closing. 6.4 Consents. (a) The Company and Sellers shall have secured all permits, consents and authorizations that shall be necessary to consummate this Agreement. (b) Any applicable waiting period under HSR, and the rules and regulations promulgated thereunder, shall have expired or been terminated. (c) The Certificate of Designation shall have been duly filed with the Secretary of State of the State of Delaware. 6.5 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to the Company and its counsel, and the Company and its counsel shall have received all such counterpart originals or certified or other copies of such documents as the Company or its counsel may reasonably request. 6.6 Minimum Sale. The aggregate amount of Checkers Shares delivered at the Closing pursuant to Sections 1.1 and 1.4(b)(ii) of this Agreement shall be no less than 15,500,000 shares. ARTICLE 7 POST CLOSING COVENANTS. 7.1. Proxy Statement. At the next annual or special meeting of the Company's stockholders or other action of its stockholders, the Company shall include a proposal in its proxy statement or consent solicitation statement, as the case may be, to approve conversion of the Series A Stock to Common Stock in accordance with the terms of the Certificate of Designation and a recommendation for the approval thereof. The date of the stockholder approval of such proposal is referred to as the "Approval Date." Notwithstanding the foregoing, the Company shall not submit such proposal to its stockholders until the expiration of 90 days after the Closing Date. 7.2. Reservation of Rally's Common Stock. From and after the effective date of this Agreement, the Company shall continuously maintain in reserve a number of shares of Common Stock equal to the Common Stock issuable upon the Closing of the Agreement and upon conversion of the Series A Stock. 11 12 ARTICLE 8 REGISTRATION OF RALLY'S SHARES The following provisions govern the registration of the Rally's Common Stock to be issued at the Closing and Common Stock issuable upon conversion of the Series A Stock to be issued at the Closing: 8.1. Definitions. As used in this Article, the following terms have the following meanings: Form S-3: The form so designated, promulgated by the Commission for registration of securities under the Securities Act, and any forms succeeding to the functions of such form, whether or not bearing the same designation. Holder: A holder of Registrable Securities, provided that anyone who acquires any Registrable Securities in a distribution pursuant to a registration statement filed by the Company under the Securities Act or in a transaction under Rule 144 under the Securities Act shall not thereby be deemed to be a "Holder." Register, registered and registration: A registration effected by filing a registration statement in compliance with the Securities Act and the declaration or ordering by the Commission of effectiveness of such registration statement. Registrable Securities: All shares of Rally's Common Stock sold hereunder or issuable upon conversion of, or payment of any dividends in shares of Common Stock on, the Series A Stock and held by the Sellers upon consummation of the transactions contemplated herein. 8.2. Shelf Registration. (a) Filing; Effectiveness. (i) As soon as practicable, but in no event more than 45 days after the date of this Agreement, the Company shall prepare and file with the Commission a "shelf" registration statement (the "Shelf Registration Statement") on the appropriate form for an offering by Sellers to be made on a continuous or extended basis pursuant to Rule 415 under the Securities Act, or such successor rule or similar provision then in effect ("Rule 415"), covering all of the Registrable Securities issuable at the Closing Date. (ii) As soon as practicable, but in no event more than 45 days after the Approval Date or the date of a Dividend paid in Common Stock, the Company shall prepare and file with the Commission a shelf registration statement (a "Subsequent Shelf Registration Statement" and, together with the Shelf Registration Statement, the "Registration 12 13 Statements") on the appropriate form for an offering by the Sellers to be made on a continuous or extended basis pursuant to Rule 415 covering all of the Registrable Securities issued upon conversion of the Series A Stock or payment of such Dividend, as the case may be. (iii) The Company shall use its commercially reasonable best efforts to have the Registration Statements declared effective within 90 days after their respective filings are made and to keep such Registration Statements continuously effective for the period beginning on such date and ending on the earlier of (A) the date on which the Holders no longer hold any Registrable Securities and (ii) the date that is two years after the effective date of the respective Registration Statement. (b) Effective Registration. A registration will not be deemed to have been effective unless the Registration Statement with respect thereto has been declared effective by the Commission and the Company has complied in all material respects with its obligations under this Agreement with respect thereto; provided, however, that if after it has been declared effective, the offering of Registrable Securities pursuant to a Registration Statement is interfered with by any stop order, injunction or other order or requirement of the Commission or any other governmental agency or court, such Registration Statement will be deemed not to have become effective during the period of such interference until the offering of Registrable Securities pursuant to such Registration Statement may legally resume. If a registration made pursuant to this Section 8.2 is deemed not to have been effected, then the Company shall continue to be obligated to effect a registration pursuant to this Section 8.2. (c) Form Used for Registration. In the event that Form S-3 is not available for use by the Company for a Registration Statement pursuant to this Section 8.2, the Company shall prepare and file a registration statement on such form as shall be available for use by the Company at the time the Company is obliged to prepare and file a registration statement hereunder. In the event that Form S-3 thereafter becomes available for use by the Company, the Company may prepare and file such Form S-3 in order to comply with its obligations hereunder. 8.3. Demand Registration. (a) Request for Registration. Subject to Section 8.7 hereof, from time to time after the Shelf Registration Statement or the Subsequent Shelf Registration Statement, as the case may be, ceases to be effective, one or more of the Holders may make written demand that the Company file a registration statement (a "Demand Registration Statement") under the Securities Act with the Commission to register shares of Registrable Securities formerly covered by the Shelf Registration Statement or the Subsequent Shelf Registration Statement, with an aggregate market value of at least $1,000,000, which demand shall specify the number of Registrable Securities intended to be disposed of by each such Holder and the intended method of distribution thereof. Within 10 days after receipt of such request, the Company shall give written notice of such registration request to all other Holders. Any Holder electing to participate in such Demand Registration Statement shall deliver a written request, which request shall specify the number of Registrable Securities intended to be disposed of by such Holder and the intended 13 14 method of distribution thereof, within 15 days after the receipt by the applicable Holders of the notice from the Company of a request for Demand Registration Statement. Thereupon, the Company shall prepare and file such Demand Registration Statement and shall include therein all Registrable Securities with respect to which the Company has received written demand or request for registration. The Company shall use commercially reasonable efforts to have the Demand Registration Statement declared effective on or before the date which is 120 days after receipt by the Company of the applicable request for filing of a Demand Registration Statement (a "Demand Registration Filing Date"). (b) Effective Registration. The Company's obligations with respect to a Demand Registration Statement will not be deemed to have been satisfied unless the applicable Demand Registration Statement has been declared effective by the Commission and the Company has complied in all material respects with its obligations under this Agreement with respect thereto; provided, however, that if after it has been declared effective, the offering of Registrable Securities pursuant to a Demand Registration Statement is interfered with by any stop order, injunction or other order or requirement of the Commission or any other governmental agency or court, such Demand Registration Statement will be deemed not to have become effective during the period of such interference until the offering of Registrable Securities pursuant to such Demand Registration Statement may legally resume. If a registration requested pursuant to this Section 8.3 is deemed not to have been effected, then the Company shall continue to be obligated to effect a registration pursuant to this Section 8.3. (c) Selection of Underwriter. If the Holders elect to conduct an offering pursuant to a Demand Registration Statement in the form of an underwritten offering, a majority in interest of the requesting the Holders participating in such Demand Registration Statement shall have the right to designate and to select one or more nationally recognized firms of investment bankers reasonably acceptable to the Company to act as the book-running managing underwriter or underwriters in connection with such offering and shall select any additional investment bankers and managers reasonably acceptable to the Company to be used in connection with the offering. 8.4. Piggy-Back Registration. (a) Request for Registration. At any time from and after the termination of effectiveness of the Registration Statements, each time the Company proposes to file a registration statement under the Securities Act with respect to an offering by the Company for its own account or for the account of its security holders of any class of equity security (other than a registration statement (A) on Form S-4 or S-8 (or any substitute form that is adopted by the Commission), (B) filed in connection with an exchange offer or offering of securities solely to the Company's existing security holders) or (C) filed in connection with an acquisition, merger or similar transaction, the Company shall give written notice of such proposed filing to the Holders of Registrable Securities as soon as practicable (but in no event less than ten business days before the anticipated filing date), and such notice shall offer such Holders the opportunity to register such number of shares of Registrable Securities as each such Holder may request (which request shall specify the Registrable Securities intended to be disposed of by such Holder and the intended 14 15 method of distribution thereof) (a "Piggy-Back Registration"). The Company shall use commercially reasonable best efforts to cause the managing underwriter or underwriters of a proposed underwritten offering to permit the Registrable Securities requested to be included in a Piggy-Back Registration to be included on the same terms and conditions as any other similar securities of the Company or any other security holder included therein and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method of distribution thereof. Any Holder shall have the right to withdraw its request for inclusion of its Registrable Securities in any registration statement pursuant to this Section 8.4(a) by giving written notice to the Company of such withdrawal. The Company, in its sole discretion, may withdraw a Piggy-Back Registration at any time prior to the time it becomes effective, provided that the Company shall give immediate notice of such withdrawal to the Holders of Registrable Securities requested to be included in such Piggy-Back Registration. (b) Reduction of Offering. In connection with an underwritten offering where Piggy-Back Registration has been requested as provided in Section 9.4(a), the Company shall use commercially reasonable efforts to cause all Registrable Securities requested to be included in such Piggy-Back Registration to be included as provided in Section 9.4(a). If the managing underwriter or underwriters of any such underwritten offering have given written notice to the Holders of Registrable Securities requesting inclusion in such offering that it is their opinion that the total number of shares which the Company, Holders of Registrable Securities and any other persons participating in such registration intend to include in such offering is such as to materially and adversely affect the success of such offering, then (i) the number of shares to be offered for the account of all other persons (other than the Company and the Holders) participating in such registration other than pursuant to demand registration rights shall be reduced or limited (to zero if necessary) pro rata in proportion to the respective number of shares requested to be registered by such persons to the extent necessary to reduce the total number of shares requested to be included in such offering to the number of shares, if any, recommended by the managing underwriter or underwriters and (ii) if such managing underwriter or underwriters recommend a further reduction in the number of shares in the offering, then the number of shares to be offered for the account of the Holders shall be reduced or limited (to zero if necessary) pro rata in proportion to the respective number of shares requested to be registered by such Holders to the extent necessary to reduce the total number of shares requested to be include in such offering to the number of shares, if any, recommended by such managing underwriter or underwriters. (c) In the case of any registration initiated by the Company, the Company shall have the right to designate the managing underwriter in any underwritten offering. 8.5. Registration Procedures. In connection with the obligations of the Company to effect or cause the registration of any Registrable Securities pursuant to the terms and conditions of this Agreement, the Company shall use its commercially reasonable best efforts to effect the registration and sale of such Registrable Securities in accordance with the intended method of distribution, and in connection therewith, the Company will: 15 16 (i) prepare and file with the Commission a registration statement with respect to such shares and use commercially reasonable efforts to cause such registration statement to become and remain effective as provided herein; (ii) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and current and to comply with the provisions of the Securities Act with respect to the disposition of all shares covered by such registration statement, including such amendments and supplements as may be necessary to reflect the intended method of disposition from time to time of the prospective seller or sellers of such shares; (iii) furnish to each prospective seller such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents, as such seller or the managing underwriter may reasonably request in order to facilitate the public sale or other disposition of the shares owned by such seller; (iv) use commercially reasonable best efforts to register or qualify the shares covered by such registration statement under such other securities or blue sky or other applicable laws of such jurisdiction within the United States as each prospective seller shall reasonably request, to enable such seller to consummate the public sale or other disposition in such jurisdictions of the shares owned by such seller; provided, however, that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not at the time so qualified or to take any action which would subject it to service of process in suits other than those arising out of the offer or sale of the Registrable Securities covered by such registration statement in any jurisdiction where it is not at the time so subject; (v) furnish to each prospective seller a signed counterpart, addressed to the prospective sellers, of an opinion of counsel for the Company, dated the effective date of the registration statement, covering substantially the same matters with respect to the registration statement (and the prospectus included therein) as are customarily covered (at the time of such registration) in opinions of issuer's counsel delivered to the underwriters in underwritten public offerings of securities; (vi) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering; each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement; (vii) notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act or the happening of any event as a result of which the prospectus included 16 17 in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (viii) apply for listing and use its commercially reasonable best efforts to list the Registrable Securities being registered on any national securities exchange on which a class of the Company's equity securities are listed or, if the Company does not have a class of equity securities listed on a national securities exchange, apply for qualification and use its commercially reasonable best efforts to qualify the Registrable Securities being registered for inclusion on the automated quotation system of the National Association of Securities Dealers, Inc. or on a national securities exchange; and (ix) Provide a transfer agent and registrar for all Registrable Securities registered hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. 8.6. Information by Holder (a) Each Holder of Registrable Securities and each underwriter designated by a majority in interest of the requesting Holders, will furnish to the Company such information as the Company may reasonably require from such seller or underwriter in connection with the registration statement (and the prospectus included therein). (b) Failure of a prospective seller of Registrable Securities to furnish the information and agreements described in this Section 8.6 shall not affect the obligations of the Company under this Article 8 to Holders who furnish such information and agreements, unless such failure impairs or may impair the viability of the offering or the legality of the registration statement or the underlying offering. 8.7. Limitations on Required Registrations (a) The Company shall not be required to effect more than one registration in any twelve-month period, or more than an aggregate of three registrations, pursuant to Section 8.3 hereof for all Holders on a combined basis. (b) If at the time of any demand to register Registrable Securities pursuant to Section 8.3 hereof, the Company is engaged, or has fixed plans to engage within 90 days of the time of the request, in a registered public offering as to which the Holders may include such Stock pursuant to Section 8.4 hereof or is engaged in any other activity that, in the good faith determination of the Company's Board of Directors, would be adversely affected by the demanded registration to the material detriment of the Company, then the Company may at its option direct that such demand be delayed for a period not in excess of six months from the effective date of such offering, or the date or commencement of such other material activity, as the case may be, -17- 18 such right to delay a demand to be exercised by the Company not more than once in each 12 month period while the rights set forth in Section 8.3 are in effect. (c) Notwithstanding anything to the contrary in this Agreement, the obligation of the Company pursuant to Section 8.3 hereof shall expire on the seventh anniversary of the Closing. 8.8. Expenses of Registration. All expenses incurred in effecting any registration pursuant to Sections 8.2, 8.3 and 8.4 including, without limitation, all registration and filing fees, printing expenses, expenses of compliance with blue sky laws, fees and disbursements of counsel for the Company, and expenses of any audits incidental to or required by any such registration, shall be borne by the Company, except: (a) all expenses, fees and disbursements of any counsel retained by the Holders, and all underwriting discounts and commissions shall be borne by the Holders of the securities registered pursuant to such registration, pro rata according to the quantity of their securities so registered; (b) the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 8.3 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered pursuant thereto (in which case all participating Holders shall bear such expenses); and (c) a Holder who withdraws from an underwritten registration pursuant to Section 8.3 shall be required to pay the percentage of the expenses of such registration which is equal to the percentage that the number of shares such Holder requested to be registered bears to the total number of shares to be registered. 8.9. Indemnification (a) Indemnification by Company. To the extent permitted by law, the Company will indemnify each Holder requesting or joining in a registration, each agent, officer and director of such Holder, each person controlling such Holder and each underwriter and selling broker of the securities so registered (each, an "Indemnitee" and collectively, "Indemnitees") against all claims, losses, damages and liabilities, or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering, circular or other document incident to any registration, qualification or compliance (or in any related registration statement, notification or the like) or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act, the Exchange Act, or state securities laws or any rule or regulation promulgated under the Securities Act, the Exchange Act or a state securities law, in each case applicable to the Company, and will reimburse each Indemnitee for any legal and any other fees and expenses reasonably incurred in -18- 19 connection with investigating or defending any such claim, loss, damage, liability or action, provided however, that the Company will not be liable to any Indemnitee in any such case to the extent that any such claim, loss, damage or liability is caused by any untrue statement or omission based upon written information furnished to the Company by an instrument duly executed by such Indemnitee for use therein and except that the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any such untrue statement (or alleged untrue statement) or omission (or alleged omission) made in the preliminary prospectus but eliminated or remedied in the amended prospectus on file with the Commission at the time the registration statement becomes effective or in the amended prospectus filed with the Commission pursuant to Rule 424(b) (the "Final Prospectus"), such indemnity agreement shall not inure to the benefit of any underwriter or any Indemnitee if there is no underwriter, if a copy of the Final Prospectus was not furnished by such underwriter of Indemnitee to the person or entity asserting the loss, liability, claim or damage at or prior to the time such furnishing is required by the Securities Act and such underwriter or Indemnitee was required under the Securities Act to furnish such Final Prospectus; provided further, that this indemnity shall not be deemed to relieve any underwriter of any of its due diligence obligations; provided, further, that the indemnity agreement contained in this Section 8.9(a) shall not apply to amounts paid in settlement of any such claim, loss, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld. (b) Indemnification by Holders. To the extent permitted by law, each Holder (severally and not jointly) requesting or joining in a registration and each underwriter and selling broker of the securities so registered will indemnify the Company and its officers and directors and each person, if any, who controls any thereof within the meaning of Section 15 of the Securities Act, and their respective successors against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other documents incident to any registration, qualification or compliance (or in any related registration statement, notification or the like) or any omission (or alleged omission) to state therein a material fact required to be so stated therein or necessary to make the statements therein not misleading and will reimburse the Company and each other person indemnified pursuant to this paragraph (b) for any legal and any other fees and expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, provided, however, that this paragraph (b) shall apply only if (and only to the extent that) such statement or omission was made in reliance upon and in strict conformity with written information (including, without limitation, written negative responses to inquiries) furnished to the Company by an instrument duly executed by such Holder, underwriter or selling broker and stated to be specifically for use in such prospectus, offering circular or other document (or related registration statement, notification or the like) or any amendment or supplement thereto; provided, that the indemnity agreement contained in this Section 8.9(b) shall not apply to amounts paid in settlement or any such claim, loss, damage, liability or action if such settlement is effected without the consent of the Holder or underwriter, as the case may be, which consent shall not be unreasonably withheld and provided, further, that the obligation of any such Holder shall be limited to an amount equal to the net proceeds received by such Holder from the sale of the Registered Securities in such offering -19- 20 contemplated herein, unless such claim, loss, damage, liability or action resulted from such Holder's fraudulent misconduct. (c) Each party entitled to indemnification hereunder (the "Indemnified Party") shall give notice to the party required to provide the indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party (at its expense) to assume the defense of any claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, shall conduct the defense of such claim or litigation, shall be reasonably satisfactory to he Indemnified Party and the Indemnified Party may participate in such defense at such party's expense, and provided further that the omission by any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 8.9 except to the extent that the omission results in a failure of actual notice to the Indemnifying Party and such Indemnifying Party is damaged solely as a result of the failure to give notice. The Indemnified Party may retain separate counsel; provided that the fees and expenses of such separate counsel shall be paid by the Indemnifying Party only if the Indemnified Party reasonably concludes that there may be defenses available to it, him or her which are different from or additional to those available to the Indemnifying Party and the Indemnifying Party approves such conclusion, which approval shall not be unreasonably withheld. No Indemnifying Party, in the defense of any such claim or litigation, shall consent, except with the consent of each Indemnified Party, to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. (d) If the indemnification provided for in this Section 8.9 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expenses in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. This relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. -20- 21 (f) The reimbursement required by this Section 8.9 shall be made by periodic payments during the course of the investigation or defense, as and when bills are received or expenses incurred. (g) The obligations of the Company under this Section 8.9 shall survive the conversion, if any, of the Series A Stock, the completion of any offering of Registrable Securities in a registration statement under this Section 8, or otherwise. 8.10. Transfer of Registration Rights. The registration rights granted to Holders under this Article 8 may be transferred but only to (i) a transferee who shall acquire not less than the greater of 6,000 shares of Registrable Securities or 50% of the Registrable Securities held by any Holder and (ii) affiliates of any Holder. Any such transfer shall become effective only after receipt by the Company of (i) a written notice of the transfer, including the name, address and tax payer identification number of the transferee and the number of Registrable Securities transferred, and (ii) an agreement executed by the transferee to be bound by the terms of this Agreement. 8.11. "Stand Off" Agreement. In consideration for the Company performing its obligations under this Section 8, Holders agree that for a period of time (not to exceed 120 days) from the effective date of any registration of an underwritten public offering of securities of the Company (upon request of the Company or of the underwriters managing such underwritten offering), Holder shall not sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registrable Securities or any other stock of the Company held by Holder, other than shares of Registrable Securities included in the registration without the prior written consent of the Company or such underwriters, as the case may be. 8.12. Delay of Registration. A Holder shall have no right to take any action to restrain, enjoin, or otherwise delay any registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Article. 8.13. Reports Under the Securities Act and the Exchange Act. With a view to making available to the Holders the benefits of any rule or regulation of the Commission that may at any time permit a Holder to sell securities of the Company to the public pursuant to a registration on Form S-3, the Company agrees to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act. 8.14. Affiliate Status of Holder. At any time after the second anniversary of the issuance of any Registrable Securities, if a Holder is not, and has not been for at least the prior three months, an affiliate of the Company for purposes of Rule 144 under the Securities Act and delivers to the Company an opinion to that effect from counsel reasonably acceptable to the Company, such Holder may request the Company to remove any related restrictive legend on such Holder's certificates representing shares of Rally's Common Stock, which request the Company agrees to honor promptly in the normal course of business. After such removal, the owner of any -21- 22 such shares no longer shall be a Holder and such shares no longer shall be Registrable Securities subject to this Article 8. ARTICLE 9 MISCELLANEOUS 9.1. Expenses. Each party to this Agreement shall bear its own expenses relating to the preparation, execution, delivery and performance of this Agreement and all transactions contemplated thereby. 9.2. Survival of Agreements. All agreements, presentations and warranties and covenants contained herein or made in writing by or on behalf of any party in connection with the transactions contemplated hereby shall survive the execution and delivery of this Agreement (despite any investigation at any time made by any other party or on its behalf). All statements contained in any certificate or other instrument executed and delivered by any party or its duly authorized officers or representatives pursuant hereto in connection with the transactions contemplated hereby shall be deemed representations by the that party hereunder. 9.3. Sellers' Obligations Several. Each Seller's obligations under this Agreement are several, and no Seller is jointly obligated hereunder to render the performance of any other Seller, nor excused from performance hereunder by reason of any other Seller's nonperformance. 9.4. Notices. All notices, requests, consents and other communications herein shall be in writing and shall be deemed to be delivered (i) on the date delivered, if personally delivered or transmitted via facsimile with return confirmation of such transmission; (ii) on the business day after the date sent, if sent by recognized overnight courier service and (iii) on the fifth day after the date sent, if mailed by first-class certified mail, postage prepaid and return receipt requested, as follows: If to the Company: Rally's Hamburgers, Inc. 10002 Shelbyville Road, Suite 150 Louisville, Kentucky 40223 Attention: James J. Gillespie Facsimile No: (502) 245-3619 Telephone No: (502) 245-8900 with copies to: Greenebaum Doll & McDonald, PLLC 3300 First National Tower Louisville, Kentucky 40202 Attention: Patrick Welsh, Esq. Facsimile No.: (502) 587-3695 Telephone No.: (502) 589-4200 -22- 23 Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP 2121 Avenue of the Stars, Eighteenth Floor Los Angeles, California 90067 Attention: Janet S. McCloud, Esq. Facsimile No: (310) 556-2920 Telephone No.: (310) 553-3000 If to Sellers: To the parties at such addresses as are listed on Exhibit A attached hereto or other such addresses as each of the parties hereto may provide from time to time in writing to the other parties. 9.5. Modifications; Waiver. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally or in writing, except that any provision of this Agreement may be amended and the observance of any such provision may be waived (either generally or in a particular instance and either retroactively or prospectively) with (but only with) the written consent of the Company and each of the Sellers. 9.6 Entire Agreement. This Agreement, together with the schedules and exhibits attached hereto and made a part hereof, contains the entire agreement between the parties with respect to the transactions contemplated hereby, and supersedes all negations, agreements, representations, warranties, commitments, whether in writing or oral, prior to the date hereof. 9.7 Successors and Assigns. Except as otherwise expressly provided in this Agreement, all of the terms of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and transferees of the parties hereto. 9.8 Enforcement. (a) Remedies at Law or in Equity. If any party hereto shall default in any of its obligations under this Agreement or if any representation or warranty made by or on behalf of it in this Agreement or in any certificate, report or other instrument delivered by it under or pursuant to any term hereof shall be untrue or misleading in any material respect as of the date of this Agreement or as of the Closing Date or as of the date it was made, furnished or delivered, any other party may proceed to protect and enforce its rights by suit in equity or action at law, whether for the specific performance of any term contained in this Agreement, injunction against the breach of any such term or in furtherance of the exercise of any power granted in this Agreement, or to enforce any other legal or equitable right of such party or to take any one of more of such actions. In the event any party brings such an action against another, the prevailing party in such dispute, as determined by a final non-appealable order, shall be entitled to recover from the losing party all fees, costs and expenses enforcing any right of such prevailing party under or with respect to -23- 24 this Agreement, including without limitation such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. (b) Remedies Cumulative; Waiver. No remedy referred to herein is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to above or otherwise available at law or in equity. No express or implied waiver by any party of any default shall be a waiver of any future or subsequent default. The failure or delay of any party in exercising any rights granted hereunder shall not constitute a waiver of any such right and any single or partial exercise of any particular right by any party shall not exhaust the same or constitute a waiver of any other right provided herein. 9.9 Execution and Counterparts; Facsimile Execution. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and all such counterparts together shall constitute one instrument. In addition, to the extent that receipt is confirmed, this Agreement may be executed and sent by telecopy with the original to follow by a nationally recognized overnight delivery service. 9.10 Governing Law; Jurisdiction; and Severability. This Agreement shall be governed by the internal laws of the State of Delaware, without regard to principles of conflicts of law. Each party hereto consents to the jurisdiction of any federal court located in the State of California, County of Los Angeles for the purpose of any action, suit or proceeding arising out of or based on this Agreement or any provision hereof. In the event any provision of this agreement of the application of any such provision to any party shall be held by a court of competent jurisdiction to be contrary to law, the remaining provisions of this agreement shall remain in full force and effect. 9.11 Headings. The descriptive headings of the Sections hereof and the Schedules and Exhibits hereto are inserted only and do not constitute a part of this Agreement. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.] -24- 25 IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized officers as of the date first written above. THE COMPANY: RALLY'S HAMBURGERS, INC. By: /s/ JAMES J. GILLESPIE ------------------------------------- Name: James J. Gillespie ------------------------------------- Title: Chief Executive Officer ------------------------------------- SELLERS: CKE RESTAURANTS, INC. By: /s/ C. THOMAS THOMPSON ------------------------------------- Name: C. Thomas Thompson ------------------------------------- Title: President and Chief Operating Officer ------------------------------------- FIDELITY NATIONAL FINANCIAL, INC. By: /s/ M'LISS JONES KANE ------------------------------------- Name: M'Liss Jones Kane ------------------------------------- Title: Senior Vice President, General Counsel and Secretary ------------------------------------- GIANT GROUP, LTD. By: /s/ BURT SUGARMAN ------------------------------------- Name: Burt Sugarman ------------------------------------- Title: CEO ------------------------------------- /s/ DAVID GOTTERER --------------------------------- DAVID GOTTERER /s/ BURT SUGARMAN --------------------------------- BURT SUGARMAN -25- 26 /s/ MARY HART SUGARMAN -------------------------------- MARY HART SUGARMAN AJ SUGARMAN By: /s/ A.J. SUGARMAN ------------------------------------- Name: A.J. Sugarman ------------------------------------- Title: Chief Executive Officer ------------------------------------- /s/ DAVID MALCOLM --------------------------------- DAVID MALCOLM /s/ TERRY CHRISTENSEN --------------------------------- TERRY CHRISTENSEN /s/ TERRY CHRISTENSEN --------------------------------- TERRY CHRISTENSEN, AS TRUSTEE FOR THE RETIRE- MENT PLAN FOR THE EMPLOY- EES OF TERRY CHRISTENSEN, A PROF. CORP. /s/ AL SUGARMAN --------------------------------- AL SUGARMAN THE TRAVELERS INDEMNITY COMPANY By: /s/ EMIL MOLINARO ------------------------------------- Name: Emil Molinaro ------------------------------------- Title: ------------------------------------- -26- 27 /s/ WILLIAM P. FOLEY II -------------------------------- WILLIAM P. FOLEY II /s/ FRANK WILLEY -------------------------------- FRANK WILLEY /s/ CARL STRUNK -------------------------------- CARL STRUNK /s/ ANDREW PUZDER --------------------------------- ANDREW PUZDER WEDBUSH MORGAN, AS CUSTODIAN FOR THE PATRICK F. STONE IRA, ACCOUNT # 78785255 By: /s/ R. MARKS ------------------------------------- Name: Richard Marks ------------------------------------- Title: Supervisor ------------------------------------- /s/ WILLIAM IMPARATO --------------------------------- WILLIAM IMPARATO /s/ DANIEL D. LANE ---------------------------------- DANIEL D. LANE /s/ DANNY LANE ---------------------------------- DANNY LANE -27- 28 /s/ CARY H. THOMPSON ---------------------------------- CARY H. THOMPSON /s/ STEPHEN C. MAHOOD ---------------------------------- STEPHEN C. MAHOOD /s/ CARL L. KARCHER ---------------------------------- CARL L. KARCHER /s/ CARL N. KARCHER ---------------------------------- CARL N. KARCHER /s/ W. HOWARD LESTER --------------------------------- W. HOWARD LESTER /s/ C. THOMAS THOMPSON --------------------------------- C. THOMAS THOMPSON BYRON E. AND SHARON K. ALLUMBAUGH, TRUSTEES OF THE BYRON AND SHARON ALLUMBAUGH REVOCABLE TRUST DTD 1/2/91 By: /s/ BYRON E. ALLUMBAUGH ------------------------------------- Name: B&S Allumbaugh Trust ------------------------------------- Title: Trustee ------------------------------------- -28- 29 MERRILL LYNCH, AS TRUSTEE FOR THE ERNIE SMITH IRA, ACCOUNT # 223-86756 By: /s/ MARY KAUANUI ------------------------------------- Name: Mary Kauanui ------------------------------------- Title: Administrative Manager ------------------------------------- /s/ RON MAUDSLEY ---------------------------------- RON MAUDSLEY MERRILL LYNCH, AS TRUSTEE FOR THE PAUL DEFALCO IRA, ACCOUNT #223-8301 By: /s/ MARY KAUANUI ------------------------------------- Name: Mary Kauanui ------------------------------------- Title: Administrative Manager ------------------------------------- -29- 30 CKE Restaurants 1200 N. Harbor Boulevard Anaheim, CA 92803 Fidelity National Financial, Inc. 17911 Von Karman Avenue Suite 300 Irvine, CA 92614 GIANT GROUP, LTD. 9000 Sunset Boulevard 16th Floor Los Angeles, CA 90069 David Gotterer 425 E. 58th Street New York, NY 10022 Burt Sugarman c/o GIANT GROUP, LTD. 9000 Sunset Boulevard 16th Floor Los Angeles, CA 90069 Mary Hart Sugarman c/o GIANT GROUP, LTD. 9000 Sunset Boulevard 16th Floor Los Angeles, CA 90069 A J Sugarman c/o GIANT GROUP, LTD. 9000 Sunset Boulevard 16th Floor Los Angeles, CA 90069 David Malcolm 509 Beacon Place Chula Vista, CA 91910 Terry N. Christensen A-1 31 2121 Avenue of the Stars, 1800 Los Angeles, CA 90067 Terry N. Christensen, as Trustee for the Retirement Plan for the Employees of Terry Christensen, a Prof. Corp. 2121 Avenue of the Stars, 1800 Los Angeles, CA 90067 Al Sugarman c/o GIANT GROUP, LTD. 9000 Sunset Boulevard 16th Floor Los Angeles, CA 90069 The Travelers Indemnity Company 388 Greenwich Street 36th Floor New York, NY 10013 William P. Foley II 3916 State Street Suite 300 Santa Barbara, CA 93105 Frank P. Willey 3916 State Street Suite 300 Santa Barbara, CA 93105 Carl A. Strunk 3916 State Street Suite 300 Santa Barbara, CA 93105 Andrew F. Puzder 3916 State Street Suite 300 Santa Barbara, CA 93105 Wedbush Morgan, as Custodian for the Patrick F. Stone IRA, Account # 78785255 A-2 32 3916 State Street Suite 300 Santa Barbara, CA 93105 William A. Imparato 1515 East Missouri Building A Phoenix, AZ 85015 Daniel D. Lane 14 Corporate Plaza Newport Beach, CA 92660 Danny Lane 14 Corporate Plaza Newport Beach, cA 92660 Cary H. Thompson c/o Aames Financial 350 So. Grand 52nd Floor Los Angeles, CA 90070 Stephen C. Mahood 500 Crescent Court Suite 270 Dallas, TX 75201 Carl L. Karcher 72-875 Fred Waring Drive Suite C Palm Desert, CA 92660 Carl Nicholas Karcher 1200 N. Harbor Blvd. Anaheim, CA 92803 C. Howard Lester 3250 Van Ness San Francisco, CA 94109 A-3 33 C. Thomas Thompson 1200 N. Harbor Blvd. Anaheim, CA 92803 Byron E. and Sharon K. Allumbaugh, Trustees of the Byron and Sharon Allumbaugh Revocable Trust DTD 1/2/91 33 Ridgeline Drive Newport Beach, CA 92660 Merrill Lynch, as Trustee for the Ernie Smith IRA, Account #223-86756 3916 State Street Suite 300 Santa Barbara, CA 93105 Ron Maudsley 3916 State Street Suite 300 Santa Barbara, CA 93105 Merrill Lynch, as Trustee for the Paul De Falco IRA, Account #223-83014 3916 State Street Suite 300 Santa Barbara, CA 93105 A-4 34 EXHIBIT A
Rally's Common -------------------------- Shares Common Preferred to be Shares Shares Converted Issued Issued ---------- --------- ------ CKE Restaurants, Inc. 12,754,885 2,798,080 28,619 Fidelity National Financial, Inc. 1,680,616 368,673 3,771 GIANT GROUP, LTD. 200,045 43,869 449 David Gotterer 113,438 24,838 255 Burt Sugarman 113,438 24,838 255 Mary Hart Sugarman 272,230 59,702 611 A J Sugarman 27,168 5,955 61 David Malcolm 272,230 59,702 611 Terry Christensen 55,353 12,162 124 Al Sugarman 45,353 9,925 102 Travelers 1,270,769 -- 5,639 William P. Foley II 453,754 99,553 1,018 Frank Willey 226,877 49,776 509 Carl Strunk 64,353 14,156 144 Andrew Puzder 45,353 9,925 102 Pat Stone 45,353 9,925 102 William Imparato 226,877 49,776 509 Daniel D. Lane 181,522 39,850 407 Danny Lane 45,353 9,925 102 Cary H. Thompson 45,353 9,925 102 Stephen C. Mahood 90,707 19,851 204 Carl L. Karcher 226,877 49,776 509 Carl N. Karcher 90,707 19,851 204 C. Howard Lester 272,230 59,702 611 C. Thomas Thompson 45,353 9,925 102 Byron Allumbaugh 90,707 19,851 204 Ernie Smith 45,353 9,925 102 Ron Maudsley 45,353 9,925 102 Paul De Falco 53,353 9,975 137 ---------- --------- ------ Total 19,100,960 3,909,336 45,667 ========== ========= ======
EX-10.37 8 AMENDED AND RESTATED CREDIT AGREEMENT 1 EXHIBIT 10.37 - -------------------------------------------------------------------------------- AMENDED AND RESTATED CREDIT AGREEMENT among CKE RESTAURANTS, INC., THE LENDERS NAMED HEREIN and BANQUE PARIBAS As Agent DATED AS OF APRIL 1, 1998 $500,000,000 - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page ---- SECTION 1. DEFINITIONS................................................................... 1 Section 1.1 Definitions. ................................................ 1 SECTION 2. AMOUNT AND TERMS OF CREDIT FACILITIES.........................................24 Section 2.1 Term Loans. .................................................24 Section 2.2 Revolving Loans...............................................25 Section 2.3 Notice of Borrowing. ........................................26 Section 2.4 Disbursement of Funds. ......................................26 Section 2.5 Notes.........................................................27 Section 2.6 Interest. ...................................................27 Section 2.7 Interest Periods. ...........................................29 Section 2.8 Minimum Amount of Eurodollar Loans. .........................30 Section 2.9 Conversion or Continuation. .................................30 Section 2.10 Voluntary Reduction of Commitments. ........................30 Section 2.11 Voluntary Prepayments. .....................................31 Section 2.12 Mandatory Prepayments. .....................................31 Section 2.13 Application of Prepayments. ................................33 Section 2.14 Method and Place of Payment. ...............................33 Section 2.15 Fees. ......................................................34 Section 2.16 Interest Rate Unascertainable, Increased Costs, Illegality...34 Section 2.17 Funding Losses. ............................................36 Section 2.18 Increased Capital. .........................................36 Section 2.19 Taxes. .....................................................37 Section 2.20 Use of Proceeds. ...........................................38 Section 2.21 Collateral Security..........................................38 Section 2.22 Replacement of Certain Lenders...............................40 SECTION 3. LETTERS OF CREDIT.............................................................41 Section 3.1 Issuance of Letters of Credit, etc............................41 Section 3.2 Letter of Credit Fees.........................................42 Section 3.3 Obligation of Borrower Absolute, etc..........................43 SECTION 4. CONDITIONS PRECEDENT..........................................................45 Section 4.1 Conditions Precedent to Initial Loans. ......................45 Section 4.2 Conditions Precedent to All Loans.............................52 SECTION 5. REPRESENTATIONS AND WARRANTIES. ..............................................53 Section 5.1 Corporate Status. ...........................................53 Section 5.2 Corporate Power and Authority. ...............................54
3 AMENDED AND RESTATED CREDIT AGREEMENT, dated as of April 1, 1998, among CKE Restaurants, Inc., a Delaware corporation (the "Borrower"), the Lenders (as hereinafter defined) and Banque Paribas, acting in its capacity as agent for the Lenders.
Page ---- Section 5.3 No Violation. ..............................................54 Section 5.4 Litigation. ................................................54 Section 5.5 Financial Statements; Financial Condition; etc. ............54 Section 5.6 Solvency. ..................................................54 Section 5.7 Projections. ...............................................54 Section 5.8 Material Adverse Change. ...................................55 Section 5.9 Use of Proceeds; Margin Regulations. .......................55 Section 5.10 Governmental and Other Approvals. ..........................55 Section 5.11 Security Interests and Liens. ...............................55 Section 5.12 Tax Returns and Payments. ..................................56 Section 5.13 ERISA........................................................56 Section 5.14 Investment Company Act; Public Utility Holding Company Act...56 Section 5.15 Closing Date Transactions. .................................57 Section 5.16 Representations and Warranties in Transaction Documents......57 Section 5.17 True and Complete Disclosure. ..............................57 Section 5.18 Corporate Structure; Capitalization..........................57 Section 5.19 Environmental Matters. .....................................58 Section 5.20 Intellectual Property. .....................................59 Section 5.21 Ownership of Property; Restaurants. ........................59 Section 5.22 No Default. ................................................59 Section 5.23 Licenses, etc. .............................................59 Section 5.24 Compliance with Law. .......................................59 Section 5.25 No Burdensome Restrictions. ................................59 Section 5.26 Brokers' Fees. .............................................60 Section 5.27 Labor Matters. .............................................60 Section 5.28 Indebtedness of the Borrower and Its Subsidiaries............60 Section 5.29 Other Agreements.............................................60 Section 5.30 Immaterial Subsidiaries......................................60 Section 5.31 Franchise Agreements and Franchisees.........................60 SECTION 6. AFFIRMATIVE COVENANTS.........................................................60 Section 6.1 Information Covenants. ......................................61 Section 6.2 Books, Records and Inspections. ............................65 Section 6.3 Maintenance of Insurance. ..................................65 Section 6.4 Taxes. .....................................................65 Section 6.5 Corporate Franchises. ......................................66 Section 6.6 Compliance with Law. .......................................66 Section 6.7 Performance of Obligations. ................................66 Section 6.8 Maintenance of Properties. .................................66 Section 6.9 Compliance with Terms of Leaseholds. .......................66 Section 6.10 Compliance with Environmental Laws. ........................66 Section 6.11 Subsidiary Guarantors. .....................................67
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Page ---- Section 6.12 Immaterial Subsidiaries......................................67 Section 6.13 Environmental Reports........................................67 Section 6.14 Year 2000....................................................68 Section 6.15 FEI Financial Statements.....................................68 SECTION 7. NEGATIVE COVENANTS............................................................68 Section 7.1 Financial Covenants...........................................68 Section 7.2 Indebtedness. ...............................................71 Section 7.3 Liens. ......................................................72 Section 7.4 Restriction on Fundamental Changes............................74 Section 7.5 Sale of Assets. .............................................75 Section 7.6 Contingent Obligations........................................75 Section 7.7 Dividends.....................................................76 Section 7.8 Advances, Investments and Loans. .............................77 Section 7.9 Transactions with Affiliates. ................................82 Section 7.10 Limitation on Voluntary Payments and Modifications of Certain Documents. ...........................................82 Section 7.11 Changes in Business. .........................................83 Section 7.12 Certain Restrictions. ........................................83 Section 7.13 Lease Obligations.............................................84 Section 7.14 Hedging Agreements. .........................................84 Section 7.15 Plans. .......................................................84 Section 7.16 Fiscal Year; Fiscal Quarter. .................................84 SECTION 8. EVENTS OF DEFAULT.............................................................85 Section 8.1 Events of Default. ...........................................85 Section 8.2 Rights and Remedies. .........................................88 SECTION 9. THE AGENT.....................................................................89 Section 9.1 Appointment. .................................................89 Section 9.2 Delegation of Duties..........................................89 Section 9.3 Exculpatory Provisions. .....................................90 Section 9.4 Reliance by Agent.............................................90 Section 9.5 Notice of Default. ..........................................90 Section 9.6 Non-Reliance on Agent and Other Lenders. ....................91 Section 9.7 Indemnification. ............................................91 Section 9.8 Agent in its Individual Capacity..............................92 Section 9.9 Successor Agent. ............................................92 SECTION 10. MISCELLANEOUS ...............................................................92 Section 10.1 Payment of Expenses, Indemnity, etc. ........................92 Section 10.2 Right of Setoff. ............................................93 Section 10.3 Notices. .. ..................................................94
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Page ---- Section 10.4 Successors and Assigns; Participation; Assignments. .........94 Section 10.5 Amendments and Waivers. .....................................96 Section 10.6 No Waiver; Remedies Cumulative. ..............................98 Section 10.7 Sharing of Payments. .......................................98 Section 10.8 Application of Collateral Proceeds. ..........................99 Section 10.9 Governing Law; Submission to Jurisdiction. .................100 Section 10.10 Counterparts. .............................................100 Section 10.11 Effectiveness. ............................................100 Section 10.12 Amendment and Restatement. ................................101 Section 10.13 Reallocation of Loans.......................................101 Section 10.14 Headings Descriptive. .....................................102 Section 10.15 Marshalling; Recapture. ...................................102 Section 10.16 Severability. .............................................102 Section 10.17 Independence of Covenants...................................103 Section 10.18 Survival. .................................................103 Section 10.19 Domicile of Loans. ........................................103 Section 10.20 Limitation of Liability. ..................................103 Section 10.21 Calculations; Computations. ...............................103 Section 10.22 WAIVER OF TRIAL BY JURY. ..................................103
Schedule 1.1 -- Lenders and Commitments Schedule 5.10 -- Governmental and Other Approvals Schedule 5.11 -- Security Interests and Liens Schedule 5.13 -- ERISA Plans Schedule 5.18 -- Subsidiaries; Capital Stock Schedule 5.19 -- Environmental Matters Schedule 5.21 -- Owned and Leased Properties; Owned or Operated Restaurants Schedule 5.26 -- Brokers' Fees Schedule 5.27 -- Labor Matters Schedule 5.28 -- Indebtedness of the Borrower and Its Subsidiaries Being Repaid Schedule 5.29 -- Other Agreements Schedule 5.30 -- Immaterial Subsidiaries Schedule 5.31 -- Franchisees and Licensees Schedule 7.2 -- Existing Indebtedness Schedule 7.3 -- Existing Liens Schedule 7.6 -- Existing Contingent Obligations Schedule 7.8 -- Investments Schedule 7.17 -- Permitted Partnerships Annex 1 -- Domestic and Eurodollar Lending Offices Exhibit A -- Form of Term Note 6 Exhibit B -- Form of Revolving Note Exhibit C -- Form of Borrower Pledge Agreement Exhibit D -- Form of Borrower Security Agreement Exhibit E -- Form of Guaranty Exhibit F -- Form of Subsidiary Pledge Agreement Exhibit G -- Form of Subsidiary Security Agreement Exhibit H -- Form of Opinion of Stradling, Yocca, Carlson & Rauth, counsel to the Loan Parties Exhibit I -- Form of Assignment Agreement 7 AMENDED AND RESTATED CREDIT AGREEMENT, dated as of April 1, 1998, among CKE Restaurants, Inc., a Delaware corporation (the "Borrower"), the Lenders (as hereinafter defined) and Banque Paribas, acting in its capacity as agent for the Lenders. SECTION 1. DEFINITIONS. Section 1.1 Definitions. As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires. Defined terms in this Agreement shall include in the singular number the plural and in the plural number the singular. "Acquisition" means any transaction, or any series of related transactions, consummated after the date of this Agreement, by which the Borrower or any of its Subsidiaries (i) acquires any going business or assets of any Person or division thereof (other than assets acquired by the Borrower or any of its Subsidiaries in the ordinary course of its business), whether through purchase of assets, merger or otherwise or (ii) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of related transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors or a majority (by percentage or voting power) of the outstanding partnership interests of a partnership or of the outstanding equity interests of a limited liability company. "Adjusted Consolidated EBITDA" shall mean, with respect to the Borrower for any period, Consolidated EBITDA of the Borrower for such period, as adjusted to give effect to (i) the Consolidated EBITDA for such period attributable to any business or Person acquired by the Borrower or any Subsidiary during such period pursuant to a Permitted Acquisition with respect to which the conditions set forth in Section 7.8(f) have been satisfied as if such business or Person had been so acquired on the first day of such period and (ii) the Consolidated EBITDA for such period attributable to any business or Person disposed of by the Borrower or any Subsidiary during such period as if such business or Person had been so disposed of on the first day of such period; provided that the adjustments described in the foregoing clauses (i) and (ii) shall be made only in such amounts as are agreed to by the Agent and the Borrower and only if the Lenders have received audited financial statements for such business or Person being acquired or disposed of for such period or for the most recent fiscal year of such business or Person which financial statements are audited by independent certified public accountants acceptable to the Agent prior to such adjustment. "Adjusted Leverage Ratio" shall mean the ratio of (a)(i) Consolidated Total Debt plus (ii) the product of seven multiplied by Consolidated Rentals to (b) Consolidated EBITDAR. "Advantica" shall mean Advantica Restaurant Group, Inc., a Delaware corporation. 8 "Affected Lender" shall have the meaning provided in Section 2.22. "Affiliate" shall mean, with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and officers of such Person), controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to (i) vote 10% or more of the Voting Stock of such other Person or (ii) direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise. No Lender shall be deemed to be an Affiliate of the Borrower as a result of its being a party to this Agreement. "Agent" shall mean Banque Paribas acting in its capacity as agent for the Lenders and any successor agent appointed in accordance with Section 9.9. "Agent's Office" shall mean the office of the Agent located at Chicago, Illinois, or such other office as the Agent may hereafter designate in writing as such to the other parties hereto. "Agreement" shall mean this Amended and Restated Credit Agreement as the same may from time to time hereafter be modified, restated, supplemented or amended. "Applicable Margin" means, with respect to the Commitment Fee and each Eurodollar Loan, the rate of interest per annum shown below for the range of Leverage Ratio specified below:
Leverage Ratio Eurodollar Loans Commitment Fee - -------------- ---------------- -------------- less than 1.5 to 1.0 0.50% 0.20% 1.5 to 1.0 or greater, but less than 2.0 to 1.0 .750% 0.25% 2.0 to 1.0 or greater, but less than 2.5 to 1.0 1.125% 0.25% 2.5 to 1.0 or greater, but 1.375% 0.375% less than 3.0 to 1.0 3.0 to 1.0 or greater 1.50% 0.375%
For the period commencing on the Closing Date and ending on the date which occurs on the later of (a) three (3) Business Days after the Agent receives the financial statements and the related Compliance Certificate required to be delivered pursuant to Section 6.1(a) and Section 6.1(e) with respect to the fiscal quarter of the Borrower ending August 10, 1998, and (b) 2 9 October 1, 1998, for purposes of determining the Applicable Margin, the Leverage Ratio shall be deemed to be greater than or equal to 2.50 to 1.0 but less than 3.00 at all times during such period. Thereafter, the Leverage Ratio shall be calculated as of the end of each fiscal quarter, commencing with the fiscal quarter ending August 10, 1998, and shall be reported to the Agent pursuant to a Compliance Certificate delivered by the Borrower in accordance with Section 6.1(e) hereof. Not later than two (2) Business Days after receipt by the Agent of each Compliance Certificate delivered by the Borrower in accordance with Section 6.1(e) for each fiscal quarter or fiscal year, as applicable, the Agent shall determine the Leverage Ratio for the applicable period and shall promptly notify the Borrower and the Lenders of such determination and of any change in each Applicable Margin resulting therefrom. Each Applicable Margin shall be adjusted (upwards or downwards, as appropriate), if necessary, based on the Leverage Ratio as of the end of the fiscal quarter immediately preceding the date of determination. The adjustment, if any, to the Applicable Margin shall be effective as to all Eurodollar Loans and Commitment Fees commencing on the third (3rd) Business Day after the receipt by the Agent of such quarterly or annual financial statements delivered in accordance with Sections 6.1(a) and 6.1(b) and such related Compliance Certificate of the Borrower delivered in accordance with Section 6.1(e) and shall be effective from and including the third (3rd) Business Day after the date the Agent receives such Compliance Certificate to but excluding the third (3rd) Business Day after the date on which the next Compliance Certificate is required to be delivered pursuant to Section 6.1(e); provided, however, that, in the event that the Borrower shall fail at any time to furnish to the Lenders such financial statements and any such Compliance Certificate required to be delivered pursuant to Sections 6.1(a), 6.1(b) and 6.1(e), for purposes of determining the Applicable Margin, the Leverage Ratio shall be deemed to be greater than or equal to 3.00 to 1.0 at all times until the third (3rd) Business Day after such time as all such financial statements and each such Compliance Certificate are so received by the Agent and the Lenders. Each determination of the Leverage Ratio and each Applicable Margin by the Agent in accordance with this definition shall be conclusive and binding on the Borrower and the Lenders absent manifest error. "Asset Disposition" shall mean any conveyance, sale, lease, license, transfer or other disposition by the Borrower or any of its Subsidiaries subsequent to the date hereof of any asset (including by way of (i) a sale and leaseback transaction, (ii) the sale or other transfer of any of the capital stock of any Subsidiary of the Borrower or any of its Subsidiaries and (iii) any total or partial loss, destruction or condemnation of any asset), but excluding (A) sales of inventory in the ordinary course of business, (B) licenses to franchisees in the ordinary course of business, (C) the sale or other disposition of assets with a fair market value not in excess of $1,000,000 in respect of any transaction or series of related transactions, but only to the extent that the aggregate fair market value of all assets subject to Asset Dispositions of the Borrower and its Subsidiaries in any fiscal year does not exceed $2,000,000 and (D) leases and subleases of real and personal property of the Borrower or any of its Subsidiaries to any of their respective franchisees in the ordinary course of business and consistent with past practices. "Assignee" shall have the meaning provided in Section 10.4(c). 3 10 "Assignment Agreement" shall have the meaning provided in Section 10.4(d). "Authorized Officer" of any Person shall mean any of the President, the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer, any Senior Vice President, any Executive Vice President, any Vice President, the Controller, the Treasurer or Assistant Treasurer of such Person, acting singly. "Bankruptcy Code" shall mean Title 11 of the United States Code entitled "Bankruptcy", as amended from time to time, and any successor statute or statutes. "Base Rate" shall mean, at any particular date, the highest of (i) the rate of interest publicly announced by Morgan Guaranty Trust Company of New York in New York, New York from time to time as its "base rate" changing as and when such base rate changes and (ii) the Federal Funds Rate plus 0.50%. The base rate is not intended to be the lowest rate of interest charged by Morgan Guaranty Trust Company of New York in connection with extensions of credit to debtors. "Base Rate Loans" shall mean Loans made and/or being maintained at a rate of interest based upon the Base Rate. "Borrower" shall have the meaning provided in the first paragraph of this Agreement. "Borrower Pledge Agreement" shall mean a pledge agreement duly executed and delivered by the Borrower to the Agent substantially in the form set forth as Exhibit C hereto as the same may be amended, restated, modified or supplemented from time to time. "Borrower Security Agreement" shall mean a security agreement substantially in the form of the Borrower Security Agreement set forth as Exhibit D hereto executed and delivered to the Agent by the Borrower, as the same may be amended, restated, modified or supplemented from time to time. "Borrowing" shall mean the incurrence of one Type of Loan of one Facility from all the Lenders on a given date (or resulting from conversions or continuations on a given date) having, in the case of Eurodollar Loans, the same Interest Period. "Business Day" shall mean (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day which shall be in Chicago, Los Angeles or New York City a legal holiday or a day on which banking institutions are authorized or required by law or other government actions to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) and which is also a day for 4 11 trading by and between banks for U.S. dollar deposits in the relevant London interbank Eurodollar market. "Capital Expenditures" shall mean, for any period, all expenditures (whether paid in cash or accrued as a liability, including the portion of Capitalized Leases of the Borrower and its Subsidiaries originally incurred during such period that is capitalized on the consolidated balance sheet of the Borrower and its Subsidiaries) by the Borrower and its Subsidiaries during such period that, in conformity with GAAP, are included in "capital expenditures", "additions to property, plant or equipment" or comparable items in the consolidated financial statements of the Borrower and its Subsidiaries (excluding any expenditures for assets that would be included in "capital expenditures," "additions to property, plant or equipment" or in comparable items in the consolidated financial statements of the Borrower and its Subsidiaries in conformity with GAAP which assets are acquired in a Permitted Acquisition). "Capital Stock" shall mean any and all shares of, or interests or participations in, corporate stock (or other instruments or securities evidencing ownership). "Capitalized Lease" shall mean with respect to any Person, (i) any lease of property, real or personal, the obligations under which are capitalized on the consolidated balance sheet of such Person, and (ii) any other such lease of such Person to the extent that the then present value of the minimum rental commitment thereunder should, in accordance with GAAP, be capitalized on a balance sheet of the lessee. "Capitalized Lease Obligations" with respect to any Person, shall mean at any time of determination all obligations of such Person under or in respect of Capitalized Leases of such Person. "Cash Collateralize" shall mean the pledge and deposit with or delivery to the Agent, for the benefit of the Agent, the Issuing Bank and the Lenders, cash or deposit account balances pursuant to documentation in form and substance reasonably satisfactory to the Agent and the Issuing Bank; such documentation shall irrevocably authorize the Agent to apply such cash collateral to reimbursement of the Issuing Bank for draws under Letters of Credit as and when occurring, and in all cases to payment of other Obligations as and when due. Cash collateral shall be maintained in blocked deposit accounts at the Agent or a Lender. "Cash Equivalents" shall mean (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than 360 days from the date of acquisition, (ii) time deposits and certificates of deposit of any Lender or any domestic commercial bank of recognized standing having capital and surplus in excess of $100,000,000 with maturities of not more than 180 days from the date of acquisition, (iii) fully secured repurchase obligations 5 12 with a term of not more than 7 days for underlying securities of the types described in clause (i) entered into with any bank meeting the qualifications specified in clause (ii) above, and (iv) commercial paper issued by the parent corporation of any Lender or any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000 and commercial paper rated at least A-1 or the equivalent thereof by Standard & Poor's Ratings Group or at least P-1 or the equivalent thereof by Moody's Investor Services, Inc. and in each case maturing within 180 days after the date of acquisition. "Closing Date" shall mean the date on which the initial Loans are advanced hereunder. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and any successor statute. "Collateral" shall mean all property and interests in property now owned or hereafter acquired in or upon which a Lien has been or is purported or intended to have been granted to the Agent or any Lender under any of the Security Documents. "Commitment" shall mean, for each Lender at any given time, the sum of such Lender's Term Loan Commitment and its Revolving Loan Commitment. "Commitment Fees" shall have the meaning provided in Section 2.15(b). "Company" shall mean Flagstar Enterprises, Inc., an Alabama corporation. "Compliance Certificate" shall have the meaning provided in Section 6.1(e). "Consents" shall have the meaning provided in Section 4.1(v). "Consolidated Cash Interest Expense" shall mean, for any period, Consolidated Interest Expense for such period minus the amount of such Consolidated Interest Expense for such period not paid or payable in cash. "Consolidated EBITDA" shall mean, for any Person during any period, the sum of (i) Consolidated Net Income for such period plus (ii) to the extent deducted in the calcula tion of Consolidated Net Income for such period, Consolidated Interest Expense for such period plus (iii) to the extent deducted in the calculation of Consolidated Net Income for such period, federal and state income taxes for such period, plus (iv) to the extent deducted in the calculation of Consolidated Net Income for such period, depreciation and amortization expense for such period, all determined on a consolidated basis for such Person and its Subsidiaries in accordance with GAAP. "Consolidated EBITDAR" shall mean, during any period (i) Adjusted Consoli- 6 13 dated EBITDA for the Borrower and its Subsidiaries for such period plus (ii) to the extent deducted in the calculation of Consolidated Net Income of the Borrower and its Subsidiaries for such period, Consolidated Rentals for such period. "Consolidated Interest Expense" shall mean, for any Person and for any period, the total interest expense (including, without limitation, interest expense attributable to Capitalized Leases in accordance with GAAP) of such Person and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" shall mean for any Person and for any period the net income (or loss) of such Person and its Subsidiaries on a consolidated basis for such period (taken as a single accounting period) determined in accordance with GAAP. "Consolidated Rentals" shall mean, for the Borrower and its Subsidiaries for any period, the aggregate rent expense for the Borrower and its Subsidiaries for such period, as determined on a consolidated basis in accordance with GAAP. "Consolidated Tangible Net Worth" shall mean, at any time, the excess of (i) the total assets of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP minus goodwill and any other items that are classified as intangibles in accordance with GAAP, minus (ii) all liabilities of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP. "Consolidated Total Debt" shall mean, at any time, all Indebtedness of the Borrower and its Subsidiaries (other than undrawn amounts under letters of credit issued for the account of the Borrower or any of its Subsidiaries) as determined on a consolidated basis. "Contingent Obligation" as to any Person shall mean any obligation of such Person guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (x) for the purchase or payment of any such primary obligation or (y) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof; provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum 7 14 reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. "Controlling Stockholders" shall mean (i) William P. Foley II, (ii) Cannae Limited Partnership, a Nevada Limited Partnership, (iii) Fidelity National Financial, Inc., a Delaware corporation and (iv) any other Person that, directly or indirectly, controls, is controlled by or is under common control with any of the foregoing. For purposes of this definition, the term "control" (including the terms "controlled by" and "under common control with") of a Person means the possession, directly or indirect, of (A) the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by contract or otherwise or (B) the power to vote 51% or more of the Voting Stock of such Person. No Lender shall be deemed to be a Controlling Stockholder as a result of its being a party to this Agreement. "Conversion" shall have the meaning provided in Section 2.21(b). "Credit Exposure" shall have the meaning provided in Section 10.4(b). "Default" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Default Rate" shall have the meaning provided in Section 2.6(c). "Dividends" shall have the meaning provided in Section 7.7. "Domestic Lending Office" shall mean, as to any Lender, the office of such Lender designated as such on Annex I, or such other office designated by such Lender from time to time by written notice to the Agent and the Borrower. "Environmental Affiliate" shall mean, with respect to any Person, any other Person whose liability for any Environmental Claim such Person has or may have retained, assumed or otherwise become liable for (contingently or otherwise), either contractually or by operation of law. "Environmental Approvals" shall mean any permit, license, approval, ruling, variance, exemption or other authorization required under applicable Environmental Laws. "Environmental Claim" shall mean, with respect to any Person, any notice, claim, demand or similar communication (written or oral) by any other Person alleging potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, fines or penalties arising out of, based on or resulting from (i) the presence, or release into the environment, of any Material of Environmental Concern at any location, whether or not owned by such Person or (ii) circum- 8 15 stances forming the basis of any violation, or alleged violation, of any Environmental Law. "Environmental Laws" shall mean all federal, state, local and foreign laws and regulations relating to pollution or protection of human health, safety or the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), including without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of Materials of Environmental Concern, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern. "Equity Interests" shall mean Capital Stock and warrants, options or other rights to acquire Capital Stock. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. Section references to ERISA are to ERISA, as in effect at the date of this Agreement and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor. "ERISA Controlled Group" means a group consisting of any ERISA Person and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control with such Person that, together with such Person, are treated as a single employer under regulations of the PBGC. "ERISA Person" shall have the meaning set forth in Section 3(9) of ERISA for the term "person." "ERISA Plan" means (i) any Plan that (x) is not a Multiemployer Plan and (y) has Unfunded Benefit Liabilities in excess of $2,000,000 and (ii) any Plan that is a Multiemployer Plan. "Eurocurrency Reserve Requirements" shall mean, with respect to each day during an Interest Period for Eurodollar Loans, that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Federal Reserve Board or other governmental authority or agency having jurisdiction with respect thereto for determining the maximum reserves (including, without limitation, basic, supplemental, marginal and emergency reserves) for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D) maintained by a member bank of the Federal Reserve System. "Eurodollar Base Rate" shall mean, with respect to each day during an Interest Period for Eurodollar Loans, the rate per annum (rounded upwards to the nearest whole multiple of one-sixteenth of one percent) equal to the rate per annum at which deposits in U.S. dollars are offered by the principal office of each of the Reference Banks in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business 9 16 Days before the first day of such Interest Period in an amount substantially equal to such Reference Bank's Eurodollar Loan comprising part of such Borrowing to be outstanding during such Interest Period and for a period equal to such Interest Period. The Eurodollar Base Rate for any Interest Period for each Eurodollar Loan comprising part of the same Borrowing shall be determined by the Agent on the basis of applicable rates furnished to and received by the Agent from the Reference Banks two Business Days before the first day of such Interest Period, subject, however, to the provisions of Section 2.7. "Eurodollar Lending Office" shall mean, as to any Lender, the office of such Lender designated as such on Annex I, or such other office designated by such Lender from time to time by written notice to the Agent and the Borrower. "Eurodollar Loans" shall mean Loans made and/or being maintained at a rate of interest provided in Section 2.6(b). "Eurodollar Rate" shall mean with respect to each day during an Interest Period for Eurodollar Loans, a rate per annum determined for such day in accordance with the following formula (rounded upwards to the nearest whole multiple of 1/100th of one percent): Eurodollar Base Rate ----------------------------------------- 1.00 -- Eurocurrency Reserve Requirements "Event of Default" shall have the meaning provided in Section 8. "Excluded Resales" shall mean any sale by the Borrower or any of its Subsidiaries of a Restaurant of the Borrower or such Subsidiary so long as (i) such Restaurant was acquired by the Borrower or such Subsidiary from a franchisee with the intent of reselling such Restaurant and (ii) such sale occurs within twelve (12) months of the acquisition of such Restaurant by the Borrower or such Subsidiary. "Existing Debt" shall have the meaning provided in Section 4.1(r)(ii). "Existing Letter of Credit" shall mean the Letter of Credit No. LASB-221686 issued by Bank of America National Trust and Savings Association for the account of Carl Karcher Enterprises, Inc., as the same may be amended, supplemented, modified, renewed or extended subject to Section 3.1(g) of this Agreement. "Existing Reimbursement Agreement" shall mean the Reimbursement Agreement, dated as of September 23, 1994 between Carl Karcher Enterprises, Inc. and Bank of America National Trust and Savings Association, as amended by Amendment No. One dated as of July 15, 1997, Amendment No. Two dated as of December 19, 1997, and Amendment No. Three dated as of April 1, 1998, and as the same may be amended, restated or otherwise modified from time to time; provided, however, that no such amendment, restatement or 10 17 modification shall, without the prior written consent of the Required Lenders, (i) result in an increase of the maximum principal amount of the Existing Letter of Credit or (ii) modify any provision thereof relating to the fees payable thereunder. "Facility" shall mean either the Term Loans or the Revolving Loans. "Federal Funds Rate" shall mean, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago time) on such day on such transactions received by the Agent from three (3) Federal funds brokers of recognized standing selected by the Agent in its sole discretion. "Federal Reserve Board" shall mean the Board of Governors of the Federal Reserve System as constituted from time to time. "Fee Letter" shall mean that certain fee letter entered into between the Borrower and the Agent dated as of April 1, 1998, as amended, from time to time. "Fees" shall mean all amounts payable pursuant to Section 2.15. "FEI Acquisition" shall mean the acquisition of the Company and its Subsidiaries and the other transactions contemplated by the FEI Acquisition Documents. "FEI Acquisition Documents" shall mean the Letter of Intent dated January 14, 1998 between Advantica and the Borrower and the FEI Purchase Agreement and all agreements and instruments executed and delivered in connection therewith. "FEI Guaranties" shall mean guaranties of obligations of the Company that the Borrower incurs pursuant to Section 6.12(a) of the FEI Purchase Agreement. "FEI Purchase Agreement" shall mean the Stock Purchase Agreement among Advantica, Spartan Holdings, Inc., a New York corporation, the Company and the Borrower, dated as of February 18, 1998, together with all schedules and exhibits referred to therein, each in the form delivered to the Agent and the Lenders on the Closing Date, without giving effect to any amendment, modification or waiver of any material term thereof effected without the written consent of the Required Lenders. "Final Maturity Date" shall mean the later of the Revolving Loan Maturity Date or the Term Loan Maturity Date. "Fixed Charges" shall mean, without duplication, with respect to the Borrower 11 18 and its Subsidiaries for any period, (i) all Consolidated Cash Interest Expense (excluding in respect of Capitalized Leases of the Borrower and its Subsidiaries) for such period, plus (ii) scheduled payments due in such period for principal of the Term Loans and other permitted Indebtedness, plus (iii) all federal and state income taxes paid in cash by the Borrower or any of its Subsidiaries for such period, plus (iv) all scheduled amortization during such period (including principal and interest) of Capitalized Leases under which the Borrower or any of its Subsidiaries is the lessee, all determined on a consolidated basis for the Borrower and its Subsidiaries for such period. "Franchise Agreements" shall mean any and all agreements that create a franchise or license to which the Borrower, the Company or any of their respective Subsidiaries is a party (as franchisee, licensee, franchisor or licensor) relating to the operation or development of any Restaurant or Restaurants, including such franchise and/or license agreements to which any of Borrower, the Company or any of their respective Subsidiaries is a party as of the Closing Date and such franchise and/or license agreements entered into from time to time after the Closing Date by the Borrower, the Company or any of their respective Subsidiaries and shall include all other rights under such agreements regardless of their nature. "GAAP" shall mean (i) for purposes of determining compliance with the covenants set forth in Sections 7.1 and 7.2 hereof, United States generally accepted accounting principles as in effect on the date hereof and consistent with those utilized in the preparation of the financial statements referred to in Section 5.5 and (ii) for all other purposes, United States generally accepted accounting principles as in effect as of the date of determination. "Guarantor" shall mean each Subsidiary of the Borrower that shall be required by the terms of this Agreement to enter into a Guaranty from time to time. "Guaranty" shall mean a guaranty substantially in the form of the Guaranty set forth as Exhibit E hereto executed and delivered to the Agent for itself and the Lenders by each Subsidiary of the Borrower (other than Immaterial Subsidiaries), as the same may be amended, restated, modified or supplemented from time to time. "Hardee's" shall mean Hardee's Food Systems, Inc., a North Carolina corporation. "Hardee's Acquisition" shall mean the consummation of the acquisition of Hardee's and its Subsidiaries and the other transactions contemplated by the Hardee's Acquisition Documents. "Hardee's Acquisition Documents" shall mean the Hardee's Purchase Agreement and all agreements and instruments executed and delivered in connection therewith including, without limitation, the Seller Agreements. "Hardee's Purchase Agreement" shall mean the Stock Purchase Agreement 12 19 among Imasco, Hardee's and the Borrower, dated April 27, 1997, together with all schedules and exhibits referred to therein, each in the form delivered to the Agent and the Lenders on the Closing Date, without giving effect to any amendment, modification or waiver of any material term thereof effected without the written consent of the Required Lenders. "Hardee's Subsidiaries" shall mean each Subsidiary which is at any time on or after July 15, 1997, a Subsidiary of Hardee's. "Hart-Scott-Rodino Act" shall mean the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended. "Hedging Agreements" shall mean any interest rate protection agreements (including, without limitation, any interest rate swaps, caps, floors, collars, options, futures and similar agreements), swaps (including, without limitation, any caps, floors, collars, options, futures and similar agreements) relating to currencies, commodities or securities, and similar agreements. "Imasco" shall mean IMASCO Holdings, Inc., a Delaware corporation. "Immaterial Investments"shall mean any Investment owned by the Borrower or any Subsidiary consisting of Capital Stock of any Person which, when added to all other Investments held by the Borrower and/or its Subsidiaries consisting of Capital Stock of such Person does not exceed $1,000,000 at any one time outstanding. "Immaterial Subsidiaries" shall mean any Subsidiary of the Borrower with assets of less than $1,500,000 (as determined in accordance with GAAP), which is designated by the Borrower as an Immaterial Subsidiary on Schedule 5.30 or pursuant to Section 6.12; provided that the aggregate amount of assets of all Subsidiaries designated as Immaterial Subsidiaries shall not at any time exceed $10,000,000 (as determined in accordance with GAAP). "Indebtedness" of any Person shall mean, without duplication, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than trade payables on terms of 90 days or less incurred in the ordinary course of business of such Person), (ii) all indebtedness of such Person evidenced by a note, bond, debenture, acceptance or similar instrument, (iii) the principal component of all Capitalized Lease Obligations of such Person, (iv) the face amount of all letters of credit issued for the account of such Person and, without duplication, all unreimbursed amounts drawn thereunder, and all obligations of such Person, contingent or otherwise, under acceptances or similar facilities, (v) all indebtedness of any other Person secured by any Lien on any property owned by such Person, whether or not such indebtedness has been assumed in an amount equal to the lesser of the fair market value at such date of such property subject to such Lien securing such Indebtedness and the amount of the Indebtedness secured by such Lien, (vi) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement 13 20 with respect to property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (vii) all Contingent Obligations of such Person, (viii) all payment obligations, whether absolute or contingent, matured or unmatured, present or future, due or to become due, now existing or hereafter arising, of such Person under any Hedging Agreements, (ix) all Redeemable Stock and (x) all indebtedness and other obligations of the types specified in clauses (i) through (ix) above of any joint venture or partnership for which such Person is liable. "Indemnitee" shall have the meaning provided in Section 10.1(c). "Initial Debt/Equity Issuance" shall have the meaning provided in Section 4.1(q). "INS" shall mean the United States Immigration and Naturalization Service or any governmental body succeeding to its functions. "Interest Period" shall have the meaning provided in Section 2.7. "Interest Rate Agreements" shall mean any and all interest rate protection agreements, including, without limitation, any interest rate swaps, caps, collars, floors and similar agreements. "Interest Rate Hedge Providers" shall mean any Lender that provides an Interest Rate Agreement to the Borrower as permitted pursuant to Section 7.14(a) and that executes and delivers an agency agreement, in form and substance satisfactory to the Agent. "Investment" of a Person shall mean any loan, advance, extension of credit or commitment to make any such loan, advance or extension of credit (other than accounts receivable arising in the ordinary course of business), deposit account or contribution of capital by such Person to any other Person or any investment in, or purchase or other acquisition (whether by purchase, merger, consolidation or otherwise) of, the stock, partnership interests, notes, bonds, debentures or other securities, including options and warrants, of, or other ownership interests in, any other Person made by such Person (whether for cash, property, services, securities or otherwise). "Issue" shall mean, with respect to any Letter of Credit, to issue or to extend the expiry of, or to renew or increase the amount of, such Letter of Credit; and the terms "Issued," "Issuing" and "Issuance" have corresponding meanings. "Issuing Bank" shall mean Banque Paribas, in its capacity as issuer of one or more Letters of Credit hereunder. 14 21 "JB" shall mean shall mean JB's Family Restaurants, Inc., a Delaware corporation and wholly-owned Subsidiary of the Borrower which Subsidiary shall not own any assets other than assets relating to and used in the operations of the JB's Restaurants and related franchise system and Galaxy Diner Restaurants "JB Newco" shall mean a wholly-owned Subsidiary of the Borrower, which Subsidiary shall not own any assets other than (i) capital stock of JB and certain JB's Restaurants and Galaxy Diner Restaurants to be sold to Timber Lodge Steakhouse, Inc. and (ii) capital stock of Timber Lodge Steakhouse, Inc. and GB Foods Corporation received by JB Newco in exchange for the sales of JB's Restaurants and Galaxy Diner Restaurants and the sale of all of the capital stock of JB, respectively. "L/C Amendment Application" shall mean an application form for amendment of outstanding Letters of Credit as shall at any time be in use at the Issuing Bank, as the Issuing Bank shall request. "L/C Application" shall mean an application form for issuance of Standby Letters of Credit or Trade Letters of Credit, as appropriate, as shall at any time be in use at the Issuing Bank, as the Issuing Bank shall request. "L/C Commitment" shall mean the commitment of the Issuing Bank to Issue, and the commitment of the Lenders severally to participate in, Letters of Credit from time to time Issued or outstanding under Section 3, in an aggregate amount not to exceed on any date the amount of $65,000,000, provided, that the L/C Commitment is part of the combined Revolving Loan Commitments, rather than a separate, independent commitment. "L/C Obligations" shall mean at any time the sum of (a) the aggregate undrawn amount of all Letters of Credit then outstanding, plus (b) the amount of all unreimbursed drawings under all Letters of Credit. "L/C Related Documents" shall mean the Letters of Credit, the L/C Applications, the L/C Amendment Applications and any other document relating to any Letter of Credit, including any of the Issuing Bank's standard form documents for standby or commercial letter of credit issuances, as appropriate. "Lenders" shall mean the persons listed on Schedule 1.1 hereto and the persons which from time to time become a party hereto in accordance with Section 10.4(d). "Letters of Credit" shall mean any letters of credit Issued by the Issuing Bank pursuant to Section 3. "Leverage Ratio" shall mean, with respect to the Borrower on a consolidated basis with its Subsidiaries, at any date, the ratio of (a) Consolidated Total Debt of the Borrower and its Subsidiaries to (b) Adjusted Consolidated EBITDA of the Borrower and its 15 22 Subsidiaries for the period of four (4) consecutive fiscal quarters most recently ended on or prior to such date. "Lien" shall mean any mortgage, deed of trust, pledge, charge, security interest, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement of any kind or nature whatsoever, whether or not filed, recorded or otherwise perfected under applicable law, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same effect as any of the foregoing and the filing of any financing statement or similar instrument under the Uniform Commercial Code or comparable law of any jurisdiction, domestic or foreign. "Liquidating Distribution" shall mean any extraordinary, liquidating or other distribution in return of capital with respect to any Equity Interest of any Person owned by a Loan Party which Equity Interest is pledged pursuant to any of the Security Documents. "Loan Documents" shall mean this Agreement, the Notes, the Guaranty, each Letter of Credit, each L/C Related Document, the Fee Letter, the Security Documents, each Interest Rate Agreement permitted to be entered into pursuant to Section 7.14(a) and all other documents, instruments and agreements executed and/or delivered in connection herewith or therewith or required or contemplated hereunder or thereunder, as the same may be amended, restated, modified or supplemented and in effect from time to time. "Loan Party" shall mean and include the Borrower and each Guarantor. "Loans" shall mean and include the Term Loans and the Revolving Loans. "Margin Stock" shall have the meaning provided such term in Regulation U of the Federal Reserve Board. "Material Adverse Effect" shall mean a material adverse effect upon (i) the business, operations, properties, assets, performance, prospects or condition (financial or otherwise) of the Borrower and its Subsidiaries (after giving effect to the FEI Acquisition), taken as a whole, or (ii) the ability of any Loan Party to perform, or of the Agent or any of the Lenders to enforce, any of such Loan Party's material Obligations under any Loan Document to which it is or is to be a party. "Material Leases" shall have the meaning provided in Section 6.9. "Materials of Environmental Concern" shall mean and include chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and petroleum products, asbestos and radioactive materials. 16 23 "Multiemployer Plan" shall mean a Plan which is a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA. "Net Debt Proceeds" means all cash proceeds received by the Borrower or any of its Subsidiaries from the incurrence of, or the issuance of any instruments relating to, any Indebtedness (other than (i) Indebtedness borrowed by the Borrower under this Agreement, (ii) Indebtedness permitted to be incurred pursuant to Section 7.2(g), and (iii) Indebtedness permitted to be incurred pursuant to Section 7.2(i), in each case net of reasonable and customary underwriting fees and discounts, brokerage commissions and other similar reasonable and customary costs and expenses directly attributable to such issuance or incurrence. "Net Equity Proceeds" shall mean all cash proceeds received by the Borrower or any of its Subsidiaries from any capital contribution or the issuance of any Equity Interests or other equity securities of the Borrower or any of its Subsidiaries (other than the issuance of common stock (A) of the Borrower issued to employees, consultants or directors of the Borrower or any of its Subsidiaries pursuant to an employee stock option or purchase plan approved by the Board of Directors of the Borrower or (B) of any Subsidiary of the Borrower to the Borrower or any wholly-owned Subsidiary of the Borrower or (C) as part of the Initial Debt/Equity Issuance), net of any reasonable and customary brokerage commissions, underwriting fees and discounts and any other similar reasonable and customary costs or expenses directly attributable to such issuance. "Net Sale Proceeds" shall mean, with respect to (a) any Asset Disposition, all cash proceeds received by the Borrower or any of its Subsidiaries from or in respect of such Asset Disposition (including any cash proceeds received as income or other proceeds of any noncash proceeds of such Asset Disposition and including any insurance payment or condemnation award in respect of any assets of the Borrower or any of its Subsidiaries) and (b) any Liquidating Distribution, all cash proceeds received by the Borrower or any of its Subsidiaries from or in respect of any Liquidating Distribution, in the case of the foregoing clauses (a) and (b), net of (i) reasonable and customary expenses incurred or reasonably expected to be incurred in connection with such Asset Disposition or Liquidating Distribution, (ii) any income, franchise, transfer or other tax payable by the Borrower or such Subsidiary in connection with such Asset Disposition or Liquidating Distribution and (iii) any Indebtedness secured by a Lien on such property or assets and required to be repaid as a result of such Asset Disposition, in each case with respect to the foregoing clause (i) to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid to a Person that is not an Affiliate and are properly attributable to such transaction or to the asset that is the subject thereof; provided, however, that Net Sale Proceeds shall not include any such proceeds from Excluded Resales. "Notes" shall mean and include each Revolving Note and each Term Note. "Notice of Borrowing" shall have the meaning provided in Section 2.3(a). 17 24 "Notice of Conversion or Continuation" shall have the meaning provided in Section 2.9(b). "Obligations" shall mean all obligations, liabilities and indebtedness of every kind, nature and description of the Borrower and the other Loan Parties from time to time owing to the Agent or any Lender or any Indemnitee under or in connection with this Agreement or any other Loan Document, whether direct or indirect, primary or secondary, joint or several, absolute or contingent, due or to become due, now existing or hereafter arising and however acquired and shall include, without limitation, all principal and interest on the Loans and, to the extent chargeable under any Loan Document, all charges, expenses, fees and attorney's fees. "Original Credit Facility" shall mean that certain Credit Agreement dated as of July 15, 1997 among the Borrower, the lenders party thereto and Banque Paribas, as Agent, as amended prior to the date hereof. "Participant" shall have the meaning provided in Section 10.4(b). "Payment Date" shall mean the fifteenth day of each January, April, July and October of each year. "PBGC" shall mean the Pension Benefit Guaranty Corporation established under ERISA, or any successor thereto. "Permitted Acquisition" shall mean any Acquisition by the Borrower or any of its Subsidiaries that has been approved by the board of directors (or other governing body, if applicable) of the Person which is the subject of such Acquisition so long as the Person acquired in connection therewith is engaged primarily in, or the assets or business acquired in connection therewith relate primarily to, the food service business. "Permitted Restaurant Acquisition" shall mean a Permitted Acquisition of a Carl's Jr. or a Hardee's Restaurant by the Borrower or any of its Subsidiaries from a franchisee. "Permitted Subordinated Debt" shall mean Indebtedness of the Borrower or any Subsidiary of the Borrower incurred after July 15, 1997, (A) with respect to which no principal payments are due prior to the date which is one year and one day after the Final Maturity Date and (B) which is subordinated as to exercise of remedies and in right of payment to the Borrower's Obligations under the Loan Documents on, and is otherwise subject to, terms and conditions (including, without limitation, terms in respect of maturities, covenants, defaults and remedies and interest rates) approved in writing by the Agent and in any event shall not include Indebtedness issued pursuant to the Subordinated Notes. 18 25 "Person" shall mean and include any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other enterprise or any government or political subdivision or agency, department or instrumentality thereof. "Plan" means any employee benefit plan covered by Title IV of ERISA, the funding requirements of which: (i) were the responsibility of the Borrower or a member of its ERISA Controlled Group at any time within the six years immediately preceding the date hereof, (ii) are currently the responsibility of the Borrower or a member of its ERISA Controlled Group, or (iii) hereafter become the responsibility of the Borrower or a member of its ERISA Controlled Group, including any such plans as may have been, or may hereafter be, terminated for whatever reason. "Prepayment" shall have the meaning provided in Section 7.10. "Pro Rata Share" as to any Lender shall mean: (i) with respect to all payments, computations and determinations relating to the Term Loan Commitment or the Term Loan of any Lender, the percentage obtained by dividing (A) the outstanding principal balance of such Lender's Term Loan (or the amount of such Lender's Term Loan Commitment, if the Term Loan has not been made) by (B) the aggregate outstanding principal balance of the Term Loan (or the Total Term Loan Commitment, if the Term Loan has not been made); (ii) with respect to all payments, computations and determinations relating to the Revolving Loan Commitment or the Revolving Loans of any Lender, or such Lender's interest in Letters of Credit (including without limitation determinations of the commitment fee under Section 2.15(b) and Letter of Credit fees under Section 3.2), the percentage obtained by divid ing (A) such Lender's Revolving Loan Commitment (or the aggregate outstand ing principal balance of such Lender's Revolving Loans and all L/C Obligations in which such Lender has an interest, if the Revolving Loan Commitments have been terminated pursuant to the terms of this Agreement) by (B) the Total Revolving Loan Commitment (or the aggregate outstanding principal balance of the Revolving Loans and all L/C Obligations, if the Revolving Loan Commit- 19 26 ments have been terminated pursuant to the terms of this Agreement); and (iii) for all other purposes with respect to each Lender, the percentage obtained by dividing (A) the sum of (1) the outstanding principal balance of such Lender's Term Loan (or such Lender's Term Loan Commit ment if the Term Loan has not been made) and (2) such Lender's Revolving Loan Commitment (or the aggregate outstanding principal balance of such Lender's Revolving Loans and all L/C Obligations in which such Lender has an interest, if the Revolving Loan Commitments have been terminated pursuant to the terms of this Agreement) by (B) the sum of (1) the aggregate outstanding principal balance of the Term Loan (or the Total Term Loan Commitment if the Term Loan has not been made) and (2) the Total Revolving Loan Commitment (or the aggregate outstanding principal balance of the Revolving Loans and all L/C Obligations, if the Revolving Loan Commitments have been terminated pursuant to the terms of this Agreement). "Purchasing Lenders" shall have the meaning provided in Section 10.4(d). "Rate Hedging Obligations" shall mean any and all obligations of any Loan Party to any Interest Rate Hedge Provider under Interest Rate Agreements permitted pursuant to Section 7.14(a). "Redeemable Stock" means any Equity Interest which, by its terms, or upon the happening of any event matures, is mandatorily redeemable or repurchaseable (other than for Capital Stock not constituting Redeemable Stock), in whole or in part, prior to one year and one day after the Final Maturity Date, or is, by its terms or upon the happening of any event, required to be redeemed or repurchased, redeemable or repurchaseable at the option of the holder thereof, in whole or in part, at any time prior to one year and one day after the Final Maturity Date. "Reference Banks" shall mean Banque Paribas, The Sakura Bank, Limited, Los Angeles Agency and Bank of Montreal. "Regulation D" shall mean Regulation D of the Federal Reserve Board as from time to time in effect and any successor to all or any portion thereof. "Related Businesses" shall mean any Persons (other than individuals) engaged primarily in, or the assets or business of which relate primarily to, the food service business. "Replacement Lender" shall have the meaning provided in Section 2.22. "Reportable Event" has the meaning set forth in Section 4043(b) of ERISA (other than a Reportable Event as to which the provision of 30 days notice to the PBGC is 20 27 waived under applicable regulations), or is the occurrence of any of the events described in Section 4068(f) or 4063(a) of ERISA. "Required Holders" shall mean William P. Foley II and C. Thomas Thompson. "Required Lenders" shall mean all Lenders whose Pro Rata Shares, in the aggregate, are greater than 50%. "Restaurant" shall mean any quick service restaurant. "Revolving Loan Commitment" shall mean at any time, for any Lender, the amount set forth opposite such Lender's name on Schedule 1.1 hereto under the heading "Revolving Loan Commitment," as such amount may be reduced from time to time pursuant to the terms of this Agreement. "Revolving Loan Maturity Date" shall mean April 15, 2003. "Revolving Loans" shall have the meaning provided in Section 2.2(a). "Revolving Note" shall have the meaning provided in Section 2.5(a). "Secured Parties" shall have the meaning provided in the Borrower Security Agreement and the Subsidiary Security Agreement. "Security Documents" shall mean and include the Borrower Security Agreement, the Subsidiary Security Agreement, the Guaranty, the Borrower Pledge Agreement, the Subsidiary Pledge Agreements and all other security agreements, pledge agreements, assign ments and similar agreements executed in connection with the Loan Documents. "Seller Agreements" shall mean (i) that certain agreement dated as of April 27, 1997 between Imasco and the Borrower and (ii) that certain Indemnification Agreement dated as of July 14, 1997 between Imasco and the Borrower, each as amended, in accordance with Section 7.10(b)(i). "Solvent" as to any Person shall mean that (i) the sum of the assets of such Person, both at a fair valuation and at present fair salable value, will exceed its liabilities, including contingent liabilities, (ii) such Person will have sufficient capital with which to conduct its business as presently conducted and as proposed to be conducted and (iii) such Person has not incurred debts, and does not intend to incur debts, beyond its ability to pay such debts as they mature. For purposes of this definition, "debt" means any liability on a claim, and "claim" means (x) a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured, or (y) a right to an equitable remedy for breach 21 28 of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured. With respect to any such contingent liabilities, such liabilities shall be computed at the amount which, in light of all the facts and circumstances existing at the time, represents the amount which can reasonably be expected to become an actual or matured liability. "Standby Letter of Credit" shall mean any standby letter of credit issued by the Issuing Bank pursuant to Section 3 and which is not a Trade Letter of Credit. "Subordinated Debt Documents" shall mean the Subordinated Notes and the Subordinated Note Indenture. "Subordinated Note Indenture" shall mean that certain Indenture between the Borrower and Chase Manhattan Bank and Trust Company, N.A., as trustee, dated as of March 13, 1998, as the same may be amended, restated, supplemented or otherwise modified in accordance with the terms of this Agreement. "Subordinated Notes" shall mean the Convertible Subordinated Notes issued by the Borrower pursuant to the Subordinated Note Indenture, in a maximum principal amount not to exceed $200,000,000 in the aggregate, as the same may be amended, restated, supple mented or otherwise modified in accordance with the terms of this Agreement; provided that such Subordinated Notes shall at all times be subordinated in respect of the Obligations on subordination terms contained in the Subordinated Note Indenture. "Subsidiary" of any Person shall mean and include (i) any corporation 50% or more of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries and (ii) any partnership, association, joint venture or other entity in which such Person, directly or indirectly through Subsidiaries, is either a general partner or has a 50% or more equity interest at the time. "Subsidiary Pledge Agreement" shall mean each pledge agreement substantially in the form of the Subsidiary Pledge Agreement set forth as Exhibit F hereto executed and delivered to the Agent by each Subsidiary of the Borrower which owns any equity interest of any Person, as the same may be amended, restated, modified or supplemented from time to time. "Subsidiary Security Agreement" shall mean a security agreement substantially in the form of the Subsidiary Security Agreement set forth as Exhibit G hereto executed and delivered to the Agent by each Subsidiary of the Borrower (other than Immaterial Subsidiaries), as the same may be amended, restated, modified or supplemented from time to time. 22 29 "Surviving Debt" shall have the meaning provided in Section 4.1(r). "Term Loan" shall have the meaning provided in Section 2.1. "Term Loan Commitment" shall mean at any time, for any Lender, the amount set forth opposite such Lender's name in Schedule 1.1 hereto under the heading "Term Loan Commitment", as the same may be reduced from time to time pursuant to the terms of this Agreement. "Term Loan Maturity Date" shall mean April 15, 2003. "Term Note" shall have the meaning provided in Section 2.5(a). "Termination Event" shall mean (i) a Reportable Event, or (ii) the initiation of any action by the Borrower, any member of the Borrower's ERISA Controlled Group or any ERISA Plan fiduciary to terminate an ERISA Plan or the treatment of an amendment to an ERISA Plan as a termination under ERISA, or (iii) the institution of proceedings by the PBGC under Section 4042 of ERISA to terminate an ERISA Plan or to appoint a trustee to administer any ERISA Plan. "Total Revolving Loan Commitment" shall have the meaning set forth in Section 2.2(a). "Total Term Loan Commitment" shall have the meaning set forth in Section 2.1. "Trade Letter of Credit" shall mean any Letter of Credit that is issued pursuant to Section 3 for the benefit of a supplier of inventory to the Borrower or any of its Subsidiaries to effect payment for such inventory. "Transaction Costs" shall mean all costs and expenses paid or payable by any Loan Party relating to the Transactions including, without limitation, investment banking fees, financing fees, advisory fees, appraisal fees, legal fees and accounting fees. "Transaction Documents" shall mean the Loan Documents, the Subordinated Debt Documents and the FEI Acquisition Documents. "Transactions" shall mean the Initial Debt/Equity Issuance and each of the transactions contemplated by the Transaction Documents. "Transferee" shall have the meaning provided in Section 10.4(e). "Type" shall mean any type of Loan determined with respect to the interest 23 30 option applicable thereto, i.e., a Base Rate Loan or a Eurodollar Loan. "Unfunded Benefit Liabilities" means with respect to any Plan at any time, the amount (if any) by which (i) the present value of all benefit liabilities under such Plan as defined in Section 4001(a)(16) of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan (on the basis of assumptions prescribed by the PBGC for the purpose of Section 4044 of ERISA). "Unused Portion" shall mean at any time with respect to the Revolving Loans, the amount by which the Total Revolving Loan Commitment in effect at such time exceeds the sum of (i) the aggregate principal amount outstanding of the Revolving Loans outstanding at such time and (ii) the aggregate amount of L/C Obligations outstanding at such time. "Voting Stock" shall mean capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even though the right so to vote has been suspended by the happening of such a contingency. SECTION 2. AMOUNT AND TERMS OF CREDIT FACILITIES. Section 2.1 Term Loans. Subject to and upon the terms and conditions herein set forth, each Lender severally and not jointly agrees to make a single loan to the Borrower on the Closing Date of a sum not to exceed the Term Loan Commitment of such Lender (each such loan, a "Term Loan"). The aggregate principal amount of the Term Loan Commitments (the "Total Term Loan Commitment") shall not exceed $250,000,000. All unutilized Term Loan Commitments shall expire simultaneously with the making of the Term Loans on the Closing Date. The Term Loan of each Lender made on the Closing Date shall be initially made as a Base Rate Loan or a Eurodollar Loan (subject to the other terms of this Agreement, including without limitation, Section 2.3 and Section 2.17) and may thereafter be maintained at the option of the Borrower as a Base Rate Loan or a Eurodollar Loan, in accordance with the provisions hereof. Once repaid, Term Loans may not be reborrowed. The Term Loans shall mature on the Term Loan Maturity Date and shall be repaid, without premium or penalty, by the Borrower, in twenty (20) consecutive quarterly installments. The installments shall be payable on the respective Payment Dates in the aggregate amounts set forth below:
Payment Date Installment Amount - ------------ ------------------ July 15, 1998 $5,000,000 October 15, 1998 $5,000,000 January 15, 1999 $5,000,000 April 15, 1999 $5,000,000
24 31
Payment Date Installment Amount - ------------ ------------------ July 15, 1999 $10,000,000 October 15, 1999 $10,000,000 January 15, 2000 $10,000,000 April 15, 2000 $10,000,000 July 15, 2000 $13,750,000 October 15, 2000 $13,750,000 January 15, 2001 $13,750,000 April 15, 2001 $13,750,000 July 15, 2001 $16,250,000 October 15, 2001 $16,250,000 January 15, 2002 $16,250,000 April 15, 2002 $16,250,000 July 15, 2002 $17,500,000 October 15, 2002 $17,500,000 January 15, 2003 $17,500,000 April 15, 2003 $17,500,000
Notwithstanding the foregoing, the last such installment due on the Term Loan Maturity Date shall be in the amount necessary to repay in full the aggregate unpaid principal balance of the Term Loans. Section 2.2 Revolving Loans. (a) Subject to and upon the terms and condi tions herein set forth, each Lender severally and not jointly agrees, at any time and from time to time on and after the Closing Date and prior to the Revolving Loan Maturity Date, to make revolving loans (collectively, "Revolving Loans") to the Borrower, which Revolving Loans shall not exceed in aggregate principal amount at any time outstanding (i) the Revolving Loan Commitment of such Lender at such time minus (ii) such Lender's Pro Rata Share of the L/C Obligations at such time; provided that at no time shall the aggregate outstanding principal amount of the Revolving Loans of all of the Lenders plus the L/C Obligations of all of the Lenders exceed the Total Revolving Loan Commitment. The sum of the Revolving Loan Commitments of all of the Lenders (the "Total Revolving Loan Commitment") on the Closing Date shall be $250,000,000. The Revolving Loans of each Lender made on the Closing Date shall be initially made as a Base Rate Loan or a Eurodollar Loan (subject to the other terms of this Agreement, including without limitation, Section 2.3 and Section 2.17) and may thereafter be maintained at the option of the Borrower as a Base Rate Loan or a Eurodollar Loan, in accordance with the provisions hereof. (b) Revolving Loans may be voluntarily prepaid pursuant to Section 2.11, and, subject to the other provisions of this Agreement, any amounts so prepaid may be reborrowed. Each Lender's Revolving Loan Commitment shall expire (provided the Revolv ing Loan Commitments have not already expired pursuant to Section 2.2(a) hereof), and each Revolving Loan shall mature on, the Revolving Loan Maturity Date, without further action on the part of the Lenders or the Agent. 25 32 (c) Each Borrowing of Revolving Loans shall be in the aggregate minimum amount of $1,000,000 or any integral multiple of $500,000 in excess thereof. Section 2.3 Notice of Borrowing. (a) Whenever the Borrower desires to borrow Revolving Loans or Term Loans hereunder, it shall give the Agent at the Agent's Office prior to 12:00 Noon, Chicago time, on the Business Day of such borrowing by telex, facsimile or telephonic notice (promptly confirmed in writing) of each Base Rate Loan, and at least three Business Days' prior telex, facsimile or telephonic notice (promptly confirmed in writing) of each Eurodollar Loan to be made hereunder. Each such notice (a "Notice of Borrowing") shall be irrevocable and shall specify (i) the aggregate principal amount of the requested Loans, (ii) whether such Loans shall be Term Loans or Revolving Loans, (iii) the date of Borrowing (which shall be a Business Day), and (iv) whether such Loans shall consist of Base Rate Loans or Eurodollar Loans and, if Eurodollar Loans, the initial Interest Period to be applicable thereto (provided, that no Eurodollar Loans may be requested or made when any Default or Event of Default has occurred and is continuing). (b) Promptly after receipt of a Notice of Borrowing, the Agent shall provide each Lender with a copy thereof and inform each Lender as to its Pro Rata Share of the Loans requested thereunder. Section 2.4 Disbursement of Funds. (a) No later than 2:00 P.M., Chicago time, on the date specified in each Notice of Borrowing, each Lender will make available its Pro Rata Share of the Loans requested to be made on such date, in U.S. dollars and immediately available funds, at the Agent's Office. After the Agent's receipt of the proceeds of such Loans, the Agent will make available to the Borrower by depositing in the Borrower's account at the Agent's Office the aggregate of the amounts so made available in the type of funds actually received. (b) Unless the Agent shall have been notified by any Lender prior to the date of a Borrowing that such Lender does not intend to make available to the Agent its portion of the Loans to be made on such date, the Agent may assume that such Lender has made such amount available to the Agent on such date and the Agent in its sole discretion may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Agent by such Lender and the Agent has made such amount available to the Borrower, the Agent shall be entitled to recover such corresponding amount on demand from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Agent's demand therefor, the Agent shall promptly notify the Borrower and the Borrower shall immediately repay such corresponding amount to the Agent. The Agent shall also be entitled to recover from such Lender or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Agent to the Borrower to the date such corresponding amount is recovered by the Agent, at a rate per annum equal to the then applicable rate of interest, calculated in accordance with Section 2.6, for the respective Loans. 26 33 Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its commitments hereunder or to prejudice any rights which the Borrower may have against any Lender as a result of any default by such Lender hereunder. Notwith standing anything contained herein or in any other Loan Document to the contrary, the Agent may apply all funds and proceeds of Collateral available for the payment of any Obligations first to repay any amount owing by any Lender to the Agent as a result of such Lender's failure to fund its Loans hereunder. Section 2.5 Notes. (a) The Borrower's obligation to pay the principal of, and interest on, each Lender's Loans shall be evidenced by (i) in the case of such Lender's Term Loans, a promissory note (as the same may be amended, restated, supplemented or otherwise modified from time to time, a "Term Note") duly executed and delivered by the Borrower substantially in the form of Exhibit A hereto in a principal amount equal to such Lender's Term Loan with blanks appropriately completed in conformity herewith and (ii) in the case of such Lender's Revolving Loans, a promissory note (as the same may be amended, restated, supplemented or otherwise modified from time to time, a "Revolving Note") duly executed and delivered by the Borrower substantially in the form of Exhibit B hereto in a principal amount equal to such Lender's Revolving Loan Commitment, with blanks appropriately completed in conformity herewith. Each Note issued to a Lender shall (x) be payable to the order of such Lender, (y) be dated the Closing Date or the date such Note was issued, and (z) mature on the Term Loan Maturity Date or the Revolving Loan Maturity Date, as the case may be. (b) Each Lender is hereby authorized, at its option, either (i) to endorse on the schedule attached to its Revolving Note (or on a continuation of such schedule attached to such Note and made a part thereof) an appropriate notation evidencing the date and amount of each Revolving Loan evidenced thereby and the date and amount of each principal and interest payment in respect thereof, or (ii) to record such Revolving Loans and such payments in its books and records. Such schedule or such books and records, as the case may be, shall constitute prima facie evidence of the accuracy of the information contained therein. Section 2.6 Interest. (a) The Borrower agrees to pay interest in respect of the unpaid principal amount of each Base Rate Loan from the date of the making of such Loan until such Loan shall be paid in full at a rate per annum which shall be equal to the Base Rate in effect from time to time, such rate to change as and when the Base Rate changes, such interest to be computed on the basis of a 365 or 366-day year, as the case may be, and paid for the actual number of days elapsed. (b) The Borrower agrees to pay interest in respect of the unpaid principal amount of each Eurodollar Loan from the date of the making of such Loan until such Loan shall be paid in full at a rate per annum which shall be equal to the sum of (i) the Applicable Margin plus (ii) the relevant Eurodollar Rate, such interest to be computed on the basis of a 360-day year and paid for the actual number of days elapsed. 27 34 (c) In the event that, and for so long as, any Event of Default shall have occurred and be continuing, the outstanding principal amount of all Loans and, to the extent permitted by law, overdue interest in respect of all Loans, shall bear interest at a rate per annum (the "Default Rate") equal to the sum of two percent (2%) plus the Base Rate in effect from time to time, and shall be payable on demand. (d) Interest on each Loan shall accrue from and including the date of the Borrowing thereof to but excluding the date of any repayment thereof (provided that any Loan borrowed and repaid on the same day shall accrue one day's interest) and shall be payable (i) in respect of each Base Rate Loan, quarterly in arrears on each Payment Date, commencing on April 15, 1998, (ii) in respect of each Eurodollar Loan, on the last day of each Interest Period applicable to such Loan and, in the case of an Interest Period of six months, on the date occurring three months from the first day of such Interest Period and on the last day of such Interest Period, and (iii) in the case of all Loans, on any prepayment or conversion (on the amount prepaid or converted), at maturity (whether by acceleration or otherwise) and, after such maturity, on demand. Each determination by the Agent of an interest rate hereunder shall, except for manifest error, be final, conclusive and binding for all purposes. (e) Each Reference Bank agrees to furnish to the Agent timely information for the purpose of determining each Eurodollar Base Rate. If any one or more of the Reference Banks shall not furnish such timely information to the Agent for the purpose of determining any such interest rate, the Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks. The Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rate determined by the Agent for purposes of Section 2.6(b), and the rate, if any, furnished by each Reference Bank for the purpose of determining the interest rate under Section 2.6(b). (f) If fewer than two Reference Banks furnish timely information to the Agent for determining the Eurodollar Base Rate for any Eurodollar Loan, (i) the Agent shall forthwith notify the Borrower and the Lenders that the interest rate cannot be determined for such Eurodollar Loan, (ii) each such Eurodollar Loan will automatically, on the last day of the then existing Interest Period therefor, convert into a Base Rate Loan (or if such Loan is then a Base Rate Loan, will continue as a Base Rate Loan), and (iii) the obligation of the Lenders to make, or to convert Loans into, Eurodollar Loans shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing suspension no longer exist. 28 35 Section 2.7 Interest Periods. (a) The Borrower shall, in each Notice of Borrowing or Notice of Conversion or Continuation in respect of the making of, conversion into or continuation of a Eurodollar Loan, select the interest period (each an "Interest Period") applicable to such Eurodollar Loan, which Interest Period shall, at the option of the Borrower, be either a one-month, two-month, three-month or six-month period, provided that: (i) the initial Interest Period for any Eurodollar Loan shall commence on the date of the making of such Loan (including the date of any conversion from a Base Rate Loan) and each Interest Period occurring thereafter in respect of such Loan shall commence on the date on which the next preceding Interest Period expires; (ii) if any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, provided, however, that if any Interest Period would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (iii) if any Interest Period begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (iv) no Interest Period in respect of any Revolving Loan or Term Loan shall extend beyond the Revolving Maturity Date or the Term Loan Maturity Date, as the case may be; and (v) no Interest Period in respect of a Term Loan shall extend beyond any date upon which a repayment of the Term Loans is required to be made pursuant to Section 2.1 unless the aggregate principal amount of Term Loans which are Base Rate Loans or which have Interest Periods which will expire on or before such date is equal to or in excess of the amount of the Term Loan repayment required to be made on such date. (b) If upon the expiration of any Interest Period, the Borrower has failed to elect a new Interest Period to be applicable to the respective Eurodollar Loan as provided above, the Borrower shall be deemed to have elected to convert such Eurodollar Loans into Base Rate Loans effective as of the expiration date of such current Interest Period. Section 2.8 Minimum Amount of Eurodollar Loans. All borrowings, conversions, continuations, payments, prepayments and selection of Interest Periods hereunder shall be made or selected so that, after giving effect thereto, (i) the aggregate principal amount of 29 36 any Borrowing comprised of Eurodollar Loans shall not be less than $1,500,000 or an integral multiple of $500,000 in excess thereof, and (ii) there shall be no more than twelve (12) Borrowings comprised of Eurodollar Loans outstanding at any time. Section 2.9 Conversion or Continuation. (a) Subject to the other provisions hereof, the Borrower shall have the option (i) to convert at any time all or any part of outstanding Base Rate Loans which comprise part of the same Borrowing to Eurodollar Loans, (ii) to convert all or any part of outstanding Eurodollar Loans which comprise part of the same Borrowing to Base Rate Loans, on the expiration date of the Interest Period applicable thereto, or (iii) to continue all or any part of outstanding Eurodollar Loans which comprise part of the same Borrowing as Eurodollar Loans for an additional Interest Period, on the expiration of the Interest Period applicable thereto; provided that no Loan may be continued as, or converted into, a Eurodollar Loan when any Default or Event of Default has occurred and is continuing. (b) In order to elect to convert or continue a Loan under this Section 2.9, the Borrower shall deliver an irrevocable notice thereof (a "Notice of Conversion or Continuation") to the Agent no later than 12:00 Noon, Chicago time, (i) on the Business Day of the proposed conversion date in the case of a conversion to a Base Rate Loan and (ii) at least three Business Days in advance of the proposed conversion or continuation date in the case of a conversion to, or a continuation of, a Eurodollar Loan. A Notice of Conversion or Continuation shall specify (w) the requested conversion or continuation date (which shall be a Business Day), (x) the amount and Facility of the Loan to be converted or continued, (y) whether a conversion or continuation is requested, and (z) in the case of a conversion to, or a continuation of, a Eurodollar Loan, the requested Interest Period. Promptly after receipt of a Notice of Conversion or Continuation under this Section 2.9(b), the Agent shall provide each Lender with a copy thereof. Section 2.10 Voluntary Reduction of Commitments. Upon at least three Business Day's prior irrevocable written notice (or telephonic notice promptly confirmed in writing) to the Agent (which notice the Agent shall promptly transmit to each of the Lenders), the Borrower shall have the right, without premium or penalty, to permanently reduce each Lender's Pro Rata Share of all or part of the Total Revolving Loan Commitment, provided that any such partial reduction shall be in the minimum aggregate amount of $1,000,000 or any integral multiple of $500,000 in excess thereof. Section 2.11 Voluntary Prepayments. The Borrower shall have the right to prepay the Loans in whole or in part from time to time on the following terms and conditions: (i) the Borrower shall give the Agent written notice (or telephonic notice promptly confirmed in writing), which notice shall be irrevocable, of its intent to prepay the Loans, at least three Business Days prior to a prepayment of Eurodollar Loans and on the Business Day of a prepayment of Base Rate Loans, which notice shall specify the amount of such prepayment and what Types of Loans and which Facilities are to be prepaid and, in the case of Eurodollar Loans, the specific Borrowing(s) pursuant to which made, and which notice the Agent shall 30 37 promptly transmit to each of the Lenders, (ii) each prepayment shall be in an aggregate principal amount of $1,000,000 or any integral multiple of $500,000 in excess thereof and (iii) partial prepayments of the Term Loans shall be applied to the scheduled installments of principal thereof in the inverse order of maturity; provided that if any prepayment of Eurodollar Loans is made pursuant to this Section 2.11 on a day which is not the last day of the Interest Period applicable thereto, the Borrower shall pay to each Lender all amounts due in connection with such prepayment pursuant to Section 2.17. Section 2.12 Mandatory Prepayments. (a) Upon the consummation of any Asset Disposition after July 15, 1997, or upon receipt by any Loan Party of any Liquidating Distribution after July 15, 1997, in each case within three hundred sixty (360) days after the Borrower or any of its Subsidiaries receives any Net Sale Proceeds, the Borrower shall prepay the outstanding Loans in an amount equal to 100% of the amount of such Net Sale Proceeds, in accordance with the provisions of Section 2.13; provided, however, that such Net Sale Proceeds which the Borrower or such Subsidiary shall, within three hundred sixty (360) days after the receipt thereof, use to reinvest in the business of the Borrower or its Subsidiaries, shall not be included in determining the aggregate Net Sale Proceeds for such period; provided further that, if an Event of Default shall have occurred and be continuing on the date such Net Sale Proceeds are received by the Borrower or any of its Subsidiaries or at any time during such applicable three hundred sixty day period, then the Borrower shall prepay the outstanding Loans in an amount equal to 100% of such Net Sale Proceeds (or, if any portion of such proceeds shall have been reinvested prior to the occurrence of such Event of Default, 100% of such remaining amount of Net Sale Proceeds not so reinvested) on the later of the date such Net Sale Proceeds are received by the Borrower or any of its Subsidiaries or the date of the occurrence of such Event of Default. (b) On each date after July 15, 1997, on which the Borrower or any of its Subsidiaries receives any Net Equity Proceeds, the Borrower shall prepay the outstanding Loans in an amount equal to (i) 50% of such Net Equity Proceeds if both (A) the Leverage Ratio as of the end of the fiscal quarter immediately preceding such date as to which financial statements are required to have been delivered pursuant to Section 6.1(a) and 6.1(b), as applicable, on a pro forma basis after giving effect to any prepayment made by the Borrower pursuant to clause (ii)(A) of this Section 2.12(b), is less than 2.0 to 1.0 and (B) no Default or Event of Default has occurred or is continuing as a result of the Borrower's failure to deliver any financial statement or Compliance Certificate as and when required pursuant to Section 6.1(a), 6.1(b) or 6.1(e), as applicable and (ii) 75% of such Net Equity Proceeds if either (A) the Leverage Ratio as of the end of the fiscal quarter immediately preceding such date as to which financial statements are required to have been delivered pursuant to Section 6.1(a) or 6.1(b), as applicable, is greater than or equal to 2.0 to 1.0 (but only until the Leverage Ratio is less than 2.0 to 1.0, at which time clause (i) of this Section 2.12(b) shall apply (unless clause (ii)(B) of this Section 2.12(b) shall then be applicable)) or (B) any Default or Event of Default has occurred and is continuing as a result of the Borrower's failure to deliver any financial statement or Compliance Certificate as and when required pursuant to Section 6.1(a), 6.1(b) or 31 38 6.1(e), as applicable, in each case in accordance with the provisions of Section 2.13. (c) On each date after July 15, 1997, on which the Borrower or any of its Subsidiaries receives any Net Debt Proceeds, becomes or remains liable with respect to Indebtedness with respect to Capitalized Leases in excess of $130,000,000 in the aggregate at any one time outstanding for the Borrower and its Subsidiaries, or assumes any Indebtedness in connection with a Permitted Acquisition pursuant to Section 7.2(l), the Borrower shall prepay the outstanding Loans in an amount equal to 100% of such Net Debt Proceeds, 100% of the amount by which the aggregate amount of Indebtedness of the Borrower and its Subsidiaries with respect to Capitalized Leases exceeds $130,000,000 on such date or 100% of the aggregate principal amount of any such Indebtedness assumed in connection with a Permitted Acquisition, respectively, in accordance with the provisions of Section 2.13. (d) On each day on which the Total Revolving Loan Commitment is reduced pursuant to Section 2.10, the Borrower shall prepay the Revolving Loans to the extent, if any, that the outstanding principal amount of the Revolving Loans exceeds such reduced Total Revolving Loan Commitment. (e) If at any time and for any reason the aggregate principal amount of Revolving Loans plus the L/C Obligations then outstanding are greater than the Total Revolving Loan Commitment, the Borrower shall immediately prepay the Revolving Loans in an amount equal to such excess. In addition, to the extent at any time and for any reason, the Total Revolving Loan Commitment minus the aggregate principal amount of Revolving Loans then outstanding, is less than the amount of L/C Obligations outstanding at such time, the Borrower shall Cash Collateralize the L/C Obligations in an amount equal to the amount by which such L/C Obligations exceed the amount equal to the difference between the Total Revolving Loan Commitment and such aggregate principal amount of Revolving Loans. (f) Nothing in this Section 2.12 shall be construed to constitute the Lenders' consent to any transactions referred to in Sections 2.12(a), 2.12(b) or 2.12(c) above which transaction is not expressly permitted by the terms of this Agreement. Section 2.13 Application of Prepayments. All prepayments of the Loans required by clauses (a) through (c) of Section 2.12 shall be applied first, to prepay the Term Loans until such Term Loans shall have been repaid in full, together with accrued and unpaid interest thereon, second, to prepay the Revolving Loans until such Revolving Loans shall have been repaid in full, together with accrued and unpaid interest thereon, and third, to Cash Collateralize the then outstanding Letters of Credit and, fourth, to all other outstanding Obligations. If (i) at the time of any prepayment of the principal amount of the Revolving Loans pursuant to the preceding sentence, either (A) the Leverage Ratio as of the end of the fiscal quarter immediately preceding such date as to which financial statements are required to have been delivered pursuant to Section 6.1(a) or 6.1(b), as applicable, is greater than or equal to 2.0 or (B) any Default has occurred and is continuing as a result of the Borrower's failure to 32 39 deliver any financial statement or Compliance Certificate as and when required pursuant to Section 6.1(a), 6.1(b) or 6.1(e), as applicable, then simultaneously with any prepayment of the principal amount of the Revolving Loans pursuant to the preceding sentence, each Lender's Revolving Loan Commitment shall be permanently reduced by such Lender's Pro Rata Share of such prepayment and (ii) at the time of any prepayment of the principal amount of the Revolving Loans pursuant to the preceding sentence, both (A) the Leverage Ratio as of the end of the fiscal quarter immediately preceding such date as to which financial statements are required to have been delivered pursuant to Section 6.1(a) and 6.1(b), as applicable, is less than 2.0 and (B) no Default has occurred or is continuing as a result of the Borrower's failure to deliver any financial statement or Compliance Certificate as and when required pursuant to Section 6.1(a), 6.1(b) or 6.1(e), as applicable, then, any Revolving Loans repaid pursuant to the preceding sentence may be reborrowed, subject to the other terms of this Agreement. All prepayments of the Term Loans required by clauses (a) through (c) of Section 2.12 shall be applied pro rata to the scheduled installments of principal thereof. Section 2.14 Method and Place of Payment. (a) Except as otherwise specifically provided herein, all payments and prepayments under this Agreement and the Notes shall be made to the Agent for the account of the Lenders entitled thereto not later than 2:00 P.M., Chicago time, on the date when due and shall be made in lawful money of the United States of America in immediately available funds at the Agent's Office, and any funds received by the Agent after such time shall, for all purposes hereof (including the following sentence), be deemed to have been paid on the next succeeding Business Day. Except as otherwise specifically provided herein, the Agent shall thereafter cause to be distributed on the date of receipt thereof to each Lender in like funds its Pro Rata Share of payments so received. (b) Whenever any payment to be made hereunder or under any Note shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable at the applicable rate during such extension. (c) All payments made by the Borrower hereunder and under the other Loan Documents shall be made irrespective of, and without any reduction for, any setoff or counterclaims. Section 2.15 Fees. (a) The Borrower agrees to pay the fees in the amounts and on the dates specified in the Fee Letter. (b) The Borrower agrees to pay to the Agent for the account of each Lender a commitment fee (the "Commitment Fee") for each day computed at the per annum rate equal to the Applicable Margin (determined for the Commitment Fee in accordance with the definition of Applicable Margin) multiplied by each such Lender's Pro Rata Share of the average daily Unused Portion, from and including the date of this Agreement to the Revolving Loan Maturity Date. The Commitment Fee shall accrue from and including the date of this 33 40 Agreement to but excluding the Revolving Loan Maturity Date. Accrued fees under this Section 2.15 shall be payable on the Closing Date and payable quarterly in arrears on each Payment Date, commencing April 15, 1998, and on the Revolving Loan Maturity Date or such earlier date, if any, on which the Revolving Loan Commitment shall terminate in accordance with the terms hereof. The Commitment Fee and all other fees due under the Loan Documents (collectively the "Fees") shall be calculated on the basis of a 360-day year for the actual number of days elapsed. Section 2.16 Interest Rate Unascertainable, Increased Costs, Illegality. (a) In the event that the Agent, in the case of clause (i) below, or any Lender, in the case of clauses (ii) and (iii) below, shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto): (i) on any date for determining the Eurodollar Rate for any Interest Period, that by reason of any changes arising after the date of this Agreement affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of the Eurodollar Rate; or (ii) at any time, that the relevant Eurodollar Rate applica ble to any of its Loans shall not represent the effective pricing to such Lender for funding or maintaining a Eurodollar Loan, or such Lender shall incur increased costs or reductions in the amounts received or receivable hereunder in respect of any Eurodollar Loan, in any such case because of (x) any change since the date of this Agreement in any applicable law or governmental rule, regulation, guideline or order or any interpretation thereof and including the introduction of any new law or governmental rule, regulation, guideline or order (such as for example but not limited to a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D of the Federal Reserve Board to the extent included in the computation of the Eurodollar Rate), whether or not having the force of law and whether or not failure to comply therewith would be unlawful, and/or (y) other circumstances affecting such Lender or the interbank Eurodollar market or the position of such Lender in such market; or (iii) at any time, that the making or continuance by it of any Eurodollar Loan has become unlawful by compliance by such Lender in good faith with any law or governmental rule, regulation, guideline or order (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) or has become impracticable as a result of a contingency occurring after the date of this Agreement which materially and adversely affects the interbank Eurodollar market; 34 41 then, and in any such event, the Agent or such Lender shall, promptly after making such determination, give notice (by telephone promptly confirmed in writing) to the Borrower and (if applicable) the Agent of such determination (which notice the Agent shall promptly transmit to each of the other Lenders). Thereafter (x) in the case of clause (i) above, the Borrower's right to request Eurodollar Loans shall be suspended, and any Notice of Borrowing or Notice of Conversion or Continuation given by the Borrower with respect to any Borrowing of Eurodollar Loans which has not yet been made shall be deemed cancelled and rescinded by the Borrower, (y) in the case of clause (ii) above, the Borrower shall pay to such Lender, upon such Lender's delivery of a written demand therefor to the Borrower with a copy to the Agent, such additional amounts (in the form of an increased rate of interest, or a different method of calculating interest, or otherwise, as such Lender in its sole discretion shall determine) as shall be required to compensate such Lender for such increased costs or reduction in amounts received or receivable hereunder and (z) in the case of clause (iii) above, the Borrower shall take one of the actions specified in clause (b) below as promptly as possible and, in any event, within the time period required by law. The written demand provided for in clause (y) shall demonstrate in reasonable detail the calculation of the amounts demanded and shall, absent manifest error, be final and conclusive and binding upon all of the parties hereto. (b) In the case of any Eurodollar Loan or requested Eurodollar Loan affected by the circumstances described in clause (a)(ii) above, the Borrower may, and in the case of any Eurodollar Loan affected by the circumstances described in clause (a)(iii) above the Borrower shall, either (i) if any such Eurodollar Loan has not yet been made but is then the subject of a Notice of Borrowing or a Notice of Conversion or Continuation, be deemed to have cancelled and rescinded such notice, or (ii) if any such Eurodollar Loan is then outstanding, require the affected Lender to convert each such Eurodollar Loan into a Base Rate Loan at the end of the applicable Interest Period or such earlier time as may be required by law, in each case by giving the Agent notice (by telephone promptly confirmed in writing) thereof on the Business Day that the Borrower was notified by the Lender pursuant to clause (a) above; provided, however, that all Lenders whose Eurodollar Loans are affected by the circumstances described in clause (a) above shall be treated in the same manner under this clause (b). (c) In the event that the Agent determines at any time following its giving of notice based on the conditions described in clause (a)(i) above that none of such conditions exist, the Agent shall promptly give notice thereof to the Borrower and the Lenders, whereupon the Borrower's right to request Eurodollar Loans from the Lenders and the Lenders' obligation to make Eurodollar Loans shall be restored. (d) In the event that a Lender determines at any time following its giving of a notice based on the conditions described in clause (a)(iii) above that none of such conditions exist, such Lender shall promptly give notice thereof to the Borrower and the Agent, whereupon the Borrower's right to request Eurodollar Loans from such Lender and such Lender's obligation to make Eurodollar Loans shall be restored. Section 2.17 Funding Losses. The Borrower shall compensate each Lender, 35 42 upon such Lender's delivery of a written demand therefor to the Borrower, with a copy to the Agent (which demand shall set forth the basis for requesting such amounts and shall, absent manifest error, be final and conclusive and binding upon all of the parties hereto), for all reasonable losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by such Lender in connection with the liquidation or reemployment of deposits or funds required by it to make or carry its Eurodollar Loans), that such Lender sustains: (i) if for any reason (other than a default by such Lender) a Borrowing of, or conversion from or into, or a continuation of, Eurodollar Loans does not occur on a date specified therefor in a Notice of Borrowing or Notice of Conversion or Continuation (whether or not rescinded, cancelled or withdrawn or deemed rescinded, cancelled or withdrawn, pursuant to Section 2.16(a) or 2.16(b) or otherwise), (ii) if any prepayment or repayment (including, without limitation, payment after acceleration) or conversion of any of its Eurodollar Loans occurs on a date which is not the last day of the Interest Period applicable thereto, (iii) if any prepayment of any of its Eurodollar Loans is not made on any date specified in a notice of prepayment given by the Borrower, or (iv) as a consequence of any default by the Borrower in repaying its Eurodollar Loans or any other amounts owing hereunder in respect of its Eurodollar Loans when required by the terms of this Agreement. Calculation of all amounts payable to a Lender under this Section 2.17 shall be made on the assumption that such Lender has funded its relevant Eurodollar Loan through the purchase of a Eurodollar deposit bearing interest at the Eurodollar Rate in an amount equal to the amount of such Eurodollar Loan with a maturity equivalent to the Interest Period applicable to such Eurodollar Loan, and through the transfer of such Eurodollar deposit from an offshore office of such Lender to a domestic office of such Lender in the United States of America, provided that each Lender may fund its Eurodollar Loans in any manner that it in its sole discretion chooses and the foregoing assumption shall only be made in order to calculate amounts payable under this Section 2.17. Section 2.18 Increased Capital. If any Lender shall have determined that compliance with any applicable law, rule, regulation, guideline, request or directive (whether or not having the force of law) of any governmental authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital or assets of such Lender or any Person controlling such Lender as a consequence of its commitments or obligations hereunder, then from time to time, upon such Lender's delivering a written demand therefor to the Agent and the Borrower (with a copy to the Agent), the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or Person for such reduction. Section 2.19 Taxes. (a) All payments made by the Borrower under this Agreement shall be made free and clear of, and without reduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any governmental authority excluding, in the case of the Agent and each Lender, net income and franchise taxes imposed on the Agent or such Lender by the 36 43 jurisdiction under the laws of which the Agent or such Lender is organized or any political subdivision or taxing authority thereof or therein, or by any jurisdiction in which such Lender's Domestic Lending Office or Eurodollar Lending Office, as the case may be, is located or any political subdivision or taxing authority thereof or therein (all such non-excluded taxes, levies, imposts, deductions, charges or withholdings being hereinafter called "Taxes"). If any Taxes are required to be withheld from any amounts payable to the Agent or any Lender hereunder or under the Notes, the amounts so payable to the Agent or such Lender shall be increased to the extent necessary to yield to the Agent or such Lender (after payment of all Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and the Notes. Whenever any Taxes are payable by the Borrower, as promptly as possible thereafter, the Borrower shall send to the Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Agent or any Lender as a result of any such failure. The agreements in this Section 2.19 shall survive the termination of this Agreement and the payment of the Notes and all other Obligations. (b) Each Lender that is not incorporated under the laws of the United States of America or a state thereof (including each Purchasing Lender that becomes a party to this Agreement pursuant to Section 10.4) agrees that, prior to the first date on which any payment is due to it hereunder, it will deliver to the Borrower and the Agent (i) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the case may be, certifying in each case that such Lender is entitled to receive payments under this Agreement and the Notes payable to it, without deduction or withholding of any United States federal income taxes, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup withholding tax. Each Lender which delivers to the Borrower and the Agent a Form 1001 or 4224 and Form W-8 or W-9 pursuant to the preceding sentence further undertakes to deliver to the Borrower and the Agent two further copies of the said letter and Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms, or other manner of certification, as the case may be, on or before the date that any such letter or form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent letter and form previously delivered by it to the Borrower, and such extensions or renewals thereof as may reasonably be requested by the Borrower, certifying in the case of a Form 1001 or 4224 that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such letter or form with respect to it and such Lender advises the Borrower 37 44 that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-8 or W-9, establishing an exemption from United States backup withholding tax. Section 2.20 Use of Proceeds. The proceeds of the Revolving Loans shall be used to partially finance the FEI Acquisition, to refinance Indebtedness under the Original Credit Facility, and for the Borrower's working capital and general corporate purposes which shall include, but not be limited to, Restaurant renovations and Permitted Acquisitions. The proceeds of the Term Loans shall be used to partially finance the FEI Acquisition and to refinance Indebtedness under the Original Credit Facility. Section 2.21 Collateral Security. (a) As security for the payment of the Obligations, the Borrower shall cause to be granted to the Agent, for the ratable benefit of the Lenders, a first priority perfected Lien on and security interest in all of the following, whether now or hereafter existing or acquired subject only to the Liens permitted to be incurred pursuant to Section 7.3 hereof: (i) all of the shares of capital stock of each Subsidiary of the Borrower now or hereafter directly or indirectly owned by the Borrower and all proceeds thereof, all as more specifically described in the Borrower Pledge Agreement and the Subsidiary Pledge Agreements; (ii) certain of the assets of the Borrower and all proceeds thereof, all as more specifi cally described in the Borrower Security Agreement; and (iii) certain of the assets of each Subsidiary now or hereafter directly or indirectly owned by the Borrower and all proceeds thereof, all as more specifically described in the Subsidiary Security Agreement. To the extent the Agent for the benefit of the Lenders does not have a first priority perfected security interest in any assets of the Borrower or any other Loan Party required to be pledged as described above which is of the type described in the Borrower Security Agreement or the Subsidiary Security Agreement, the Borrower will grant, and cause each other Loan Party to grant, to the Agent for itself and the benefit of the Lenders a first priority perfected security interest in such assets subject only to the Liens permitted pursuant to Section 7.3 hereof. In connection with any sales of assets permitted hereunder, the Agent will release and terminate the liens and security interests granted under the Security Documents with respect to such assets and no further consent of the Lenders will be required with respect to any such release. (b) Concurrently with the consummation of any Permitted Acquisition or any other acquisition of any asset which is of the type described in the Borrower Security Agreement, the Subsidiary Security Agreement, the Borrower Pledge Agreement or the Subsidiary Pledge Agreement by the Borrower or any Subsidiary of the Borrower (other than a Subsidiary which, after giving effect to any such acquisition, is an Immaterial Subsidiary) or the formation of any new Subsidiary (other than a Subsidiary which, after giving effect to any such acquisition, is an Immaterial Subsidiary) of the Borrower or upon an Immaterial Subsidiary ceasing to qualify or be designated as an Immaterial Subsidiary (conversion from the status of an Immaterial Subsidiary to a Subsidiary which is not an Immaterial Subsidiary is 38 45 hereinafter referred to as a "Conversion"), the Borrower shall (i) in the case of a Permitted Acquisition of stock or any other acquisition of stock by the Borrower or any such Subsidiary of the Borrower or the formation of such a new Subsidiary or a Conversion: (A) deliver or cause to be delivered to the Agent all of the certificates representing the capital stock of such new Subsidiary which is being acquired or formed or converted, beneficially owned by the Borrower or such Subsidiary, as additional collateral for the Obligations, to be held by the Agent in accordance with the terms of the Borrower Pledge Agreement or a Subsidiary Pledge Agreement, as the case may be; and (B) cause such new Subsidiary which is being acquired or formed or converted to deliver to the Agent (1) duly executed counterpart signature pages to each of the Guaranty, and the Subsidiary Security Agreement, in the forms attached respectively thereto as Annex I, together with the authorization to the Agent and the Lenders to attach such signature pages to the Guaranty and the Subsidiary Security Agreement, respectively, the effect of which shall be that as of the date set forth on such signature pages such new or converted Subsidiary shall become a party to each such agreement and be bound by the terms thereof and any revisions to the schedules to the Subsidiary Security Agreement necessary in connection therewith, (2) if such new or converted Subsidiary owns any capital stock of any other Subsidiary, a Subsidiary Pledge Agreement, or if such new or converted Subsidiary owns any copyrights, trademarks, patents or other intellectual property, such additional Security Documents as requested by the Agent and, (3) such Uniform Commercial Code financing statements as shall be required to perfect the security interest of the Agent and the Lenders in the Collateral being pledged by such new Subsidiary pursuant to the Subsidiary Security Agreement; (ii) in the case of a Permitted Acquisition of assets or any other acquisition of assets by the Borrower or any such Subsidiary which is of the type described in the Borrower Security Agreement or the Subsidiary Security Agreement, deliver or cause to be delivered by the Borrower or such Subsidiary acquiring such assets, (A) such Uniform Commercial Code financing statements as shall be required to perfect the security interest of the Agent and the Lenders in the assets being so acquired, (B) if such assets include copyrights, trademarks, patents or other intellectual property, such additional Security Documents as requested by the Agent, and (C) any additional instruments or documents evidencing the security interest of the Agent reasonably required by the Agent; and (iii) in any case, provide such other documentation, including, without limitation, one or more opinions of counsel reasonably satisfactory to the Agent, articles of incorporation, by-laws and resolutions, 39 46 which in the reasonable opinion of the Agent is necessary or advisable in connection with such Permitted Acquisition or formation of such new Subsidiary or other acquisition or Conversion. Section 2.22 Replacement of Certain Lenders. If a Lender ("Affected Lender") shall have requested compensation from the Borrower under Sections 2.16, 2.18 or 2.19 to recover Taxes or other additional costs incurred by such Lender which are not being incurred generally by the other Lenders, or delivered a notice pursuant to Section 2.16(a)(iii) claiming that such Lender is unable to extend Eurodollar Loans to the Borrower for reasons not generally applicable to the other Lenders, then, in any such case, so long as no Default or Event of Default exists, the Borrower may make written demand on such Affected Lender (with a copy to the Agent) for the Affected Lender to assign, and such Affected Lender shall assign pursuant to one or more duly executed assignment and acceptance agreements in substantially the form of Exhibit I thirty (30) Business Days after the date of such demand, to one or more financial institutions that comply with the provisions of Section 10.4(c) and 10.4(d) (and that are reasonably acceptable to the Agent) which the Borrower shall have engaged for such purpose ("Replacement Lender"), all of such Affected Lender's rights and obligations under this Agreement and the other Loan Documents (including its Revolving Loan Commitment, all Loans owing to it, all of its participation interests in outstanding Letters of Credit, and its obligation to participate in additional Letters of Credit hereunder) in accordance with Section 10.4(c) and 10.4(d). Further, with respect to any such assignment, the Affected Lender shall have concurrently received, in cash, all amounts due and owing to such Affected Lender hereunder or under any other Loan Document, including the aggregate outstanding principal amount of the Loans owed to such Lender, together with accrued interest thereon through the date of such assignment from the Replacement Lender, amounts payable under Sections 2.16, 2.18 and 2.19 with respect to such Affected Lender and compensation payable under Section 2.15; provided that upon such Affected Lender's replacement, such Affected Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.16, 2.17, 2.18, 2.19 and 10.1 accruing with respect to such Affected Lender prior to the date such Affected Lender is replaced, as well as to any fees accrued for its account hereunder prior to being replaced and not yet paid, and shall continue to be obligated under Section 9.7. SECTION 3. LETTERS OF CREDIT. Section 3.1 Issuance of Letters of Credit, etc. (a) Subject to the terms and conditions hereof, at any time and from time to time from the Closing Date through the day prior to the Revolving Loan Maturity Date, the Issuing Bank shall issue such Letters of Credit for the account of the Borrower or any Subsidiary of the Borrower which is a party to the Guaranty as Borrower may request by an L/C Application; provided that, giving effect to such Letter of Credit, (x) the sum of the L/C Obligations then outstanding plus the then outstanding aggregate principal amount of the Revolving Loans shall not exceed the Total Revolving Loan Commitment and (y) the aggregate L/C Obligations then outstanding shall not exceed the L/C 40 47 Commitment. Unless all the Lenders and the Issuing Bank otherwise consent in writing, the term of any Letter of Credit shall not exceed 12 months. No Letter of Credit shall expire by its terms after the Revolving Loan Maturity Date. No Letter of Credit shall be issued except in the ordinary course of business of the Borrower or any of its Subsidiaries or in connection with Permitted Acquisitions with respect to which the conditions set forth in Section 7.8(f) have been satisfied, each Letter of Credit shall be used solely (a) to support obligations of the Borrower and its Subsidiaries not prohibited hereunder, other than Indebtedness for borrowed money (except that Letters of Credit may support the obligations of the Borrower and its Subsidiaries in respect of the industrial revenue bond identified on Schedule 7.2), and (b) for the purposes described in the definition of "Trade Letter of Credit". (b) The Borrower shall submit the L/C Application for the Issuance of any Letter of Credit to the Issuing Bank at least five Business Days prior to the date when required. Upon Issuance of a Letter of Credit, the Issuing Bank shall promptly notify the Lenders of the amount and terms thereof. (c) Upon the Issuance of a Letter of Credit, each Lender that has made a Revolving Loan Commitment shall be deemed to have purchased a pro rata participation, from the Issuing Bank in an amount equal to that Lender's Pro Rata Share, in the Letter of Credit. Without limiting the scope and nature of each Lender's participation in any Letter of Credit, to the extent that the Issuing Bank has not been reimbursed by Borrower for any payment to a beneficiary of a Letter of Credit in respect of a drawing under such Letter of Credit made by the Issuing Bank under any Letter of Credit, each Lender shall, pro rata according to its Pro Rata Share, reimburse the Issuing Bank promptly upon demand for the amount of such payment. The obligation of each Lender to so reimburse the Issuing Bank shall be absolute and unconditional and shall not be affected by the occurrence of a Default, Event of Default or any other occurrence or event. Any such reimbursement shall not relieve or otherwise impair the obligation of Borrower to reimburse the Issuing Bank for the amount of any payment made by the Issuing Bank under any Letter of Credit together with interest as hereinafter provided. (d) Upon the making of any payment with respect to any Letter of Credit by the Issuing Bank, Borrower shall be deemed to have submitted a Notice of Borrow ing for a Revolving Loan consisting of a Base Rate Loan in the amount of such payment, and the Agent shall without notice to or the consent of Borrower cause Revolving Loans to be made by the Lenders in an aggregate amount equal to the amount paid by the Issuing Bank on that Letter of Credit, but not exceeding the Total Revolving Loan Commitment minus the then outstanding principal amount of Revolving Loans and minus all other then outstanding L/C Obligations, and for this purpose, the conditions precedent set forth in Section 4 hereof shall not apply. The proceeds of such Revolving Loans shall be paid to the Issuing Bank to reimburse it for the payment made by it under the Letter of Credit. Promptly following any Revolving Loans made under this Section 3.1(d), the Agent shall notify Borrower thereof. (e) To the extent that any Loans made pursuant to Section 3.1(d) are insufficient to reimburse the Issuing Bank in full, Borrower agrees to pay to the Issuing Bank 41 48 with respect to each Letter of Credit, within one Business Day after demand therefor, a principal amount equal to any payment made by the Issuing Bank under that Letter of Credit, together with interest on such amount from the date of any payment made by the Issuing Bank through the date of payment by Borrower at the Default Rate. The principal amount of any such payment made by Borrower to the Issuing Bank shall be used to reimburse the Issuing Bank for the payment made by it under the Letter of Credit. Each Lender that has reimbursed the Issuing Bank pursuant to Section 3.1(d) for its Pro Rata Share of any payment made by the Issuing Bank under a Letter of Credit shall thereupon acquire a pro rata participation, to the extent of such reimbursement, in the claim of the Issuing Bank against Borrower under this Section 3.1(e). (f) The Issuance of any supplement, modification, amendment, renewal or extension to or of any Letter of Credit shall be treated in all respects the same as the Issuance of a new Letter of Credit. (g) Notwithstanding anything to the contrary contained in the Original Credit Facility, as of the Closing Date, the Existing Letter of Credit shall not be deemed to be a Letter of Credit under and as defined in this Agreement. Section 3.2 Letter of Credit Fees. Borrower shall pay (i) a letter of credit fee to the Agent equal to a per annum rate equal to the then effective Applicable Margin for Eurodollar Loans times the stated amount of each Standby Letter of Credit for the term of each such Letter of Credit for the account of the Lenders who have made Revolving Loan Commitments, according to their respective Pro Rata Shares, in each case payable quarterly in arrears on each Payment Date, commencing on April 15, 1998, and (ii) a letter of credit fee to the Agent equal to 0.50% of the stated amount of each Trade Letter of Credit as of the date of Issuance thereof, payable for the account of the Lenders who have made Revolving Loan Commitments, according to their respective Pro Rata Shares, in each case payable quarterly in arrears on each Payment Date, commencing on April 15, 1998. Upon (A) the issuance of each Letter of Credit, Borrower shall also pay to the Agent for the account of the Issuing Bank an amount equal to the greater of (i) $500 or (ii) 0.125% of the stated amount of such Letter of Credit as an issuance fee; (B) the amendment of each Letter of Credit, Borrower shall pay to the Agent for the account of the Issuing Bank the amendment fees, in each case, as the Issuing Bank normally charges in connection with a Letter of Credit and activity pursuant thereto, in either case which fees shall be solely for the account of the Issuing Bank; and (C) the incurrence of any reasonable out-of-pocket costs and expenses in connection with the maintenance of any Letter of Credit, Borrower shall pay to the Agent for the account of the Issuing Bank the amount of such out-of-pocket costs and expenses so incurred. Section 3.3 Obligation of Borrower Absolute, etc. (a) The obligation of Borrower to pay to the Issuing Bank the amount of any payment made by the Issuing Bank under any Letter of Credit shall be absolute, unconditional and irrevocable. Without limiting the foregoing, such obligation of Borrower shall not be affected by any of the following 42 49 circumstances: (1) any lack of validity or enforceability of the Letter of Credit, this Agreement or any other agreement or instrument relating thereto; (2) any amendment or waiver of or any consent to departure from the Letter of Credit, this Agreement or any other agreement or instrument relating thereto; (3) the existence of any claim, setoff, defense or other rights which the Borrower or any Subsidiary of the Borrower may have at any time against the Issuing Bank, any Lender, the Agent, any beneficiary of the Letter of Credit (or any Persons for whom any such beneficiary may be acting) or any other Person, whether in connection with the Letter of Credit, this Agreement or any other agreement or instrument relating thereto, or any unrelated transactions; (4) any demand, statement or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever so long as any such document appeared to comply with the terms of the Letter of Credit; (5) payment by the Issuing Bank in good faith under the Letter of Credit against presentation of a draft or any accompanying document which does not strictly comply with the terms of the Letter of Credit; (6) the existence, character, quality, quantity, condition, packing, value or delivery of any property purported to be represented by documents presented in connection with any Letter of Credit or for any difference between any such property and the character, quality, quantity, condition or value of such property as described in such documents; (7) the time, place, manner, order or contents of shipments or deliveries of property as described in documents presented in connection with any Letter of Credit or the existence, nature and extent of any insurance relative thereto; (8) the solvency or financial responsibility of any party issuing any documents in connection with a Letter of Credit; (9) any failure or delay in notice of shipments or 43 50 arrival of any property; and (10) any other circumstances whatsoever. (b) As among the Borrower, the Lenders, the Issuing Bank and the Agent, the Borrower assumes all risks of the acts and omissions of, or misuse of such Letter of Credit by, the beneficiary of any Letter of Credit. In furtherance and not in limitation of the foregoing, subject to the provisions of the Letter of Credit applications and Letter of Credit reimbursement agreements executed by the Borrower at the time it requests any Letter of Credit, the Agent, the Issuing Bank and the Lenders shall not be responsible; (i) for the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of the Letters of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) for the failure of the beneficiary of a Letter of Credit to comply duly with conditions required in order to draw upon such Letter of Credit; (iv) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex, or other similar form of teletransmission or otherwise; (v) for errors in interpretation of technical trade terms; (vi) for any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit or of the proceeds thereof; (vii) for the misapplication by the beneficiary of a Letter of Credit of the proceeds of any drawing under such Letter of Credit; and (viii) for any consequences arising from causes beyond the control of the Agent, the Issuing Bank and the Lenders including, without limitation, any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority. 44 51 None of the above shall affect, impair, or prevent the vesting of any of the Issuing Bank's rights or powers hereunder. (c) In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by the Issuing Bank under or in connection with Letters of Credit issued by it or any related certificates shall not, in the absence of gross negligence or willful misconduct, put the Issuing Bank under any resulting liability to the Borrower or relieve the Borrower of any of its obligations hereunder to any such Person. (d) The Issuing Bank shall be entitled to the protection accorded to the Agent pursuant to Section 9, mutatis mutandis. SECTION 4. CONDITIONS PRECEDENT. Section 4.1 Conditions Precedent to Initial Loans. The obligation of each Lender to make its initial Loans and of the Issuing Bank to Issue any Letter of Credit on the Closing Date is subject to the satisfaction on the Closing Date of the following conditions precedent: (a) Loan Documents. (i) Credit Agreement. The Borrower shall have executed and delivered this Agreement to the Agent. (ii) Notes. The Borrower shall have executed and delivered to each of the Lenders the appropriate Notes in the amount, maturity and as otherwise provided herein. (iii) Borrower Security Agreement. The Borrower shall have executed and delivered to the Agent the Borrower Security Agreement, together with an Officer's Certificate supplementing each of the schedules as of the Closing Date, and each of such supplemented schedules. (iv) Subsidiary Security Agreement. Each Subsidiary of the Borrower (other than any such Subsidiary which is an Immaterial Subsidiary) shall have duly executed and delivered to the Agent the Subsidiary Security Agreement and that certain Amendment No. 1 to Subsidiary Security Agreement dated as of the date hereof in form and substance satisfactory to the Agent and the Lenders. (v) Borrower Pledge Agreement. The Borrower shall 45 52 have executed and delivered to the Agent the Borrower Pledge Agreement, together with an Officer's Certificate supplementing each of the schedules as the Closing Date, and each of such supplemented schedules. (vi) Subsidiary Pledge Agreements. Each Subsidiary of the Borrower (other than JB Newco) that owns any Equity Interest in any Person as of the Closing Date (other than an equity interest in Boston West, L.L.C.) shall have duly executed and delivered to the Agent a Subsidiary Pledge Agreement. (vii) Guaranty. Each Subsidiary of the Borrower (other than JB, JB Newco and any other Subsidiary which is an Immaterial Subsidiary) shall have executed and delivered to the Agent the Guaranty or a Joinder to Guaranty in form and substance satisfactory to the Agent and the Lenders. (b) Opinions of Counsel. The Agent shall have received (A) a legal opinion, dated the Closing Date, from Stradling Yocca Carlson & Rauth, counsel to the Loan Parties, substantially in the form set forth as Exhibit H hereto, (B) legal opinions from Locke Purnell Rain Harrell, special Texas counsel to the Loan Parties, Kilpatrick Stockton LLP, special North Carolina and Georgia counsel to the Loan Parties, and Burr & Forman LLP, special Alabama counsel to the Loan Parties, and (C) such other legal opinions, each dated the Closing Date, from local counsel to the Loan Parties as requested by the Agent with respect to such matters as requested by the Agent and in form and substance satisfactory to the Agent. (c) Corporate Documents. The Agent shall have received the Certifi cate of Incorporation, partnership agreement or other similar organizational document of each of the Loan Parties as amended, modified or supplemented to the Closing Date, (other than in the case of a general partnership) certified to be true, correct and complete by the appropriate Secretary of State as of a date not more than ten Business Days prior to the Closing Date, together with a good standing certificate from such Secretary of State and a good standing certificate from the Secretaries of State (or the equivalent thereof) of each other State in which each of them is required to be qualified to transact business, each to be dated a date not more than ten Business Days prior to the Closing Date and a bring-down good standing certificate or telephonic confirmation from the appropriate Secretary of State in each jurisdiction of incorporation of each Loan Party dated the Closing Date. (d) Certified Resolutions, etc. The Agent shall have received a certificate of the Secretary or Assistant Secretary of each of the Loan Parties or of a general partner in the case of each Loan Party which is a partnership and dated the Closing Date certifying (i) the names and true signatures of the incumbent officers of such Person authorized to sign the applicable Loan Documents, (ii) the By-Laws of such Person as in effect on the Closing Date, (iii) the resolutions of such Person's Board of Directors approving and authoriz ing the execution, delivery and performance of all Transaction Documents executed by such 46 53 Person, and (iv) that there have been no changes in the Certificate of Incorporation of such Person since the date of the most recent certification thereof by the appropriate Secretary of State or, in the case of a partnership or other similar entity, the partnership agreement or other similar organizational document. (e) Transaction Documents. The Agent shall have received copies of the Transaction Documents (other than the Loan Documents) and any amendments, waivers or supplements thereto, certified as of the Closing Date by the President or Vice President, of the Borrower to be true, correct and complete copies of such documents, which documents shall be in form and substance satisfactory to the Agent. The Agent shall have received copies of all documents relating to existing Indebtedness for borrowed money or evidenced by a note, bond, debenture, acceptance or similar instrument of the Borrower and its Subsidiaries that shall be outstanding in each case in a principal amount in excess of $2,000,000 on and after the Closing Date, including, without limitation, terms of amortization, interest, premiums, fees, expenses, maturity, amendments, covenants, events of default and remedies, certified as of the Closing Date as such by the President or Vice President of the Borrower. (f) Process Agent. Each Loan Party shall have appointed an agent satisfactory to the Agent for service of process in connection with any action or proceeding arising under or relating to the Loan Documents, and such agent shall have accepted such appointment in writing. (g) Officer's Certificate. The Agent and the Lenders shall have received a certificate of the President or Vice President of the Borrower, dated the Closing Date, certifying that (i) the Transaction Documents (other than the Loan Documents) are in full force and effect and no material term or condition thereof has been amended from the form thereof delivered to the Agent, or waived, except as disclosed to the Agent or its counsel prior to the execution of this Agreement, (ii) each of the Loan Parties and, to the best of his or her knowledge, the other parties to the Transaction Documents, have performed or complied in all material respects with all agreements and conditions contained in such Transaction Documents and any agreements or documents referred to therein required to be performed or complied with by each of them on or before the Closing Date and no material condition to closing by the Borrower or any of its Subsidiaries and set forth therein has been waived, (iii) subject to the foregoing, neither any Loan Party nor, to the best of his or her knowledge, any such other party is in default in the performance or compliance with any of the material terms or provisions thereof, except to the extent that performance thereof or compliance therewith or default has been waived with the prior written consent of the Lenders, (iv) all of the represen tations and warranties of the Borrower and each other Loan Party contained in the Transaction Documents are true and correct, (v) after giving effect to the execution and delivery of the Transaction Documents by each of the Loan Parties and consummation of the Transactions thereunder, no Default or Event of Default shall have occurred and be continuing and (vi) since December 31, 1996, no event or change has occurred that has caused or evidences a Material Adverse Effect. 47 54 (h) Solvency Certificate. The Agent shall have received a certificate signed by the Chief Financial Officer of the Borrower containing conclusions that the Borrower and its Subsidiaries are Solvent before and after giving effect to the Transactions and the incurrence of all other Indebtedness of the Borrower and its Subsidiaries in connection with the FEI Acquisition. (i) Insurance. The Agent shall have received a certificate of insurance demonstrating insurance coverage in respect of each of the Loan Parties of types, in amounts, with insurers and with other terms reasonably satisfactory to the Agent. (j) Lien Search Reports. The Agent shall have received satisfactory reports of UCC, tax lien, judgment and litigation searches with respect to the Borrower and each of the other Loan Parties in each of the locations requested by the Agent. (k) UCC-1 Financing Statements. The Agent shall have received originals of each UCC-1 financing statement (i) duly executed by an Authorized Officer of the Borrower as debtor naming the Agent as secured party and filed in the jurisdictions set forth in Schedule I to the Borrower Security Agreement and (ii) duly executed by an Authorized Officer of each other Loan Party as debtor naming the Agent as secured party and filed in the appropriate jurisdictions set forth in Schedule I to the Subsidiary Security Agreement. (l) Pro Forma Balance Sheet. The Agent shall have received a pro forma consolidated balance sheet of the Borrower and its Subsidiaries, dated as of January 26, 1998, giving effect to the Transactions and the payment or accrual of all Transaction Costs, certified by the chief financial officer of the Borrower and a pro forma calculation of the Leverage Ratio specified in Section 4.1(m) certified by the chief financial officer of the Borrower. (m) Pro forma Leverage Ratio. For the twelve-month period ended January 26, 1998, the Leverage Ratio (on a pro forma consolidated basis after giving effect to the Transactions and the Hardee's Acquisition) is less than or equal to 3.0 to 1.0. (n) Pledged Stock. The Agent shall have received the original stock certificates evidencing the stock pledged pursuant to the Borrower Pledge Agreement and each Subsidiary Pledge Agreement, together with undated stock powers duly executed in blank in connection therewith. (o) Corporate Structure. The corporate structure of the Loan Parties after giving effect to the FEI Acquisition shall be satisfactory to the Lenders and the Agent shall have received a corporate structure chart with respect to the Borrower and all of its Subsidiaries (certified by an Authorized Officer of the Borrower) after giving effect to the FEI Acquisition. 48 55 (p) Financial Statements. The Agent shall have received the audited financial statements of the Company for the fiscal year ended December 31, 1996 and the unaudited financial statements of the Company for the fiscal period from January 1, 1997, through October 1,1997. (q) Funded Debt and Capitalization. The aggregate amount of the Loans borrowed under this Agreement on the Closing Date shall not exceed $425,000,000, and the Total Revolving Loan Commitment minus the aggregate principal amount of the Revolving Loans outstanding on the Closing Date after the Borrowings of the initial Loans hereunder minus the amount of any L/C Obligations then outstanding including any Letters of Credit to be issued on the Closing Date shall equal at least $25,000,000. The Agent shall have received evidence satisfactory to it that the Borrower shall have received cash proceeds from the issuance of the Subordinated Notes, in an aggregate amount not less than $192,294,375 net of all brokerage commissions, underwriting fees and discounts (the "Initial Debt/Equity Issuance") and that at least $115,000,000 of such funds have been applied to the consumma tion of the FEI Acquisition and the payment of the Transaction Costs. (r) Existing Indebtedness. The Agent shall have received evidence satisfactory to the Agent and the Lenders that, after giving effect to the consummation of the Transactions, (i) the Borrower and its Subsidiaries shall not be liable for or have outstanding any Indebtedness which is of the type of Indebtedness which would appear as a liability on (or would be required to appear as a liability on) the consolidated balance sheet of the Borrower (and not of the type required solely to be included in the footnotes thereto) and which Indebtedness shall include, without limitation, Indebtedness for borrowed money and Capital ized Lease Obligations, other than (A) the Loans outstanding hereunder as contemplated by Section 4.1(q) and (B) Indebtedness permitted under Section 7.2 (but excluding Indebtedness described in Section 7.2(a)) (collectively, the "Surviving Debt"), the aggregate outstanding principal amount of which shall not exceed $350,000,000 as of the Closing Date, and (ii) the Borrower, the Company and each of their respective Subsidiaries shall have paid in full all other Indebtedness of the Borrower, the Company and their respective Subsidiaries existing prior to the making of the initial Loans hereunder (all of the foregoing Indebtedness described in the foregoing clause (i) and (ii) referred to collectively as "Existing Debt"). The Agent shall be satisfied that the execution and delivery of, and the performance by each of the Borrower, the Company and their respective Subsidiaries of its respective obligations under, each Transaction Document to which it is a party and consummation of the Transactions does not violate, conflict with or cause a default under any document or instrument evidencing Existing Debt, other than Existing Debt being repaid on the Closing Date. The Agent shall have received (i) payoff and lien termination and release agreements, in form and substance satisfactory to the Agent, from each creditor of the Borrower, the Company and their respective Subsidiaries with respect to Existing Debt other than Surviving Debt, and (ii) such Form UCC-3 (or its equivalent), intellectual property lien releases in recordable form in all applicable jurisdictions, and other lien and mortgage release and termination agreements, 49 56 evidence of release of federal and state tax liens, all in form and substance satisfactory to the Agent, as the Agent shall request, duly executed by the appropriate Person in favor of which such Liens were granted. (s) Environmental Matters. The Agent shall (i) be satisfied that neither the Borrower, the Company, any of their respective Subsidiaries nor any other Loan Party is subject to any present or contingent liability deemed material by the Agent in its reasonable judgment in connection with any past or present treatment, storage, recycling, disposal or release or threatened release, at any property location regardless of whether owned or operated by the Borrower, the Company or any of their respective Subsidiaries or any other Loan Party, of any Materials of Environmental Concern or in connection with any Environmental Law or other health or safety laws or regulations, and that their operations taken as a whole comply in all material respects (in the Agent's reasonable judgment) with all Environmental Laws or other health or safety laws or regulations, (ii) be satisfied that neither the Borrower, the Company, any of their respective Subsidiaries, nor any other Loan Party nor any property owned or operated by any such Person is the subject of any federal or state investigation evaluating whether any remedial action, involving a material expenditure (in the opinion of the Agent) is needed to respond to any release or other presence of Materials of Environmental Concern and (iii) have received a list of all of the properties operated, owned or leased by the Borrower, the Company and each of their respective Subsidiaries as to which Phase I environmental audit reports have been completed within ten (10) years prior to the Closing Date and have received copies of those Phase I audit reports which identify, or which recommend a subsequent Phase II investigation as to, any material environmental health or safety violations, hazards or potential liabilities relating to the properties and business of the Borrower, the Company, each of their respective Subsidiaries, the other Loan Parties (if applicable) and each of their Environmental Affiliates of which the Borrower, the Company, or any of their respective Subsidiaries have knowledge. (t) Funds Flow Instructions. The Agent and the Lenders shall have received detailed instructions satisfactory to them describing the funds flow in connection with the Transactions on the Closing Date. (u) Fees and Expenses. The Agent shall have received, for its account and for the account of each Lender, as applicable, all Fees and other fees and expenses due and payable hereunder and under the other Loan Documents on or before the Closing Date, including, without limitation, the reasonable fees and expenses accrued through the Closing Date, of Skadden, Arps, Slate, Meagher & Flom (Illinois) and any other counsel retained by the Agent. (v) Consents, Licenses, Approvals; Compliance with Laws. All consents, licenses, orders, permits, authorizations, validations, certificates, filings and approvals (collectively, "Consents"), if any, required in connection with the execution, delivery and performance by Advantica, the Borrower, the Company or any of their respective 50 57 Subsidiaries, and the validity and enforceability of the Transaction Documents, or in connection with any of the Transactions, including, without limitation, all shareholder Consents and all Consents required by any federal, state, local regulatory or governmental authority including, without limitation, all Consents required pursuant to the Hart-Scott-Rodino Act, shall have been obtained or made and shall be in full force and effect and copies thereof shall in each case have been delivered to the Agent. The waiting period with respect to the FEI Acquisition under the Hart-Scott-Rodino Act has been terminated or expired. The Borrower shall have delivered to the Agent such evidence as the Agent shall have requested, evidencing compliance by the Borrower, the Company and the other Loan Parties with all applicable laws, rules and regulations before and after giving effect to the Transactions (including, without limitation, all applicable corporate and securities laws and all ERISA, environmental and health and safety laws, rules and regulations). (w) Management Contracts. The Borrower shall deliver to the Agent and each Lender copies of each written agreement that it, the Company or any of their respective Subsidiaries has or contemplates entering into with its officers or other members of management as requested by the Agent certified by an officer of the Borrower, and each such contract shall be satisfactory in form and substance to the Agent. (x) Franchise Agreements. The Borrower shall deliver to the Agent copies of representative forms of Franchise Agreements, which represent the various forms of all Franchise Agreements to which the Borrower, the Company or any of their respective Subsidiaries as of the Closing Date is the franchisor or licensor in each case certified by the general counsel of the Borrower. (y) No Material Adverse Change. No event, act or condition shall have occurred after December 31, 1996 that has had a Material Adverse Effect. (z) Consummation of FEI Acquisition. The FEI Acquisition shall have been consummated in accordance with the terms of the FEI Acquisition Documents. (aa) Projections. The Agent shall have received projections prepared by the Borrower demonstrating the projected consolidated financial condition and results of operations of the Borrower and its Subsidiaries after giving effect to the Transactions, for the period commencing on the Closing Date and ending on the Final Maturity Date, which projections shall be accompanied by a written statement of the assumptions underlying the projections, and all of the foregoing shall be satisfactory to the Lenders. (bb) Litigation. The Agent shall have received a list of all material actions, suits, governmental investigations, arbitrations and proceedings pending against the Borrower, the Company or any of their respective Subsidiaries and the loss analyses with respect thereto. 51 58 (cc) Additional Matters. The Agent shall have received such other certificates, opinions, documents and instruments relating to the Transactions as may have been reasonably requested by the Agent or any Lender, and all corporate and other proceedings and all other documents (including, without limitation, all documents referred to herein and not appearing as exhibits hereto) and all legal matters in connection with the Transactions shall be satisfactory in form and substance to the Lenders. Section 4.2 Conditions Precedent to All Loans. The obligation of each Lender to make any Loan (including the initial Loans made on the Closing Date) and of the Issuing Bank to issue any Letter of Credit is subject to the satisfaction on the date such Loan is made or such Letter of Credit is Issued of the following conditions precedent: (a) Representations and Warranties. The representations and warranties contained herein and in the other Loan Documents (other than representations and warranties which expressly speak only as of a different date) shall be true and correct in all material respects on such date both before and after giving effect to the making of such Loans or the Issuance of such Letter of Credit. (b) No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing on such date either before or after giving effect to the making of such Loans or the Issuance of such Letter of Credit. (c) No Injunction. No law or regulation shall have been adopted, no order, judgment or decree of any governmental authority shall have been issued, and no litigation shall be pending or threatened, which in the reasonable judgment of the Lenders would enjoin, prohibit or restrain, or impose or result in the imposition of any material adverse condition upon, the making or repayment of the Loans, the Issuance of such Letter of Credit or the reimbursement of any amounts with respect thereto or the consummation of the Transactions. (d) No Material Adverse Change. No event, act or condition shall have occurred after December 31, 1996 which, in the judgment of the Required Lenders, has had or could have a Material Adverse Effect. (e) Notice of Borrowing or Issuance. The Agent or the Issuing Bank shall have received a fully executed Notice of Borrowing or L/C Application, as appropriate, in respect of the Loans to be made or Letters of Credit to be Issued, respectively, on such date. The acceptance of the proceeds of each Loan and of the Issuance of each Letter of Credit shall constitute a representation and warranty by the Borrower to the Agent and each of the Lenders that all of the conditions required to be satisfied under this Section 4 in connection with the making of such Loan or the Issuance of such Letter of Credit have been satisfied. 52 59 All of the Notes, certificates, agreements, legal opinions and other documents and papers referred to in this Section 4, unless otherwise specified, shall be delivered to the Agent for the account of each of the Lenders and, except for the Notes, in sufficient counterparts for each of the Lenders, and shall be satisfactory in form and substance to the Agent and each Lender in its sole discretion. SECTION 5. REPRESENTATIONS AND WARRANTIES. In order to induce the Lenders to enter into this Agreement and to make the Loans and to induce the Issuing Bank to issue Letters of Credit, the Borrower makes the following representations and warranties, which shall survive the execution and delivery of this Agreement and the Notes and the making of the Loans and the Issuance of the Letters of Credit: Section 5.1 Corporate Status. Each Loan Party (i) is a duly organized and validly existing corporation in good standing under the laws of the jurisdiction of its incorporation, (ii) has the corporate power and authority to own its property and assets and to transact the business in which it is engaged or presently proposes to engage and (iii) has duly qualified and is authorized to do business and is in good standing as a foreign corporation in every jurisdiction in which it owns or leases real property or in which the nature of its business requires it to be so qualified, except in the case of clause (iii), where the failure to so qualify, individually or in the aggregate, could not have a Material Adverse Effect. Section 5.2 Corporate Power and Authority. Each Loan Party has the corporate power and authority to execute, deliver and carry out the terms and provisions of each of the Transaction Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance by it of such Transaction Documents. Each Loan Party has duly executed and delivered each such Transaction Document, and each such Transaction Document constitutes its legal, valid and binding obligation, enforceable in accordance with its terms. Section 5.3 No Violation. Neither the execution, delivery or performance by any Loan Party of the Transaction Documents to which it is a party, nor compliance by it with the terms and provisions thereof nor the consummation of the Transactions, (i) will contravene any applicable provision of any law, statute, rule, regulation, order, writ, injunction or decree of any court or governmental instrumentality or (ii) will conflict or be inconsistent with or result in any breach of, any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien (except pursuant to the Security Documents) upon any of the property or assets of any Loan Party pursuant to the terms of any indenture, mortgage, deed of trust, lease, agreement or other instrument to which such Loan Party is a party or by which it or any of its property or assets is bound or to which it may be subject, or (iii) will violate any provision of the 53 60 Certificate of Incorporation or By-Laws (or other relevant formation documents) of any Loan Party. Section 5.4 Litigation. There are no actions, suits, governmental investigations, arbitrations or proceedings pending or threatened (i) with respect to any of the Transactions or the Transaction Documents, or the Hardee's Acquisition Documents, or (ii) that could, individually or in the aggregate, result in a Material Adverse Effect. Section 5.5 Financial Statements; Financial Condition; etc. Each of the financial statements delivered pursuant to Sections 4.1(l) and 4.1(p) were prepared in accordance with GAAP consistently applied and fairly present the financial condition and the results of operations of the entities covered thereby on the dates and for the periods covered thereby, except as disclosed in the notes thereto and, with respect to interim financial statements, subject to normally recurring year-end adjustments. No Loan Party has any material liability (contingent or otherwise) not reflected in such financial statements or in the notes thereto. Section 5.6 Solvency. On the Closing Date and at all times after the Closing Date, after giving effect to the Transactions, each Loan Party is and will be Solvent. Section 5.7 Projections. The projections delivered pursuant to Section 4.1(aa) have been prepared on the basis of the assumptions accompanying them, and such projections and assumptions, as of the date of preparation thereof and as of the Closing Date, are reasonable and represent the Borrower's good faith estimate of its future financial performance, it being understood that nothing contained in this Section shall constitute a representation or warranty that such future financial performance or results of operations will in fact be achieved. Section 5.8 Material Adverse Change. Since December 31, 1996, there has occurred no event, act, condition or liability which has had, or could have, a Material Adverse Effect. Section 5.9 Use of Proceeds; Margin Regulations. All proceeds of each Loan, and each Letter of Credit, will be used by the Borrower only in accordance with the provisions of Section 2.20. No part of the proceeds of any Loan, or any Letter of Credit, will be used by the Borrower to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. Neither the making of any Loan, nor the Issuance of any Letter of Credit, nor the use of the proceeds thereof will violate or be inconsistent with the provisions of Regulations G, T, U or X of the Federal Reserve Board. Following the application of the proceeds of each Loan, less than 25% of the value (as determined by any reasonable method) of the assets of the Borrower and its Subsidiaries (on a consolidated and an unconsolidated basis) have been and will continue to be, represented by Margin Stock. 54 61 Section 5.10 Governmental and Other Approvals. No order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority, or any subdivision thereof, or any other Person, is required to authorize, or is required in connection with (i) the execution, delivery and performance of any Transaction Document or the consummation of any of the Transactions or the Hardee's Acquisition or (ii) the legality, validity, binding effect or enforceability of any Transaction Document or Hardee's Acquisition Document or the exercise by the Agent or any Lender of any of its rights under any Loan Document, except those listed on Schedule 5.10 that have already been duly made or obtained and remain in full force and effect and except for the filing of financing statements pursuant to the Security Documents. All applicable waiting periods including, without limitation, those under the Hart-Scott-Rodino Act in connection with each Permitted Acquisition and the other transactions contemplated thereby have expired without any action having been taken by any competent authority restraining, preventing or imposing materially adverse conditions upon the rights of the Loan Parties or their Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired by any of them. Section 5.11 Security Interests and Liens. The Security Documents create, as security for the Obligations, valid and enforceable security interests in and Liens on all of the Collateral, in favor of the Agent for the ratable benefit of the Lenders, and subject to no other Liens (other than Liens expressly permitted by Section 7.3 hereof). Upon the satisfaction of the conditions precedent described in Sections 4.1(k) and 4.1(n), such security interests in and Liens on the Collateral shall be superior to and prior to the rights of all third parties (except as disclosed on Schedule 5.11), and no further recordings or filings are or will be required in connection with the creation, perfection or enforcement of such security interests and Liens, other than the filing of continuation statements in accordance with applicable law. Section 5.12 Tax Returns and Payments. Each Loan Party has filed all tax returns required to be filed by it and has paid all taxes and assessments payable by it which have become due, other than (i) those not yet delinquent or those that are reserved against in accordance with GAAP which are being diligently contested in good faith by appropriate proceedings or (ii) where the failure to so pay has not resulted and could not reasonably be expected to result in liability in excess of $1,000,000 in the aggregate for all of the Loan Parties. Section 5.13 ERISA. Neither the Borrower nor any of its Subsidiaries have any Plans other than those listed on Schedule 5.13. No accumulated funding deficiency (as defined in Section 412 of the Code or Section 302 of ERISA) or Reportable Event has occurred with respect to any Plan. There are no Unfunded Benefit Liabilities under any Plan. The Borrower and each member of its ERISA Controlled Group have complied with the requirements of Section 515 of ERISA with respect to each Multiemployer Plan and is not in "default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan. The aggregate potential total withdrawal liability, and the aggregate 55 62 potential annual withdrawal liability payments of the Borrower and the members of its ERISA Controlled Group as determined in accordance with Title IV of ERISA as if the Borrower and the members of its ERISA Controlled Group had completely withdrawn from all Multiemployer Plans is not greater than $2,000,000. To the best knowledge of the Borrower and each member of its ERISA Controlled Group, no Multiemployer Plan is or is likely to be in reorganization (as defined in Section 4241 of ERISA or Section 418 of the Code) or is insolvent (as defined in Section 4245 of ERISA). No material liability to the PBGC (other than required premium payments), the Internal Revenue Service, any Plan or any trust established under Title IV of ERISA has been, or is expected by the Borrower or any member of its ERISA Controlled Group to be, incurred by the Borrower or any member of its ERISA Controlled Group. Neither the Borrower nor any member of its ERISA Controlled Group has any contingent liability with respect to any post-retirement benefit under any "welfare plan" (as defined in Section 3(1) of ERISA), other than liability for continuation coverage under Part 6 of Title I of ERISA and other than contingent liabilities under Hardee's Retiree Medical Insurance Plan, and the aggregate present value of all post-retirement benefit liabilities of the Borrower and its Subsidiaries under Hardee's Retiree Medical Insurance Plan as of the Closing Date does not exceed $4,800,000. No lien under Section 412(n) of the Code or 302(f) of ERISA or requirement to provide security under Section 401(a)(29) of the Code or Section 307 of ERISA has been or is reasonably expected by the Borrower or any member of its ERISA Controlled Group to be imposed on the assets of the Borrower or any member of its ERISA Controlled Group. Section 5.14 Investment Company Act; Public Utility Holding Company Act. No Loan Party is (x) an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended, (y) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of either a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (z) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money. Section 5.15 Closing Date Transactions. On the Closing Date and immediately prior to the making of the initial Loans hereunder, the Transactions (other than the making of the Loans) intended to be consummated on the Closing Date will have been consummated in accordance with the terms of the relevant Transaction Documents and in accordance with all applicable laws. All consents and approvals of, and filings and registrations with, and all other actions by, any Person required in order to make or consummate such Transactions have been obtained, given, filed or taken and are or will be in full force and effect. Section 5.16 Representations and Warranties in Transaction Documents. All representations and warranties made by any Loan Party in the Transaction Documents (other than the Loan Documents), and, to the best of the Borrower's knowledge, all representations made by each other Person in such Transaction Documents, are true and correct in all material respects. None of such representations and warranties is inconsistent in any material respect 56 63 with the representations and warranties of any Loan Party made herein or in any other Loan Document. Section 5.17 True and Complete Disclosure. All factual information (taken as a whole) furnished by or on behalf of any Loan Party in writing to the Agent or any Lender on or prior to the Closing Date, for purposes of or in connection with this Agreement or any of the Transactions or the Hardee's Acquisition is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of any Loan Party in writing to the Agent or any Lender will be, true and accurate in all material respects on the date as of which such information is dated or furnished and not incomplete by omitting to state any material fact necessary to make such information (taken as a whole) not misleading at such time. As of the Closing Date, there are no facts, events or conditions known to any Loan Party which, individually or in the aggregate, have or could be expected to have a Material Adverse Effect. Section 5.18 Corporate Structure; Capitalization. Schedule 5.18 hereto sets forth as of the Closing Date, both before and after giving effect to the Transactions to be consummated on the Closing Date, the jurisdiction of incorporation of the Company, each of its Subsidiaries, each other Loan Party and each Subsidiary of such Loan Party, the number of authorized and issued shares of capital stock of the Company and each of its Subsidiaries and of each other Loan Party and each Subsidiary of such Loan Party, the par value thereof and the registered owner(s) thereof. All of such stock has been duly and validly issued and is fully paid and non-assessable and is owned by such Loan Party free and clear of all Liens. Except for the Subordinated Notes or as disclosed in Schedule 5.18, neither any Loan Party nor any such Subsidiary has outstanding any securities convertible into or exchangeable for its capital stock nor does any Loan Party or any such Subsidiary have outstanding any rights to subscribe for or to purchase, or any options for the purchase of, warrants or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock. Section 5.19 Environmental Matters. (a) Except as set forth in Schedule 5.19, (i) each of the Loan Parties and their Environmental Affiliates are in compliance with all applicable Environmental Laws except where noncompliance, individually or in the aggregate, could not have a Material Adverse Effect, (ii) each of the Loan Parties and their Environmen tal Affiliates have all Environmental Approvals required to operate their businesses as presently conducted or as reasonably anticipated to be conducted except where the failure to obtain any such Environmental Approval, individually or in the aggregate, could not have a Material Adverse Effect, (iii) none of the Loan Parties nor any of their Environmental Affiliates has received any communication (written or oral), whether from a governmental authority, citizens group, employee or otherwise, that alleges that such Loan Party or Environmental Affiliate is not in full compliance with all Environmental Laws and where such noncompliance, individually or in the aggregate, could have a Material Adverse Effect, and (iv) to the Borrower's best knowledge after due inquiry, there are no circumstances that may prevent or interfere with such full compliance in the future except where such noncompliance, 57 64 individually or in the aggregate, could not have a Material Adverse Effect. (b) Except as set forth in Schedule 5.19, there is no Environmental Claim pending or threatened against any Loan Party or its Environmental Affiliate, which, individually or in the aggregate, could have a Material Adverse Effect. (c) Except as set forth in Schedule 5.19, there are no past or present actions, activities, circumstances, conditions, events or incidents, including, without limitation, the release, emission, discharge or disposal of any Material of Environmental Concern, that could form the basis of any Environmental Claims against any of the Loan Parties or any of their Environmental Affiliates, which Environmental Claims, individually or in the aggregate, could have a Material Adverse Effect. (d) Schedule 5.19 sets forth a list of all of the properties operated, owned or leased by the Borrower, the Company and each of their respective Subsidiaries as to which Phase I environmental audit reports have been completed as of the Closing Date and the Borrower has delivered copies of those Phase I audit reports which identify, or which recommend a subsequent Phase II investigation as to, any material environmental, health or safety violations, hazards or potential liabilities relating to the properties and business of the Borrower, the Company, each of their respective Subsidiaries, the other Loan Parties (if applicable) and each of their Environmental Affiliates of which the Borrower, the Company, or any of their respective Subsidiaries have knowledge. Section 5.20 Intellectual Property. Each of the Loan Parties owns or has the valid right to use all patents, trademarks, service marks, trade names, copyrights, trade secrets and other intangible rights, free and clear of all Liens, which are used in or necessary for the operation of its business, and Schedule V to the Borrower Security Agreement and Schedule V to the Subsidiary Security Agreement together set forth a complete and accurate list thereof with respect to each Loan Party as of the Closing Date, including all applications and registrations thereof and all license agreements to or from third parties relating thereto (the "Intellectual Property"). Each Loan Party is the record owner of all registrations and applications which it owns and all registrations for Intellectual Property are valid and enforceable. To the best of each Loan Party's knowledge, no service, product, process, method, substance, part or other material presently offered, sold or employed by any Loan Party infringes upon or dilutes any patent, trademark, service mark, trade name, copyright, license or other right of any other Person, and no such claims have been made by any other Person against any Loan Party. There is no pending or, to the best of each Loan Party's knowledge, threatened claim or litigation against or affecting any Loan Party contesting its rights to own or use any Intellectual Property or the validity or enforceability thereof. Section 5.21 Ownership of Property; Restaurants. Schedule 5.21 sets forth all the real property owned or leased by the Loan Parties as of the Closing Date and identifies the street address, the current owner (and current record owner, if different) and whether such 58 65 property is leased or owned. The Loan Parties have good and marketable fee simple title to or valid leasehold interests in all of such real property and good title to all of their personal property subject to no Lien of any kind except Liens permitted hereby. Schedule 5.21 also sets forth a list of each Restaurant and the street address thereof which is owned or operated as of the Closing Date by any Loan Party or any of its Subsidiaries. The Loan Parties enjoy peaceful and undisturbed possession under all of their respective leases. Section 5.22 No Default. No Loan Party is in default under or with respect to any Transaction Document or any other agreement, instrument or undertaking to which it is a party or by which it or any of its property is bound in any respect which could result in a Material Adverse Effect. No Default or Event of Default exists. Section 5.23 Licenses, etc. The Loan Parties have obtained and hold in full force and effect, all franchises, licenses, permits, certificates, authorizations, qualifications, accreditations, easements, rights of way and other rights, consents and approvals which are necessary for the operation of their respective businesses as presently conducted. Section 5.24 Compliance with Law. Each Loan Party is in compliance with all laws, rules, regulations, orders, judgments, writs and decrees except where such non-compliance, individually or in the aggregate, could not have a Material Adverse Effect. Section 5.25 No Burdensome Restrictions. No Loan Party is a party to any agreement or instrument or subject to any other obligation or any charter or corporate restriction or any provision of any applicable law, rule or regulation which, individually or in the aggregate, could have a Material Adverse Effect. Section 5.26 Brokers' Fees. Except as set forth on Schedule 5.26, none of the Loan Parties has any obligation to any Person in respect of any finder's, brokers, investment banking or other similar fee in connection with any of the Transactions. Section 5.27 Labor Matters. Except as set forth on Schedule 5.27, there are no collective bargaining agreements or Multiemployer Plans covering the employees of the Company, any of its Subsidiaries or any of the other Loan Parties, and none of such Persons has suffered any strikes, walkouts, work stoppages or other material labor difficulty within the last five years. No proceedings are pending against the Borrower or any of its Subsidiaries before the INS which could reasonably be expected to have a Material Adverse Effect. Section 5.28 Indebtedness of the Borrower and Its Subsidiaries. Set forth on Schedule 5.28 hereto is a complete and accurate list of all Indebtedness of the Borrower, the Company and each of their respective Subsidiaries existing as of the Closing Date (other than Surviving Debt), showing the principal amount outstanding thereunder as of the Closing Date. Section 5.29 Other Agreements. Schedule 5.29 sets forth a complete and 59 66 accurate list as of the Closing Date of (i) all joint venture and partnership agreements to which the Borrower, the Company or any of their Subsidiaries is a party, and (ii) all covenants not to compete restricting the Borrower, the Company or any of their Subsidiaries to which the Borrower, the Company or any of their Subsidiaries is a party or by which the Borrower, the Company or any of their Subsidiaries is bound. Section 5.30 Immaterial Subsidiaries. The Subsidiaries of the Borrower designated as Immaterial Subsidiaries on the Closing Date are set forth on Schedule 5.30. The assets of each Subsidiary of the Borrower designated as an Immaterial Subsidiary by the Borrower do not exceed $1,500,000 and the assets of all of the Subsidiaries of the Borrower designated as Immaterial Subsidiaries by the Borrower do not in the aggregate exceed $10,000,000, in each case as determined in accordance with GAAP. Section 5.31 Franchise Agreements and Franchisees. None of the Franchise Agreements to which the Borrower or any of its Subsidiaries is a party as a franchisor or a licensor prohibit or restrict in any manner the assignment of such Franchise Agreement to the Agent for the benefit of the Secured Parties or require any consent of any Person in connection with any such assignment. Schedule 5.31 sets forth a complete and accurate list of each Person who is a franchisee or licensee of the Borrower, the Company or any of their respec tive Subsidiaries as of the Closing Date. SECTION 6. AFFIRMATIVE COVENANTS. The Borrower covenants and agrees that until all of the Commitments of each of the Lenders have terminated, each of the Letters of Credit has expired or been terminated, and the Obligations are paid in full: Section 6.1 Information Covenants. The Borrower will furnish to the Agent, with sufficient copies for each Lender: (a) Quarterly Financial Statements. Within 45 days after the close of each of the first three (3) quarterly accounting periods in each fiscal year of the Borrower, the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such quarterly period and the related consolidated statements of income and cash flow for such quarterly period and for the elapsed portion of the fiscal year ended with the last day of such quarterly period, and in each case setting forth comparative figures for the related periods in the prior fiscal year. (b) Annual Financial Statements. Within 90 days after the close of each fiscal year of the Borrower, the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year and the related consolidated statements of income and cash flow for such fiscal year, setting forth comparative figures for the preceding fiscal year and, with respect to such consolidated financial statements, certified without qualification by KPMG 60 67 Peat Marwick LLP or other independent certified public accountants of recognized national standing reasonably acceptable to the Agent and the Required Lenders and indicating that its audit of the consolidated financial statements of the Borrower was conducted in accordance with generally accepted auditing standards. (c) Management Letters. Promptly after the Borrower's receipt thereof, a copy of any "management letter" or other material report received by the Borrower from its certified public accountants. (d) Budgets. Within 60 days after the first day of each fiscal year of the Borrower, a budget and financial forecast of results of operations and sources and uses of cash (in form reasonably satisfactory to the Agent) prepared by the Borrower for such fiscal year, accompanied by a written statement of the assumptions used in connection therewith, together with a certificate of the chief financial officer of the Borrower to the effect that such budget and financial forecast and, to the best of his knowledge, assumptions, are reasonable and represent the Borrower's good faith estimate of its future financial requirements and performance. The financial statements required to be delivered pursuant to clauses (a) and (b) above shall be accompanied by a comparison of the actual financial results set forth in such financial statements to those contained in the forecasts delivered pursuant to this clause (d) together with an explanation of any material variations from the results anticipated in such forecasts. (e) Officer's Certificates. At the time of the delivery of the financial statements under clauses (a) and (b) above, a certificate of the chief financial officer of the Borrower which certifies (x) that such financial statements fairly present the financial condition and the results of operations of the Borrower and its Subsidiaries on the dates and for the periods indicated, subject, in the case of interim financial statements, to normally recurring year-end adjustments, and that such financial statements were prepared in accordance with GAAP and (y) that such officer has reviewed the terms of the Loan Documents and has made, or caused to be made under his or her supervision, a review in reasonable detail of the business and condition of the Borrower and its Subsidiaries during the accounting period covered by such financial statements, and that as a result of such review such officer has concluded that no Default or Event of Default has occurred during the period commencing at the beginning of the accounting period covered by the financial statements accompanied by such certificate and ending on the date of such certificate or, if any Default or Event of Default has occurred, specifying the nature and extent thereof and, if continuing, the action the Borrower proposes to take in respect thereof (the "Compliance Certificate"). Such certificate shall set forth the calculations required to establish whether the Borrower was in compliance with the provisions of Sections 6.11, 6.12, 7.1, 7.2, 7.3, 7.7, 7.8 and 7.18 during and as at the end of the accounting period covered by the financial statements accompanied by such certificate. (f) Notice of Default. Promptly and in any event within one Business Day after any Loan Party obtains knowledge thereof, notice (i) of the occurrence of any Default or Event of Default together with a certificate of an Authorized Officer of the 61 68 Borrower specifying the nature and period of existence thereof and the Borrower's proposed response thereto and (ii) that any holder of Indebtedness of the Borrower or any Subsidiary of the Borrower having an outstanding principal balance exceeding $5,000,000 has given any written notice to the Borrower or any Subsidiary of the Borrower or taken any other action with respect to a claimed default or event or condition of the type referred to in Section 8.1(d) specifying (A) the nature and period of existence of any such claimed default, condition or event, (B) the notice given or action taken by such Person in connection therewith, and (C) the Borrower's proposed response thereto. (g) Notice of Litigation. Promptly after (i) the occurrence thereof, notice of the institution of, or any material development in, any action, suit, litigation, proceeding, investigation or arbitration, before any court or arbitrator or any governmental or administrative body, agency or official, against the Borrower, any of its Subsidiaries or any material property of any thereof which, individually or in the aggregate, could have a Material Adverse Effect, or (ii) actual knowledge thereof, notice of the threat of any such action, suit, proceeding, investigation or arbitration. (h) ERISA. (i) As soon as possible and in any event within 10 days after the Borrower or any member of its ERISA Controlled Group knows, or has reason to know, that: (A) any Termination Event with respect to a Plan has occurred or will occur, or (B) any condition exists with respect to a Plan which presents a material risk of termination of the Plan or imposition of an excise tax or other liability on the Borrower or any member of its ERISA Controlled Group, or (C) the Borrower or any member of its ERISA Controlled Group has applied for a waiver of the minimum funding standard under Section 412 of the Code or Section 302 of ERISA, or (D) the Borrower or any member of its ERISA Controlled Group has engaged in a "prohibited transaction," as defined in Section 4975 of the Code or as de scribed in Section 406 of ERISA, that is not exempt under Sec tion 4975 of the Code and Section 408 of ERISA, or (E) the aggregate present value of the Unfunded Benefit Liabilities under all Plans has in any year 62 69 increased by $500,000 or to an amount in excess of $2,000,000, or (F) any condition exists with respect to a Multiemployer Plan which presents a material risk of a partial or complete withdrawal (as described in Section 4203 or 4205 of ERISA) by the Borrower or any member of its ERISA Controlled Group from a Multiemployer Plan, or (G) the Borrower or any member of its ERISA Controlled Group is in "default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan, or (H) a Multiemployer Plan is in "reorganization" (as defined in Section 418 of the Code or Section 4241 of ERISA) or is "insolvent" (as defined in Section 4245 of ERISA), or (I) the potential withdrawal liability (as determined in accordance with Title IV of ERISA) of the Borrower and the members of its ERISA Controlled Group with respect to all Multiemployer Plans has in any year increased by $500,000 or to an amount in excess of $2,000,000, or (J) there is an action brought against the Borrower or any member of its ERISA Controlled Group under Section 502 of ERISA with respect to its failure to comply with Section 515 of ERISA, a certificate of the president or chief financial officer of the Borrower setting forth the details of each of the events described in clauses (A) through (J) above as applicable and the action which the Borrower or the applicable member of its ERISA Controlled Group proposes to take with respect thereto, together with a copy of any notice or filing from the PBGC or which may be required by the PBGC or other agency of the United States government with respect to each of the events described in clauses (A) through (J) above, as applicable. (ii) As soon as possible and in any event within two Business Days after the receipt by the Borrower or any member of its ERISA Controlled Group of a demand letter from the PBGC notifying the Borrower or such member of its ERISA Controlled Group of its final decision finding liability and the date by which such liability must be paid, a copy of such 63 70 letter, together with a certificate of the president or chief financial officer of the Borrower setting forth the action which the Borrower or such member of its ERISA Controlled Group pro poses to take with respect thereto. (i) SEC Filings. Promptly upon transmission thereof, copies of all regular and periodic financial information, proxy materials and other information, regular, periodic and special reports and registration statements, if any, which any Loan Party shall file with the Securities and Exchange Commission or any governmental agencies substituted therefore or which any Loan Party shall send to its stockholders. (j) Environmental. Promptly and in any event within two Business Days after the existence of any of the following conditions, a certificate of an Authorized Officer of the Borrower specifying in detail the nature of such condition and the applicable Loan Party's or Environmental Affiliate's proposed response thereto: (i) the receipt by any Loan Party or any of its Environmental Affiliates of any communication (written or oral), whether from a governmental authority, citizens group, employee or otherwise, that alleges that such Loan Party or Environmental Affiliate is not in compliance with applicable Environmental Laws and such noncompliance, individually or in the aggregate, could have a Material Adverse Effect, (ii) any Loan Party or any of its Environmental Affiliates shall obtain actual knowledge that there exists any Environmental Claim pending or threatened against such Loan Party or such Environmental Affiliate, which, individually or in the aggregate, could have a Material Adverse Effect, or (iii) any release, emission, discharge or disposal of any Material of Environmental Concern that could form the basis of any Environmental Claim against any Loan Party or any of their Environmental Affiliates, which Environmental Claim, individually or in the aggregate could have a Material Adverse Effect. (k) Creditor Reports. Promptly after the furnishing thereof, copies of any statement or report furnished to any other holder of the securities of any Loan Party or of any of its Subsidiaries pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Lenders pursuant to any other clause of this Section 6.1. (l) Other Information. From time to time, such other information or documents (financial or otherwise) as any Lender may reasonably request. Section 6.2 Books, Records and Inspections. The Borrower shall, and shall cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all requirements of law shall be made of all dealings and transactions in relation to its business and activities. The Borrower shall, and shall cause each of its Subsidiaries to, permit officers and designated representatives of any Lender to visit and inspect any of the properties of the Borrower or any of its Subsidiaries, and to examine the books of record and account of the Borrower or any of its Subsidiaries, and 64 71 discuss the affairs, finances and accounts of the Borrower or any of its Subsidiaries with, and be advised as to the same by, its and their officers and independent accountants, all upon reasonable notice and at such reasonable times as such Lender may desire; provided that no such prior notice shall be required if an Event of Default has occurred and is continuing. Section 6.3 Maintenance of Insurance. The Borrower shall, and shall cause each of its Subsidiaries to, (a) maintain with financially sound and reputable insurance companies insurance on itself and its properties in at least such amounts and against at least such risks as are customarily insured against in the same general area by companies engaged in the same or a similar business similarly situated, which insurance shall in any event not provide for materially less coverage than the insurance in effect on the Closing Date and (b) furnish to each Lender from time to time, upon written request, the policies under which such insurance is issued, certificates of insurance and such other information relating to such insurance as such Lender may request. Section 6.4 Taxes. (a) The Borrower shall pay or cause to be paid, and shall cause each of its Subsidiaries to pay or cause to be paid, when due, all taxes, charges and assessments and all other lawful claims required to be paid by the Borrower or such Subsidiaries, except as contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves have been established with respect thereto in accordance with GAAP. (b) The Borrower shall not, and shall not permit any of its Subsidiaries to, file or consent to the filing of any consolidated tax return with any Person (other than the Borrower and its Subsidiaries). Section 6.5 Corporate Franchises. Except as permitted by Section 7.4 below, the Borrower shall, and shall cause each of its Subsidiaries to, do or cause to be done, all things necessary to preserve and keep in full force and effect its existence and its patents, trademarks, servicemarks, tradenames, copyrights, franchises, licenses, permits, certificates, authorizations, qualifications, accreditations, easements, rights of way and other rights, consents and approvals except where the failure to so preserve any of the foregoing (other than existence) could not, individually or in the aggregate, result in a Material Adverse Effect. Section 6.6 Compliance with Law. The Borrower shall, and shall cause each of its Subsidiaries to, comply in all material respects with all applicable laws, rules, statutes, regulations, decrees and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of their business and the ownership of their property, including, without limitation, ERISA and all Environmental Laws. Section 6.7 Performance of Obligations. The Borrower shall, and shall cause each of its Subsidiaries to, perform all of its obligations under the terms of each mortgage, indenture, security agreement, debt instrument, lease, undertaking and contract by which it or any of its properties is bound or to which it is a party, except where the failure to perform such 65 72 obligations individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. Section 6.8 Maintenance of Properties. The Borrower shall, and shall cause each of its Subsidiaries to, ensure that its respective properties useful in its respective business are kept in good repair, working order and condition, normal wear and tear excepted. Section 6.9 Compliance with Terms of Leaseholds. The Borrower shall and shall cause each of its Subsidiaries to (a) make all payments and otherwise perform all obligations in respect of all leases of the Borrower and each of its Subsidiaries of real property, (b) keep all such leases that are useful or material in the conduct of the business of the Borrower and its Subsidiaries (such useful or material leases are hereinafter referred to as the "Material Leases") in full force and effect, (c) not allow such Material Leases to lapse or be terminated or any rights to renew such leases to be forfeited or cancelled, and (d) notify the Agent of any default by any party with respect to such Material Leases and cooperate with the Agent in all respects to cure any such default. Section 6.10 Compliance with Environmental Laws. The Borrower shall, and shall cause each of its Subsidiaries and all lessees and other Persons occupying its properties to (a) comply in all material respects, with all Environmental Laws and Environmental Approvals applicable to its respective operations and properties; (b) obtain and renew all Environmental Approvals necessary for its respective operations and properties; and (c) conduct any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action necessary to remove and clean up all Materials of Environmental Concern from any of its respective properties, in accordance with the requirements of all Environmental Laws; provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to undertake any such cleanup, removal, remedial or other action to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances, unless the Borrower or any of its Subsidiaries is subject to an order issued by any governmental authority requiring the Borrower or such Subsidiary to undertake any such cleanup, removal, remedial or other action, in which case this proviso shall not apply. Section 6.11 Subsidiary Guarantors. The Borrower shall cause each of its Subsidiaries now or hereafter existing, formed or acquired (other than JB, JB Newco and any Immaterial Subsidiaries) to at all times be and remain a party to the Guaranty, the Subsidiary Security Agreement and, if any such Subsidiary owns any Equity Interests in any Person (other than in Boston West, L.L.C. and other than in an Immaterial Subsidiary), a Subsidiary Pledge Agreement. Section 6.12 Immaterial Subsidiaries. If (i) the assets of any Subsidiary of the Borrower then designated as an Immaterial Subsidiary shall at any time exceed $1,500,000, then the Borrower shall immediately provide notice to the Agent thereof, and such Subsidiary 66 73 shall immediately be deemed automatically to no longer be an Immaterial Subsidiary or (ii) the aggregate amount of assets of all Subsidiaries of the Borrower so designated as Immaterial Subsidiaries shall at any time exceed $10,000,000, then the Borrower shall immediately provide notice to the Agent thereof and notice of which of such previously designated Immaterial Subsidiaries shall no longer be deemed to be Immaterial Subsidiaries so that the aggregate amount of assets of all such Subsidiaries so designated as Immaterial Subsidiaries does not exceed $10,000,000; provided that the Borrower may from time to time designate additional Subsidiaries of the Borrower as Immaterial Subsidiaries so long as the assets of any such Subsidiary do not exceed $1,500,000 and so long as the aggregate amount of assets of all such Subsidiaries so designated as Immaterial Subsidiaries does not exceed $10,000,000 (in each case as determined in accordance with GAAP). At such time as any Subsidiary that was an Immaterial Subsidiary is no longer an Immaterial Subsidiary, the Borrower shall thereafter comply with the terms of this Agreement relating to or affecting Subsidiaries that are not Immaterial Subsidiaries (in addition to those terms relating to or affecting the Borrower's Subsidiaries generally), including, without limitation, the requirements of Section 6.11 hereof; Section 6.13 Environmental Reports. The Borrower shall cause to be completed, by April 15, 1998, Phase I audit reports with respect to each property owned, operated or leased by the Borrower or any of its Subsidiaries, upon which a business or operation other than a Restaurant has been conducted at any time during the five (5) years immediately preceding the Closing Date and with respect to which a Phase I audit report has not been completed in the ten (10) year period immediately preceding the Closing Date. The Borrower shall deliver all such Phase I audit reports to the Agent which are obtained pursuant to the preceding sentence which identify, or which recommend a subsequent Phase II investigation as to, any material environmental, health or safety violations, hazards or potential liabilities relating to the properties and business of any Loan Party or any of their Environmental Affiliates. Section 6.14 Year 2000. The Borrower will use its reasonable best efforts to insure that any computer systems and/or software used in the operation of the Borrower's or any of its Subsidiaries' businesses is modified or replaced to the extent necessary to prevent or avoid any Material Adverse Effect as a result of the commencement of the year "2000." Section 6.15 FEI Financial Statements. The Borrower will deliver to the Agent within ninety (90) days after the Closing Date the consolidated balance sheet of the Company and its Subsidiaries as at the end of its fiscal year 1997, and the related consolidated statements of income and cash flow for such fiscal year, setting forth comparative figures for the preceding fiscal year and, with respect to such consolidated financial statements, certified without qualification by Deloitte & Touche LLP or other independent certified public accountants of recognized national standing reasonably acceptable to the Agent and indicating that its audit of the consolidated financial statements of FEI was conducted in accordance with generally accepted auditing standards. 67 74 SECTION 7. NEGATIVE COVENANTS. The Borrower covenants and agrees that until all of the Commitments of each Lender have terminated, each of the Letters of Credit has expired or been terminated, and the Obligations are paid in full: Section 7.1 Financial Covenants. (a) Leverage Ratio. The Borrower shall not permit the Leverage Ratio at any time during each of the fiscal quarters of the Borrower ending during each of the periods listed below to exceed the ratio set forth opposite such period:
Period Ratio ------ ----- July 15, 1997 through Jan. 25, 1999 3.25 to 1.00 Jan. 26, 1999 through Jan. 31, 2000 3.00 to 1.00 Feb. 1, 2000 through Jan. 29, 2001 2.75 to 1.00 Each fiscal year of the Borrower thereafter 2.50 to 1.00
(b) Interest Coverage Ratio. The Borrower shall not permit the ratio of Adjusted Consolidated EBITDA of the Borrower to Consolidated Interest Expense of the Borrower for each period of four consecutive fiscal quarters of the Borrower (taken as one accounting period) as determined on the last day of each fiscal quarter of the Borrower ending during each period set forth below (including Consolidated EBITDA and Consolidated Interest Expense of the Company and its Subsidiaries for such period), to be less than the ratio set forth opposite such period; provided that for the period ending on May 18, 1998, Consolidated Interest Expense will be the product of (A) actual Consolidated Interest Expense for the period from the first day of the third fiscal quarter of the Borrower ending November 3, 1997 to the last day of the first fiscal quarter of the Borrower ending May 18, 1998 multiplied by (B) 52/40:
Period Ratio ------ ----- Oct. 1, 1997 through Jan. 25, 1999 4.00 to 1.00 Jan. 26, 1999 through Jan. 31, 2000 4.50 to 1.00 Each fiscal year of the Borrower thereafter 5.00 to 1.00
(c) Fixed Charge Coverage Ratio. The Borrower shall not permit the ratio of Adjusted Consolidated EBITDA of the Borrower to Fixed Charges of the Borrower for the period of four consecutive fiscal quarters of the Borrower (taken as one accounting period) as determined on the last day of each fiscal quarter of the Borrower (including Consolidated EBITDA and Fixed Charges of the Company and its Subsidiaries for such period), to be less than 1.75 to 1.00; provided that for the period ending on May 18, 1998, Fixed Charges will be 68 75 the product of (A) actual Fixed Charges for the period from the first day of the third fiscal quarter of the Borrower ending November 3, 1997 to the last day of the first fiscal quarter of the Borrower ending May 18, 1998 multiplied by (B) 52/40. (d) Minimum Consolidated EBITDA. The Borrower shall not permit Adjusted Consolidated EBITDA of the Borrower for the period of four consecutive fiscal quarters of the Borrower (taken as one accounting period) as determined on the last day of each fiscal quarter of the Borrower ending during each period set forth below (including Consolidated EBITDA of the Company and its Subsidiaries for such period) to be less than the amount set forth opposite such period:
Period Amount ------ ------ July 15, 1997 through Jan. 25, 1999 $200,000,000 Jan. 26, 1999 through Jan. 31, 2000 $220,000,000 Feb. 1, 2000 through Jan. 29, 2001 $240,000,000 Each fiscal year of the Borrower thereafter $260,000,000
(e) Adjusted Leverage Ratio. The Borrower shall not permit the ratio of (i) Consolidated Total Debt (measured as of the end of each period set forth below) plus the product of seven multiplied by Consolidated Rentals for the period of four consecutive fiscal quarters of the Borrower (taken as one accounting period) as determined on the last day of each fiscal quarter of the Borrower ending during each period set forth below to (ii) Consoli dated EBITDAR for the period of four consecutive fiscal quarters of the Borrower (taken as one accounting period) as determined on the last day of each fiscal quarter of the Borrower ending during each period set forth below (including Consolidated Total Debt, Consolidated Rentals and Consolidated EBITDAR of the Company and its Subsidiaries for such period) to exceed at any time during each fiscal quarter of the Borrower ending during any period listed below, the ratio set forth opposite such period:
Period Ratio ------ ----- July 15, 1997 through Jan. 25, 1999 4.50 to 1.00 Jan. 26, 1999 through Jan. 31, 2000 4.25 to 1.00 Feb. 1, 2000 through Jan. 29, 2001 4.00 to 1.00 Each fiscal year of the Borrower thereafter 3.75 to 1.00
(f) Capital Expenditures. The Borrower shall not make or incur and shall not permit any of its Subsidiaries to make or incur any Capital Expenditures, except Capital Expenditures of the Borrower and its Subsidiaries in any of the periods set forth below in an aggregate amount not in excess of the maximum amount set forth below opposite such period: 69 76
Period Maximum Amount ------ -------------- Fiscal year ended Jan. 25, 1999 $200,000,000 Each fiscal year of the Borrower thereafter $150,000,000
provided that if the maximum amount set forth above for any period exceeds the aggregate amount of Capital Expenditures made or incurred during such period, then the maximum amount set forth above for the following period (but not any subsequent periods) shall be increased by the amount of such excess. (g) Consolidated Tangible Net Worth. The Borrower shall not permit its Consolidated Tangible Net Worth at any time to be less than the sum of (i) $275,000,000, plus (ii) 50% of cumulative Consolidated Net Income of the Borrower and its Subsidiaries for all fiscal quarters of the Borrower ended after January 31, 1998 in which Consolidated Net Income is positive (and without any deduction for any fiscal quarter in which Consolidated Net Income is negative), plus (iii) 100% of the Net Equity Proceeds of any equity offering by the Borrower. Section 7.2 Indebtedness. The Borrower shall not, and shall not permit any of its Subsidiaries to, create, incur, assume, suffer to exist or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness other than: (a) Indebtedness hereunder and under the other Loan Documents; (b) Indebtedness outstanding on the Closing Date and set forth on Schedule 7.2 hereto; (c) Indebtedness permitted under Sections 7.6(a), 7.6(b) and 7.6(d); (d) Indebtedness of the Borrower of the type described in clause (vii) of the definition of Indebtedness to the extent permitted under Section 7.14; (e) Indebtedness with respect to (i) purchase money Indebtedness incurred solely to finance Capital Expenditures permitted under Section 7.1(f) and any extensions, renewals, refundings or refinancings thereof, not in excess of $5,000,000 in the aggregate at any one time outstanding for all such purchase money Indebtedness and all extensions, renewals, refundings and refinancings thereof and (ii) Capitalized Leases permitted under Section 7.13 and any extensions, renewals, refundings or refinancings thereof so long as the terms of any such Indebtedness with respect to Capitalized Leases is permitted under Section 7.13; provided that (A) any such Indebtedness incurred pursuant to this clause (e) and any such extensions, renewals, refundings or refinancings thereof shall not exceed 85% of the lesser of the purchase price or the fair market value of the asset so financed, (B) at the time of 70 77 such incurrence, no Default or Event of Default has occurred and is continuing or would result from such incurrence, and (C) such Indebtedness has a scheduled maturity and is not due on demand; (f) any extensions, renewals, refundings and refinancings of the Indebtedness described in clause (b) above, so long as the terms of any such extension, renewal, refunding or refinancing Indebtedness, and of any agreement entered into and of any instrument issued in connection therewith, are otherwise permitted by the Loan Documents; provided further that the principal amount of such Indebtedness shall not be increased above the principal amount thereof outstanding immediately prior to such extension, renewal, refunding or refinancing, and the direct and contingent obligors therefor shall not be changed, as a result of or in connection with such extension, renewal, refunding or refinancing; (g) Indebtedness of any wholly-owned Subsidiary of the Borrower owed to the Borrower or to any wholly-owned Subsidiary of the Borrower; (h) (i) unsecured Permitted Subordinated Debt provided that the aggregate principal amount of such Indebtedness shall not exceed $25,000,000 minus the amount of any Indebtedness incurred by the Borrower or any of its Subsidiaries pursuant to Section 7.2(h)(ii) at any one time outstanding and (ii) other Permitted Subordinated Debt in an aggregate principal amount not to exceed $5,000,000 at any one time outstanding incurred in connection with a Permitted Acquisition with respect to which all of the conditions set forth in Section 7.8(f) have been satisfied and incurred to pay all or part of the purchase price thereof which Permitted Subordinated Debt, if secured, is secured only by Liens permitted pursuant to Section 7.3(i); (i) Indebtedness of the Borrower incurred pursuant to the Subordinated Notes in an aggregate principal amount not to exceed $200,000,000 at any time outstanding; (j) unsecured Indebtedness of the Borrower or any of its Subsidiaries consisting of guarantees of not more than 20% of the principal amount of Indebtedness of a franchisee incurred to finance a remodeling, construction or purchase of a retail unit of such franchisee or capital expenditures of such franchisee; provided that the amount of the obliga tions of the Borrower and its Subsidiaries under or with respect to such guarantees shall not exceed $40,000,000 in the aggregate outstanding at any time; (k) unsecured Indebtedness of the Borrower or any of its Subsidiaries owing to former franchisees and representing the deferred purchase price (or a deferred portion of such purchase price) payable by the Borrower or such Subsidiary to such former franchisee in connection with the purchase by the Borrower or such Subsidiary of one or more retail outlets from such former franchisee in an aggregate principal amount for all such Indebtedness not to exceed $5,000,000 at any one time outstanding; and 71 78 (l) Indebtedness of any entity acquired pursuant to a Permitted Acquisition with respect to which all of the conditions set forth in Section 7.8(f) have been satisfied, which Indebtedness (i) is existing prior to such Permitted Acquisition, (ii) is assumed by the Borrower or any Subsidiary of the Borrower in connection with any such Permitted Acquisition and (iii) is not incurred in contemplation of such Permitted Acquisition; provided that the aggregate principal amount of all such Indebtedness shall not exceed $20,000,000 at any time outstanding. Section 7.3 Liens. The Borrower shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist, directly or indirectly, any Lien on any of its property now owned or hereafter acquired, other than: (a) Liens existing on the Closing Date and set forth on Schedule 7.3 hereto; (b) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves are being maintained in accordance with GAAP; (c) Statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by Law (other than any Lien imposed by ERISA or pursuant to any Environmental Law) created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate bonds have been posted; (d) Liens (other than any Lien imposed by ERISA or pursuant to any Environmental Law) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (e) Easements, rights-of-way, zoning and similar restrictions and other similar charges or encumbrances not interfering with the ordinary conduct of the business of the Borrower or any of its Subsidiaries and which do not detract materially from the value of the property to which they attach or impair materially the use thereof by the Borrower or any of its Subsidiaries or materially adversely affect the security interests of the Agent or the Lenders therein; (f) Liens granted to the Agent for the benefit of the Lenders pursuant to the Security Documents securing the Obligations; (g) Liens created pursuant to Capitalized Leases and to secure other 72 79 purchase-money Indebtedness permitted pursuant to Section 7.2(e), provided that such Liens are only in respect of the property or assets subject to, and secure only, the respective Capitalized Lease or other purchase-money Indebtedness; (h) Liens arising out of the replacement, extension or renewal of any Lien permitted by clause (a) above upon or in the same property theretofore subject thereto in connection with the refunding, refinancing, extension or renewal (without increase in the amount or change in any direct or contingent obligor) of the Indebtedness secured thereby permitted pursuant to Section 7.2(f); (i) Liens securing Permitted Subordinated Debt permitted pursuant to Section 7.2(h)(ii) provided that (i) such Liens are only in respect of the assets acquired in the applicable Permitted Acquisition, (ii) the Obligations are secured by valid first priority perfected Liens on such assets and the Liens permitted pursuant to this Section 7.3(i) are second in priority to the Liens on such assets securing the Obligations and (iii) the rights and remedies of any holder of such Liens are subordinated to the rights and remedies of the Agent and the Lenders on terms approved in writing by the Agent; (j) Liens securing Indebtedness (other than Permitted Subordinated Debt) of the Borrower and its Subsidiaries in an aggregate principal amount not to exceed $25,000,000; and (k) Liens only in respect of specific property subject to operating leases entered into by the Borrower or any of its Subsidiaries as a lessee in the ordinary course of business. Section 7.4 Restriction on Fundamental Changes. (a) The Borrower shall not, and shall not permit any of its Subsidiaries to, enter into any merger or consolidation, or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution), discontinue its business or convey, lease, sell, transfer or otherwise dispose of, in one transaction or series of transactions, all or any substantial part of its business or property, whether now or hereafter acquired, except (i) as otherwise permitted under Section 7.5, (ii) any wholly-owned Subsidiary of the Borrower other than Hardee's and any of the Hardee's Subsidiaries may merge into or convey, sell, lease or transfer all or substantially all of its assets to, the Borrower or any other wholly-owned Subsidiary of the Borrower, provided, that in any such merger involving the Borrower, the Borrower shall be the surviving corporation and any such Subsidiary merging into the Borrower shall be Solvent, (iii) any Solvent Person acquired by the Borrower or a Subsidiary of the Borrower in a Permitted Acquisition permitted hereunder may merge with the Borrower or any wholly-owned Subsidiary of the Borrower other than Hardee's and any of the Hardee's Subsidiaries, provided, that in any such merger, the Borrower or such wholly-owned Subsidiary shall be the surviving corporation, (iv) the Company and its Subsidiaries may merge into or convey, sell, 73 80 lease or transfer all or substantially all of its assets to Hardee's or any of the Hardee's Subsidiary, (v) with the prior written consent of the Agent and the Required Lenders, Hardee's and any of the Hardee's Subsidiaries may merge into or convey, sell, lease or transfer all or substantially all of its assets to, the Borrower or any other wholly-owned Subsidiary of the Borrower, provided, that no consent of the Agent or the Required Lenders is required for any such transaction solely between of the Hardee's Subsidiaries and, provided further, that in any such merger involving the Borrower, the Borrower shall be the surviving corporation and any such Subsidiary merging into the Borrower shall be Solvent; provided, that in each case, (A) any such wholly-owned Subsidiary of the Borrower which is the surviving corporation of any such merger or to which any business or property is so transferred shall be a party to the Guaranty and the Subsidiary Security Agreement and (B) no Default or Event of Default shall have occurred or be continuing or would occur after giving effect thereto or as a result thereof. (b) Borrower shall not and shall not permit any of its Subsidiaries to, amend its certificate of incorporation or by-laws (or other relevant formation document) in any manner adverse to the interests of the Agent or the Lenders. Section 7.5 Sale of Assets. The Borrower shall not, and shall not permit any of its Subsidiaries to, make, consummate or effect any Asset Disposition (or agree to do so at any future time) with respect to all or any part of its property or assets, except: (a) the sale of any asset by the Borrower or any of its Subsidiaries (other than a bulk sale of inventory and a sale of receivables (other than delinquent accounts for collection purposes only) and other than a sale of any capital stock of Carl Karcher Enterprises, Inc., Hardee's or the Company) so long as (i) the purchase price paid to the Borrower or such Subsidiary for such asset shall be no less than the fair market value of such asset at the time of such sale, (ii) the purchase price for such asset shall be paid to the Borrower or such Subsidiary solely in cash (except for non-cash consideration in the form of promissory notes maturing not later than 3 years after the date of issuance and in an aggregate principal amount for all such promissory notes not to exceed $10,000,000 at any one time outstanding) and Cash Equivalents, (iii) the aggregate fair market value of such asset and all other assets sold by the Borrower and its Subsidiaries during the same fiscal year of the Borrower pursuant to this clause (a) shall not exceed 15% of the total assets of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP provided, that Excluded Resales shall not be included in the calculation of such percentage, (iv) the Borrower shall prepay the Loans pursuant to, and in accordance with, Section 2.12 in an aggregate principal amount equal to the Net Sale Proceeds received by the Borrower or such Subsidiary from the sale, transfer or other disposition of such asset and (v) no Default or Event of Default has occurred and is continuing or would result from such asset sale; and (b) so long as no Default or Event of Default shall occur and be continuing, the grant of any option or other right to purchase any asset in a transaction which would be permitted under the provisions of the preceding clause (a) ; and 74 81 (c) sales of assets used in the JB's Restaurants or Galaxy Diners by JB and JB Newco and sales of capital stock of JB and JB Newco; and (d) sale of the capital stock or assets of Boston Pacific, Inc. and Boston West, L.L.C. so long as (i) the purchase price paid in connection therewith shall be at least the fair market value thereof at the time of such sale and (ii) any and all consideration received by the Borrower in connection therewith that constitutes Collateral is pledged to the Agent for the benefit of the Lenders pursuant to a validly executed Security Document. Section 7.6 Contingent Obligations. The Borrower shall not, and shall not permit any of its Subsidiaries to, create or become or be liable with respect to any Contingent Obligation, except: (a) pursuant to the Guaranty or the Security Documents; (b) Contingent Obligations which are in existence on the Closing Date and which are set forth on Schedule 7.6 (c) Contingent Obligations permitted pursuant to Section 7.2(j); and (d) pursuant to the FEI Guaranties. Section 7.7 Dividends. The Borrower shall not, and shall not permit any of its Subsidiaries to, declare or pay any dividends, or return any capital to, its stockholders or authorize or make any other distribution, payment or delivery of property or cash to its stockholders as such, or redeem, retire, purchase, defease or otherwise acquire, directly or indirectly, any shares of any class of its Capital Stock now or hereafter outstanding (or any options, rights or warrants issued with respect to its Capital Stock), or set aside any funds for any of the foregoing purposes (all the foregoing "Dividends"), except that: (a) Dividends may be made to the Borrower or any of its wholly-owned Subsidiaries by any of its wholly-owned Subsidiaries; and (b) So long as no Default or Event of Default shall have occurred and be continuing or would result therefrom, the Borrower may: (i) declare and deliver dividends and distributions payable only in common stock of the Borrower; and (ii) declare and pay cash dividends to its stockholders and purchase, redeem, retire or otherwise acquire shares of its own outstanding capital stock for cash during any fiscal year of the Borrower if after giving 75 82 effect thereto the aggregate amount of such dividends, purchases, redemptions, retirements and acquisitions paid or made during such fiscal year would be less than the amount of (A) $15,000,000, plus (B) 30% of Consolidated Net Income of the Borrower for each fiscal year of the Borrower (commencing with the fiscal year ending January 26, 1998) up to and including the fiscal year immediately preceding the year in which such dividend, purchase, redemption, retirement or acquisition is paid or made, less (C) the aggregate amount of any sinking fund payments, payments, prepayments, redemptions, defeasances, and purchases or acquisitions for value paid pursuant to Section 7.10(d) during such fiscal year, less (D) the aggregate amount of all such dividends, purchases, redemptions, retirements and acquisitions paid and made by the Borrower after January 26, 1998 through and including the end of such immediately preceding fiscal year; and (c) So long as no Default or Event of Default shall have occurred and be continuing, any Subsidiary of the Borrower that is not a wholly-owned Subsidiary of the Borrower may declare and pay cash dividends to the extent, and only to the extent, of any cumulative positive net income (after deducting any negative net income) of such Subsidiary arising after the date such Subsidiary became a Subsidiary of the Borrower so long as such dividends are payable to all of its equity holders on a ratable basis. Section 7.8 Advances, Investments and Loans. The Borrower shall not, and shall not permit any of its Subsidiaries to, make or suffer to exist, directly or indirectly any Investments (including, without limitation, loans and advances to the Borrower or any of its Subsidiaries, and other Investments in Subsidiaries of the Borrower), or commitments therefor, or to create any Subsidiary or to become or remain a partner in any partnership or joint venture, or make any Acquisition of any interest in any Person, except that the following shall be permitted: (a) Investments set forth on Schedule 7.8; (b) Investments by the Borrower and its Subsidiaries in Subsidiaries of the Borrower outstanding on the date hereof, additional Investments by the Borrower or any Subsidiary of the Borrower in any Subsidiary of the Borrower which Subsidiary is Solvent and is a party to the Guaranty, and additional Investments by the Borrower or any wholly-owned Subsidiary of the Borrower consisting of loans and advances to wholly-owned Subsidiaries of the Borrower to the extent permitted by Section 7.2(g); (c) loans and advances by the Borrower and its Subsidiaries to their employees in the ordinary course of its business not exceeding $2,000,000 in the aggregate at any one time outstanding; (d) the Borrower and its Subsidiaries may acquire and hold Cash 76 83 Equivalents; (e) Investments consisting of promissory notes permitted to be received as consideration in connection with Asset Dispositions permitted under Section 7.5(a); (f) Permitted Acquisitions, provided that, in the case of each Permitted Acquisition, the conditions referred to in clauses (i) through (viii) below are satisfied on or prior to the date of such Permitted Acquisition (it being understood that, for purposes of clause (ii) below, the phrase "the Borrower and its Subsidiaries" and the phrase "Consolidated" shall be deemed to include the Person (and its Subsidiaries, if any, to be acquired) or assets to be acquired as though such Person (and its Subsidiaries, if any, to be acquired) or assets were a Subsidiary of the Borrower): (i) the Person or assets to be acquired satisfy the criteria set forth in either the definition of "Permitted Acquisition" or the definition of "Permitted Restaurant Acquisitions" contained in Section 1; (ii) in the case of Permitted Acquisitions other than Permitted Restaurant Acquisitions, the Borrower shall have delivered to the Agent a certificate of the chief financial officer of the Borrower, in form and substance satisfactory to the Agent, demonstrating: (1) compliance by the Borrower and its Subsidiar ies with the covenants set forth in Section 7.1, on a pro forma basis after giving effect to such Acquisition, for a period of four consecutive fiscal quarters after the date of such Acquisition, and (2) on a pro forma basis after giving effect to such Acquisition, as at the last day of the fiscal quarter ended immediately preceding the date of consummation of such Acquisition for which financial statements have been delivered to the Lenders pursuant to Section 6.1(a), for the period of four consecutive fiscal quarters of the Borrower (taken as one accounting period) then ended, that: (A) the Leverage Ratio shall be less than 2.5 to 1.0, (B) the Adjusted Leverage Ratio shall be less than 3.75 to 1.0, and (C) the Consolidated EBITDA of the Person and any of its Subsidiaries, if any, to be acquired, for the twelve-month period most recently ended shall be a positive number; 77 84 (iii) in the case of Permitted Acquisitions that are Permitted Restaurant Acquisitions, the Borrower shall have delivered to the Agent a certificate of the chief financial officer of the Borrower, in form and substance satisfactory to the Agent, demonstrating: (1) compliance by the Borrower and its Subsidiar ies with the covenants set forth in Section 7.1, on a pro forma basis after giving effect to such Acquisition, for a period of four consecutive fiscal quarters after the date of such Acquisition, and (2) on a pro forma basis after giving effect to such Acquisition, as at the last day of the fiscal quarter ended immediately preceding the date of consummation of such Acquisition for which financial statements have been delivered to the Lenders pursuant to Section 6.1(a), for the period of four consecutive fiscal quarters of the Borrower (taken as one accounting period) then ended, that: (A) if the aggregate amount of cash consideration paid and Indebtedness incurred or assumed in connection with all Permitted Restaurant Acquisitions occurring after the Closing Date after giving effect to such Acquisition is less than or equal to $75,000,000, the Leverage Ratio shall be less than 3.0 to 1.0, (B) if the aggregate amount of cash consideration paid and Indebtedness incurred or assumed in connection with all Permitted Restaurant Acquisitions occurring after the Closing Date after giving effect to such Acquisition is greater than $75,000,000, the Leverage Ratio shall be less than 2.5 to 1.0, (C) if the aggregate amount of cash consideration paid and Indebtedness incurred or assumed in connection with all Permitted Restaurant Acquisitions occurring after the Closing Date after giving effect to such Acquisition is less than or equal to $75,000,000, the Adjusted Leverage Ratio shall be less than 4.25 to 1.0, (D) if the aggregate amount of cash consideration paid and Indebtedness incurred or assumed in connection with all Permitted Restaurant Acquisitions occurring after the Closing Date after giving effect to such Acquisition is 78 85 greater than $75,000,000, the Adjusted Leverage Ratio shall be less than 3.75 to 1.0, and (E) the Consolidated EBITDA of the Person and any of its Subsidiaries, if any, to be acquired, for the twelve-month period most recently ended shall be a positive number; (iv) the representations and warranties contained in each Loan Document are correct in all material respects on and as of the date of such Acquisition, after giving effect to such Acquisition, as though made on and as of such date, other than any such representations and warranties that by their terms are specifically made as of a date other than such date; (v) no event has occurred and is continuing on the date of such Acquisition, or would result from such Acquisition, that constitutes a Default or an Event of Default; (vi) the Total Revolving Loan Commitment minus the aggregate principal amount of the Revolving Loans outstanding on the date of such Permitted Acquisition, minus the amount of any L/C Obligations outstand ing on the date of such Permitted Acquisition shall equal at least $10,000,000; (vii) all Consents and waiting periods described in clause (viii)(3)(D) below shall have been obtained or expired; and (viii) the Borrower or such Subsidiary of the Borrower making such Acquisition shall furnish or cause to be furnished to the Agent and the Lenders the following: (1) Certified copies of the resolutions of the Board of Directors of the Borrower and, if any Subsidiary of the Borrower will participate in the applicable Acquisition, of such Subsidiary (in each case, to the extent resolutions of the Board of Directors of the Borrower or such Subsidiary are required or advisable pursuant to applicable law or the Borrower's or such Subsidiary's charter documents) and of all documents evidencing other necessary corporate action or other Consents, if any, with respect to such Acquisition; (2) Such other financial, business and other information regarding the Person or assets to be acquired, as the case may be, as the Agent or the Required Lenders through the Agent shall have reasonably requested, including, without limitation, actual and pro forma financial state- 79 86 ments and projections relating to such Person or assets; (3) In the case of each Permitted Acquisition, to the extent that such Acquisition consists of the acquisition by the Borrower or any of its Subsidiaries of stock, partnership or other Equity Interests of any Person (or assets in the case of clause (A) below): (A) All documents required to be delivered pursuant to Section 2.21 and Section 6.11; (B) A copy of the charter or other organizational document of such Person and each amendment thereto, if any, certified by the Secretary of State of its jurisdiction of organization, as of a date reasonably near the date of such Borrowing, as being a true and correct copy thereof; (C) An officer's certificate signed on behalf of such Person by an appropriate officer of such Person, certifying as to (i) the absence of any amendment to the charter or other organizational document of such Person since the date of the Secretary of State's certificate referred to in clause (B) above, (ii) a true and correct copy of the by-laws or similar organizational document of such Person, (iii) a true and correct copy of the resolutions adopted by the Board of Directors or equivalent body of such Person approving the documents or instruments to be delivered under this Section 7.8(f) to which such Person is a party and the matters contemplated thereby, (iv) the incumbency and specimen signatures of the officers of such Person executing the documents and instruments to be delivered under this Section 7.8(f) to which such Person is a party, and (v) the due organization and good standing of such Person as a Person organized under the laws of its jurisdiction of organiza tion; and (D) Evidence satisfactory to the Agent and the Lenders that the Borrower, its Subsidiaries and the Person being acquired has made and obtained all necessary governmental and other Consents required in order to consum mate such Acquisition and that all applicable waiting periods with respect to such Acquisition including, without limitation, those under the Hart-Scott-Rodino Act have expired without any action having been taken by any competent authority restraining, preventing or imposing materially adverse conditions upon the rights 80 87 of the Loan Parties or their Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired by any of them; and (g) Investments in Related Businesses not to exceed $80,000,000 in the aggregate at any time outstanding; (h) Investments received as consideration in connection with Asset Dispositions permitted under paragraphs (c) and (d) of Section 7.5; and (i) Investments in Capital Stock of Checkers Drive-In Restaurants, Inc. and Rally's Hamburgers, Inc., in an aggregate amount not to exceed $11,000,000, which Capital Stock was acquired through the exercise of warrants, options and similar rights owned by the Borrower. (j) In the event that the shares of preferred stock of Rally's Hamburgers Inc. ("Rally's") listed on Schedule 7.8 (the "Rally's Preferred Stock") is converted into common stock of Rally's, the Agent hereby agrees to deliver to the Borrower, subject to terms and conditions reasonably acceptable to the Agent, the certificates representing the Rally's Preferred Stock which shall be subject to such conversion, solely for the purpose of permitting the Borrower to exchange such Rally's Preferred Stock for the applicable number of shares of common stock of Rally's and the Borrower hereby agrees to promptly deliver any and all such shares of common stock received by the Borrower (along with undated stock powers executed in blank in connection therewith) to the Agent and to pledge such shares pursuant to the terms of the Borrower Pledge Agreement. Section 7.9 Transactions with Affiliates. The Borrower shall not, and shall not permit any of its Subsidiaries to, enter into any transaction or series of related transactions, whether or not in the ordinary course of business, with any Affiliate, other than on terms and conditions substantially as favorable to the Borrower or such Subsidiary as would be obtain able at the time in a comparable arm's-length transaction with a Person other than an Affiliate. Section 7.10 Limitation on Voluntary Payments and Modifications of Certain Documents. The Borrower shall not, and shall not permit any of its Subsidiaries to (a) make any sinking fund payment or voluntary or optional payment or prepayment on or redemption, defeasance, purchase or acquisition for value of (including, without limitation, by way of depositing with the trustee with respect thereto money or securities before due for the purpose of paying when due) or exchange of any Indebtedness (other than Indebtedness permitted to be incurred pursuant to Section 7.2(i)) other than (i) the Indebtedness hereunder and under the other Loan Documents and (ii) regularly scheduled or required repayments of Indebtedness permitted pursuant to Section 7.2; provided that the Borrower may, and may permit any of its Subsidiaries to, prepay, redeem, defease, purchase or acquire or exchange any (collectively, a "Prepayment") Surviving Debt (other than Indebtedness permitted to be incurred pursuant to 81 88 Section 7.2(i)) or Indebtedness assumed in connection with a Permitted Acquisition which Indebtedness is permitted pursuant to Section 7.2(l)) in each case only if on the date of such Prepayment (x) no event or condition has occurred and is continuing, or would result from such Prepayment, that constitutes a Default or an Event of Default, and (y) after giving effect to such Prepayment, the Total Revolving Loan Commitment minus the aggregate principal amount of the Revolving Loans outstanding on the date of such Prepayment minus the amount of any L/C Obligations outstanding on the date of such Prepayment shall equal at least $10,000,000, or (b) amend, modify or waive, or permit the amendment, modification or waiver of (i) (A) any provision of either of the Seller Agreements or any material provision of any other Transaction Document (other than the Loan Documents and other than the Subordi- nated Debt Documents) or other Hardee's Acquisition Document or (B) any provision of the Existing Letter of Credit or the Existing Reimbursement Agreement in any manner the effect of which is to increase the maximum principal amount of the Existing Letter of Credit or to change any provision of the Existing Letter of Credit or the Existing Reimbursement Agreement relating to the letter of credit fees payable thereunder, respectively, or (ii) any term or provision of (A) the Surviving Debt in any way that would be materially adverse to the Lenders or (B) the Permitted Subordinated Debt, or the Subordinated Debt Documents, or (c) make any payment in violation of any subordination terms of any Indebtedness of the Borrower or any of its Subsidiaries; or (d) make or offer to make any sinking fund payment, payment, prepayment, redemption, defeasance, purchase or acquisition for value (including, without limitation, by way of depositing with the trustee with respect thereto money or securities before due for the purpose of paying when due) or otherwise segregate funds with respect to the Subordinated Notes (other than regularly scheduled semi-annual interest payments required to be made in cash and other than conversions of the Subordinated Notes into common stock of the Borrower) to the extent that the aggregate amount of all such sinking fund payments, payments, prepayments, redemptions, defeasances, and purchases or acquisitions for value would exceed the sum of (A) $15,000,000, plus (B) 30% of the Consolidated Net Income of the Borrower for each fiscal year of the Borrower (commencing with the fiscal year ending January 26, 1998 up to and including the fiscal year immediately preceding the year in which sinking fund payment, payment, prepayments redemption, defeasances, purchase or acquisition is made, less (C), together with the aggregate amount of all dividends, purchases, redemptions, retirements and acquisitions paid or made pursuant to Section 7.7(b)(ii), less (D) the aggregate amount of all such sinking fund payments, payments, prepayments, redemptions, defeasances, and purchases or acquisitions for value paid and made by the Borrower after January 26, 1998 through and including the end of such immediately preceding fiscal year. Section 7.11 Changes in Business. The Borrower shall not, and shall not permit any of its Subsidiaries to, enter into any business which is substantially different from that conducted by the Borrower or such Loan Party, as the case may be, on the Closing Date after giving effect to the Transactions. Section 7.12 Certain Restrictions. The Borrower shall not, and shall not permit any of its Subsidiaries to, enter into or permit to exist any agreement, instrument or other 82 89 document which directly or indirectly restricts the ability of the Borrower or any of its Subsidiaries to (a) enter into amendments, modifications or waivers of the Loan Documents, (b) sell, transfer or otherwise dispose of its assets, (c) create, incur, assume or suffer to exist any Lien upon any of its property, (d) create, incur, assume, suffer to exist or otherwise become liable with respect to any Indebtedness, (e) make loans or advances to the Borrower, or (f) pay any Dividend or repay any Indebtedness owed to the Borrower or any of its Subsidiaries; provided that Capitalized Leases or agreements governing purchase money Indebtedness which contain restrictions of the types referred to in clauses (b) or (c) with respect to the property covered thereby shall be permitted; provided further that the foregoing shall not apply to restrictions in effect on the date of this Agreement contained in agreements governing Surviving Debt (other than Indebtedness arising under the Subordinated Notes) and, if such Indebtedness is renewed, extended or refinanced, restrictions in the agreements governing the renewed, extended or refinanced Indebtedness (as successive renewals, extensions and refinancings thereof) if such restrictions are no more restrictive in any material respect than those contained in the agreements governing the Indebtedness being renewed, extended or refinanced and if such renewals, extensions and refinancings are permitted pursuant to Section 7.2(f). Section 7.13 Lease Obligations. The Borrower shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any obligations as lessee (i) for the rental or hire of real or personal property in connection with any sale and leaseback transaction or (ii) for the rental or hire of other real or personal property of any kind under leases or agreements to lease including Capitalized Leases except in the case of this clause (ii) for leases (including Capitalized Leases) entered into for fair market value in the ordinary course of business of the Borrower and its Subsidiaries. Section 7.14 Hedging Agreements. The Borrower shall not, and shall not permit any of its Subsidiaries to, enter into or remain liable under any Hedging Agreement, except (a) Interest Rate Agreements with one or more of the Lenders pursuant to which the Borrower and its Subsidiaries have hedged their reasonably estimated interest rate exposure and (b) Hedging Agreements relating to commodities pursuant to which the Borrower and its Subsidiaries have hedged their reasonably estimated commodity price exposure. Section 7.15 Plans. The Borrower shall not, nor shall it permit any member of its ERISA Controlled Group to, take any action which would increase the aggregate present value of the Unfunded Benefit Liabilities under all Plans to an amount in excess of $2,000,000. Section 7.16 Fiscal Year; Fiscal Quarter. The Borrower shall not, and shall not permit any of its Subsidiaries to, change its fiscal year or any of its fiscal quarters (other than, with respect to the Company and its Subsidiaries, any such changes necessary to conform fiscal periods of the Company and its Subsidiaries to fiscal periods of the Borrower). Section 7.17 Partnerships. The Borrower shall not, and shall not permit any of 83 90 its Subsidiaries to, become or remain a general partner in any general or limited partnership, or permit any of its Subsidiaries to do so, except for any Subsidiary which is a corporation and the sole assets of which consist of its interest in such partnership and except with respect to the partnerships described on Schedule 7.17. Section 7.18 Excluded Resales. The Borrower shall not, and shall not permit any of its Subsidiaries to, acquire, purchase, hold or own any Restaurants which the Borrower or any such Subsidiaries acquire from a franchisee with the intent of reselling to the extent the aggregate amount of Restaurants owned or held by the Borrower and its Subsidiaries would exceed $20,000,000 at any one time outstanding, such amount to be measured by the purchase price paid by the Borrower or any such Subsidiaries for such Restaurants. Section 7.19 Designated Senior Indebtedness. The Borrower shall not designate, create or permit to exist any Designated Senior Indebtedness (as defined in the Subordinated Note Indenture) other than obligations arising under the Loan Documents. SECTION 8. EVENTS OF DEFAULT Section 8.1 Events of Default. Each of the following events, acts, occurrences or conditions shall constitute an Event of Default under this Agreement, regardless of whether such event, act, occurrence or condition is voluntary or involuntary or results from the operation of law or pursuant to or as a result of compliance by any Person with any judgment, decree, order, rule or regulation of any court or administrative or governmental body: (a) Failure to Make Payments. The Borrower shall (i) default in the payment when due of any principal of the Loans or (ii) default, and such default shall continue unremedied for two (2) or more Business Days, in the payment when due of any interest on the Loans or in the payment when due of any Fees or any other amounts owing hereunder. (b) Breach of Representation or Warranty. Any representation or warranty made by any Loan Party herein or in any other Loan Document or in any certificate or statement delivered pursuant hereto or thereto shall prove to be false or misleading in any material respect on the date as of which made or deemed made. (c) Breach of Covenants. (i) The Borrower shall fail to perform or observe any agreement, covenant or obligation arising under Section 6.1(f) or Section 7. (ii) The Borrower shall fail to perform or observe any agreement, covenant or obligation arising under this Agreement (except those described in subsections (a), (b) and (c)(i) above), and such failure shall con tinue for thirty (30) days. 84 91 (iii) Any Loan Party shall fail to perform or observe any agreement, covenant or obligation arising under any provision of the Loan Documents other than this Agreement, which failure shall continue after the end of the applicable grace period, if any, provided therein. (d) Default Under Other Agreements. Any Loan Party or any of its Subsidiaries shall default in the payment when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) of any amount owing in respect of any Indebtedness of such Loan Party or any of its Subsidiaries (other than the Obligations) in the aggregate principal amount of $5,000,000 or more; or any Loan Party or any of its Subsidiaries shall default in the performance or observance of any obligation or condition with respect to any such Indebtedness or any other event shall occur or condition shall exist, if the effect of such default, event or condition is to accelerate the maturity or cause a mandatory redemption of any such Indebtedness or to permit the holder or holders thereof, or any trustee or agent for such holders, to accelerate the maturity or require a redemption or other repurchase thereof of any such Indebtedness, or any such Indebtedness shall become or be declared to be due and payable prior to its stated maturity other than as a result of a regularly scheduled payment; or any such Indebtedness shall be declared to be due and payable, or shall be required to be prepaid, redeemed, purchased or defeased, or an offer to prepay, redeem, purchase or defease such Indebtedness shall be required to be made, in each case prior to its stated maturity other than as a result of a regularly scheduled payment. (e) Bankruptcy, etc. (i) Any Loan Party or any of its Subsidiaries shall commence a voluntary case concerning itself under the Bankruptcy Code; or (ii) an involun tary case is commenced against any Loan Party or any of its Subsidiaries and the petition is not controverted within 10 days, or is not dismissed within 60 days, after commencement of the case; or (iii) a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of any Loan Party or any of its Subsidiaries or any Loan Party or any of its Subsidiaries commences any other proceedings under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to any Loan Party or any of its Subsidiaries or there is commenced against any Loan Party or any of its Subsidiaries any such proceeding which remains undismissed for a period of 60 days; or (iv) any order of relief or other order approving any such case or proceeding is entered; or (v) any Loan Party or any of its Subsidiaries is adjudicated insolvent or bankrupt; or (vi) any Loan Party or any of its Subsidiaries suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 60 days; or (vii) any Loan Party or any of its Subsidiaries makes a general assignment for the benefit of creditors; or (viii) any Loan Party or any of its Subsidiaries shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or (ix) any Loan Party or any of its Subsidiaries shall call a meeting of its creditors with a view to arranging a composition or adjustment of its debts; or (x) any Loan Party or any of its 85 92 Subsidiaries shall by any act or failure to act consent to, approve of or acquiesce in any of the foregoing; or (xi) any corporate action is taken by any Loan Party or any of its Subsidiaries for the purpose of effecting any of the foregoing. (f) ERISA. (i) Any Termination Event shall occur, or (ii) any Plan shall incur an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived, or (iii) the Borrower or a member of its ERISA Controlled Group shall have engaged in a transaction which is prohibited under Section 4975 of the Code or Section 406 of ERISA which could result in the imposition of liability in excess of $2,000,000 on the Borrower or any member of its ERISA Controlled Group, or (iv) the Borrower or any member of its ERISA Controlled Group shall fail to pay when due an amount which it shall have become liable to pay to the PBGC, any Plan or a trust established under Title IV of ERISA, or (v) a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that an ERISA Plan must be terminated or have a trustee appointed to administer any ERISA Plan, or (vi) the Borrower or a member of its ERISA Controlled Group suffers a partial or complete withdrawal from a Multiemployer Plan or is in "default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan, or (vii) a proceeding shall be instituted against the Borrower or any member of its ERISA Controlled Group to enforce Section 515 of ERISA and such proceeding shall remain undismissed for 180 days, or (viii) any other event or condition shall occur or exist with respect to any Plan which could subject the Borrower or any member of its ERISA Controlled Group to any tax, penalty or other liability in excess of $2,000,000 or (ix) the aggregate present value of all post-retirement benefit liabilities of the Borrower and its Subsidiaries under any "welfare plan" (as defined in Section 3(1) of ERISA), including, without limitation, Hardee's Retiree Medical Insurance Plan, exceeds $20,000,000. (g) Security Documents. Any of the Security Documents shall for any reason cease to be in full force and effect, or shall cease to give the Agent for the benefit of the Lenders the Liens, rights, powers and privileges purported to be created thereby including, without limitation, a perfected first priority security interest in, and Lien on, any material part of the Collateral in accordance with the terms thereof or the Borrower or any of the Bor rower's Subsidiaries party to any Security Document seeks to repudiate its respective obliga tions thereunder and the Liens created thereby are rendered, or the Borrower or any such Subsidiary of the Borrower seeks to render such Liens, invalid and unperfected. (h) Guaranty. The Guaranty or any provision thereof shall cease to be in full force and effect, or any Guarantor or any Person acting by or on behalf of a Guarantor shall deny or disaffirm all or any portion of such Guarantor's obligations under such Guaranty. (i) Change of Control. (i) Any Person or two or more Persons acting in concert other than the Controlling Stockholders shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of Voting Stock of the Borrower (or 86 93 other securities convertible into such Voting Stock) representing 20% or more of the combined voting power of all Voting Stock of the Borrower; or (ii) during any period of up to 24 consecutive months, commencing after the date of this Agreement, individuals who at the beginning of such 24-month period were directors of the Borrower shall cease for any reason to constitute a majority of the board of directors of the Borrower; or (iii) any Person or two or more Persons acting in concert other than the Controlling Stockholders shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consum mation, will result in its or their acquisition of, the power to exercise control over Voting Stock of the Borrower (or other securities convertible into such securities representing 20% or more of the combined voting power of all Voting Stock of the Borrower) or (iv) at any time from and after July 15, 1997, until July 15, 1999, the Required Holders shall fail to own and control at least 1,000,000 shares of Voting Stock (as adjusted for stock splits, dividends or reclassifications); provided that the number of shares of Voting Stock of the Borrower deemed owned and controlled by William P. Foley II ("Mr. Foley") shall, for purposes of the preceding clause (iv), include (A) the number of shares of Voting Stock (as adjusted for stock splits, dividends or reclassifications) owned and controlled by Cannae Limited Partnership, a Nevada Limited Partnership, but only to the extent of Mr. Foley's pro rata interest (based on Mr. Foley's interest in such partnership) in such Voting Stock owned and controlled by such partnership and (B) the number of shares of Voting Stock of the Borrower issuable upon the exercise of options then owned and controlled and exercisable by Mr. Foley. (j) Judgments. One or more judgments or decrees or awards in an aggregate amount of $5,000,000 or more shall be entered by a court or courts of competent jurisdiction or in any arbitration proceeding against any Loan Party or any of its Subsidiaries and (i) any such judgments or decrees or awards shall not be stayed, discharged, paid, bonded or vacated within 30 days or (ii) enforcement proceedings shall be commenced by any creditor on any such judgment or decree or award. (k) Environmental Matters. (i) Any Environmental Claim shall have been asserted against any Loan Party or any Environmental Affiliate thereof which, if determined adversely, could have a Material Adverse Effect, (ii) any release, emission, discharge or disposal of any Material of Environmental Concern shall have occurred, and such event could form the basis of an Environmental Claim against any Loan Party or any Environ mental Affiliate thereof which, if determined adversely, could have a Material Adverse Effect, or (iii) any Loan Party or its Environmental Affiliate shall have failed to obtain any Environmental Approval necessary for the management, use, control, ownership, or operation of its business, property or assets or any such Environmental Approval shall be revoked, terminated, or otherwise cease to be in full force and effect, in each case, if the existence of such condition could have a Material Adverse Effect. (l) Ownership of Certain Subsidiaries. The Borrower shall cease for any reason to own 100% of the Capital Stock of Carl Karcher Enterprises, Inc., the Borrower shall cease for any reason to own 100% of the Capital Stock of the Hardee's, or the Borrower 87 94 shall cease for any reason to own, directly or indirectly, 100% of the Capital Stock of the Company. Section 8.2 Rights and Remedies. Upon the occurrence of any Event of Default described in Section 8.1(e), the Commitments shall automatically and immediately terminate and the unpaid principal amount of and any and all accrued interest on the Loans and any and all accrued Fees and other Obligations shall automatically become immediately due and payable, with all additional interest from time to time accrued thereon and without presentation, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and notice of acceleration), all of which are hereby expressly waived by Borrower, and the obligation of each Lender to make any Loan hereunder shall thereupon terminate; and upon the occurrence and during the continuance of any other Event of Default, the Agent shall at the request, or may with the consent, of the Required Lenders, by written notice to Borrower, (i) declare that the Commitments are terminated, whereupon the Commitments and the obligation of each Lender to make any Loan hereunder shall immediately terminate, (ii) require the Borrower to Cash Collateralize the L/C Obligations in an amount equal to the maximum aggregate amount that is, or at any time thereafter may become, available for drawing under any outstanding Letters of Credit (whether or not any beneficiary shall have presented, or shall be entitled at such time to present, the drafts or other documents required to draw under such Letters of Credit), and (iii) declare the unpaid principal amount of and any and all accrued and unpaid interest on the Loans and any and all accrued Fees and other Obligations to be, and the same shall thereupon be, immediately due and payable with all additional interest from time to time accrued thereon and without presentation, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and notice of acceleration), all of which are hereby expressly waived by Borrower. SECTION 9. THE AGENT Section 9.1 Appointment. Each Lender hereby irrevocably designates and appoints Banque Paribas as the Agent of such Lender under this Agreement and each other Loan Document, and each such Lender irrevocably authorizes Banque Paribas as the Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement and each other Loan Document, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of the Agent shall be read into this Agreement or otherwise exist against the Agent. The provisions of this Section 9 are solely for the benefit of the Agent and the Lenders and no Loan Party shall have any rights as a third party beneficiary or otherwise under any of the 88 95 provisions hereof. In performing its functions and duties hereunder and under the other Loan Documents, the Agent shall act solely as the agent of the Lenders and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for any Loan Party or any of their respective successors and assigns. It is agreed that, for purposes of the Seller Agreements, the role of the Agent hereunder shall subsume the role of "Administrative Agent" as referred to in the Seller Agreements. Section 9.2 Delegation of Duties. The Agent may execute any of its duties under this Agreement or the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. Section 9.3 Exculpatory Provisions. The Agent shall not be (i) liable for any action lawfully taken or omitted to be taken by it or any Person described in Section 9.2 under or in connection with this Agreement or any other Loan Document (except for its or such Person's own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Loan Party contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, or any other Loan Document or for any failure of any Loan Party to perform their obligations hereunder or thereunder. The Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party. This Section is intended solely to govern the relationship between the Agent, on the one hand, and the Lenders, on the other. Section 9.4 Reliance by Agent. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to any Loan Party), independent accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless the Agent shall have received an executed Assignment Agreement in respect thereof. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under 89 96 this Agreement and the other Loan Documents in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes. Section 9.5 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless the Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall promptly give notice thereof to the Lenders. Subject to the provisions of Section 10.5, the Agent shall take such action with respect to such Default or Event of Default as shall be directed by the Required Lenders; provided that unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as the Agent shall deem advisable and in the best interests of the Lenders. Section 9.6 Non-Reliance on Agent and Other Lenders. Each Lender expressly acknowledges that neither the Agent, nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by the Agent hereafter taken, including, without limitation, any review of the affairs of any Loan Party, shall be deemed to constitute any representation or warranty by the Agent. Each Lender represents and warrants to the Agent that it has, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of the Loan Parties and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, prospects, financial and other condition and creditworthiness of the Loan Parties. Except for notices, reports and other documents expressly required under the Loan Documents to be furnished to the Lenders by the Agent, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, prospects, financial and other condition or creditworthiness of the Loan Parties which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. Section 9.7 Indemnification. The Lenders agree to indemnify the Agent and its officers, directors, employees, representatives and agents (to the extent not reimbursed by the Loan Parties and without limiting the obligation of the Loan Parties to do so), ratably according to their Pro Rata Shares, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or 90 97 nature whatsoever (including, without limitation, the fees and disbursements of counsel for the Agent or such Person in connection with any investigative, administrative or judicial proceed ing commenced or threatened, whether or not the Agent or such Person shall be designated a party thereto) that may at any time (including, without limitation, at any time following the payment of the Obligations) be imposed on, incurred by or asserted against the Agent or such Person as a result of, or arising out of, or in any way related to or by reason of, any of the Transactions or the Hardee's Acquisition or the execution, delivery or performance of any Loan Document or any other Transaction Document or any Hardee's Acquisition Document (but excluding any such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the gross negligence or willful misconduct of the Agent or such Person as finally determined by a court of competent jurisdiction); provided that to the extent indemnification payments made by the Lenders pursuant to this Section 9.7 are subsequently recovered from or for the account of the Borrower, the Agent shall promptly refund such previously paid indemnification payments to the Lenders. Section 9.8 Agent in its Individual Capacity. The Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Loan Parties as though the Agent were not the Agent hereunder. With respect to Loans made or renewed by it and any Note issued to it, the Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not the Agent, and the terms "Lender" and "Lenders" shall include the Agent in its individual capacity. Section 9.9 Successor Agent. The Agent may resign as Agent upon 30 days' notice to the Borrower and the Lenders. If the Agent shall resign as Agent under this Agreement, then the Required Lenders during such 30-day period shall appoint from among the Lenders a successor agent, whereupon such successor agent shall succeed to the rights, powers and duties of the Agent and the term "Agent" shall mean such successor agent, effective upon its appointment, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement or any holders of the Notes. Notwithstanding anything herein to the contrary, so long as no Event of Default has occurred and is continuing, each such successor agent shall be subject to approval by the Borrower, which approval shall not be unreasonably withheld or delayed. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 9 and Section 10.1 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. SECTION 10. MISCELLANEOUS Section 10.1 Payment of Expenses, Indemnity, etc. The Borrower shall: (a) whether or not the transactions hereby contemplated are consum- 91 98 mated, pay all reasonable out-of-pocket costs and expenses of the Agent in connection with the negotiation, preparation, execution and delivery of the Loan Documents, the commitment letter related thereto and the Fee Letter, the syndication of the Loans and the closing of the Transactions and the documents and instruments referred to therein, the creation, perfection or protection of the Agent's Liens in the Collateral (including, without limitation, fees and expenses for lien searches and filing and recording fees), and any amendment, waiver or consent relating to any of the Loan Documents (including, without limitation, as to each of the foregoing, the reasonable fees and disbursements of Skadden, Arps, Slate, Meagher & Flom (Illinois), special counsel to the Agent and any other attorneys and legal assistants retained by the Agent and allocated costs of internal counsel and legal assistants) and of the Agent and each Lender in connection with the preservation of rights under, and enforcement of, the Loan Documents and the documents and instruments referred to therein or in connection with any restructuring or rescheduling of the Obligations (including, without limitation, the reasonable fees and disbursements of counsel for the Agent and for each of the Lenders); (b) pay, and hold the Agent and each of the Lenders harmless from and against, any and all present and future stamp, excise and other similar taxes with respect to the foregoing matters and hold the Agent and each Lender harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Lender) to pay such taxes; and (c) indemnify the Agent and each Lender, and each of their Affiliates and their officers, directors, employees, representatives, attorneys and agents (each an "Indemnitee") from, and hold each of them harmless against, any and all losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disburse ments of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for such Indemnitee) that may at any time (including, without limitation, at any time following the payment of the Obligations) be imposed on, asserted against or incurred by any Indemnitee as a result of, or arising out of, or in any way related to or by reason of, or in connection with the preparation for a defense of, any investigation, litigation or proceeding arising out of, related to or in connection with (i) any of the Transac tions or the Hardee's Acquisition or the execution, delivery or performance of any Loan Document or any other Transaction Document or any Hardee's Acquisition Document (including, without limitation, any actual or proposed use by the Borrower or any Subsidiary of the Borrower of the proceeds of any Loan or Letter of Credit), (ii) any violation by any Loan Party or its Environmental Affiliate of any applicable Environmental Law, (iii) any Environmental Claim arising out of the management, use, control, ownership or operation of property or assets by any of the Loan Parties or any of their Environmental Affiliates, including, without limitation, all on-site and off-site activities involving Materials of Environ mental Concern, (iv) the breach of any environmental representation or warranty set forth in Section 5.19, (v) the grant to the Agent and the Lenders of any Lien in any property or assets of any of the Loan Parties or any stock or other equity interest in any of the Loan Parties, and (vi) the exercise by the Agent and the Lenders of their rights and remedies (including, without 92 99 limitation, foreclosure) under any agreements creating any such Lien (but excluding, as to any Indemnitee, any such losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements incurred solely by reason of the gross negligence or willful misconduct of such Indemnitee as finally determined by a court of competent jurisdiction). The Borrower's obligations under this Section shall survive the termination of this Agreement and the payment of the Obligations. Section 10.2 Right of Setoff. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, each Lender is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to any Loan Party or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special, time or demand, provisional or final) and any other indebtedness at any time held or owing by such Lender (including, without limitation, by branches and agencies of such Lender wherever located) to or for the credit or the account of any Loan Party against and on account of the Obligations of the Loan Parties to such Lender under this Agreement or under any of the other Loan Documents, including, without limitation, all interests in Obligations purchased by such Lender pursuant to Section 9.7, and all other claims of any nature or description arising out of or connected with this Agreement or any other Loan Document, irrespective of whether or not such Lender shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured. Section 10.3 Notices. Except as otherwise expressly provided herein, all notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy, telex, or cable communication), and shall be deemed to have been duly given or made when delivered by hand, or five days after being deposited in the United States mail, postage prepaid, or, in the case of telex notice, when sent, answerback received, or, in the case of telecopy notice, when sent, or, in the case of a nationally recognized overnight courier service, one Business Day after delivery to such courier service, addressed, in the case of each party hereto, at its address specified opposite its signature below or on the appropriate Assignment Agreement, or to such other address as may be designated by any party in a written notice to the other parties hereto, provided that notices and communi cations to the Agent shall not be effective until received by the Agent. Section 10.4 Successors and Assigns; Participation; Assignments. (a) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Agent, all future holders of the Notes and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. No Lender may participate, assign or sell any of its Credit Exposure (as defined in clause (b) below) except as required by operation of law, in connection with the 93 100 merger, consolidation or dissolution of any Lender or as provided in this Section 10.4. (b) Participation. Any Lender may at any time sell to one or more Persons (each a "Participant") participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender and or any other interest of such Lender hereunder (in respect of any such Lender, its "Credit Exposure"). Notwithstanding any such sale by a Lender of participating interests to a Participant, such Lender's rights and obligations under this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Note for all purposes under this Agreement (except as expressly provided below), and the Borrower and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. The Borrower agrees that if any Obligations are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence and during the continuance of an Event of Default, each Participant shall be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement and any Note to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement or any Note, provided that such right of setoff shall be subject to the obligations of such Participant to share with the Lenders, and the Lenders agree to share with such Participant, as provided in Section 10.7. The Borrower also agrees that each Participant shall be entitled to the benefits of Sections 2.16, 2.17 and 2.18, provided that no Participant shall be entitled to receive any greater amount pursuant to such sections than the transferor Lender would have been entitled to receive in respect of the amount of the participating interest transferred by such transferor Lender to such Participant had no such transfer occurred. Each Lender agrees that any agreement between such Lender and any such Participant in respect of such participating interest shall not restrict such Lender's right to agree to any amendment, supplement, waiver or modification to this Agreement or any other Loan Document, except where the result of any of the foregoing would be to extend the final maturity of any Obligation or any regularly scheduled installment thereof or reduce the rate or extend the time of payment of interest thereon or reduce the principal amount thereof or release all or substantially all of the Collateral (except as expressly provided in the Loan Documents). (c) Assignments. Any Lender may, in accordance with applicable law, at any time assign to any Lender or any affiliate thereof or, with the consent of the Agent, which consent shall not be unreasonably withheld, to any other Person (each an "Assignee") all or any part of its Credit Exposure; provided, that in the case of any such assignment to a Person that is not another Lender or an affiliate of the assigning Lender, each such assignment shall be (i) for a Credit Exposure not less than $5,000,000 and (ii) to an Assignee approved in writing by the Agent, which approval shall not be unreasonably withheld. Such consent of the Agent shall be substantially in the form attached as Schedule II to Exhibit I hereto. The Borrower, the Agent and the Lenders agree that to the extent of any assignment the Assignee shall be deemed to have the same rights and benefits under the Loan Documents and the same rights of setoff and obligation to share pursuant to Section 10.7 as it would have had if it were 94 101 a Lender hereunder; provided that the Borrower and the Agent shall be entitled to continue to deal solely and directly with the assignor Lender in connection with the interests so assigned to the Assignee unless and until such Assignee becomes a Purchasing Lender pursuant to clause (d) below. (d) Assignments to Purchasing Lenders. Any Lender may at any time and from time to time assign to one or more Persons ("Purchasing Lenders") all or any part of its Credit Exposure pursuant to a supplement to this Agreement, substantially in the form of Exhibit I hereto (an "Assignment Agreement"), executed by such Purchasing Lender, such transferor Lender and the Agent. Upon (i) such execution of such Assignment Agreement, (ii) delivery to the Agent of a notice of assignment substantially in the form of Schedule I to Exhibit I hereto (a "Notice of Assignment") with a copy to the Borrower, together with any consent required pursuant to Section 10.4(c) above, (iii) payment by such Purchasing Lender to such transferor Lender of an amount equal to the purchase price agreed between such transferor Lender and such Purchasing Lender and (iv) payment of a $4,000 fee to the Agent for processing of such assignment, such assignment shall become effective on the effective date specified in such Assignment Agreement, which effective date shall be at least five (5) Business Days after delivery of such Notice of Assignment to the Agent, such transferor Lender shall be released from its obligations hereunder to the extent of such assignment and such Purchasing Lender shall for all purposes be a Lender party to this Agreement and shall have all the rights and obligations of a Lender under this Agreement to the same extent as if it were an original party hereto, and no further consent or action by the Borrower, the Lenders or the Agent shall be required. Such Assignment Agreement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender as a Lender and the resulting adjustment of the Commitments, if any, arising from the purchase by such Purchasing Lender of all or a portion of the Credit Exposure of such transferor Lender. (e) Disclosure of Information. The Borrower authorizes each Lender to disclose to any Participant, Assignee or Purchasing Lender (each, a "Transferee") and any prospective Transferee any and all financial and other information in such Lender's possession concerning the Borrower which has been delivered to such Lender by the Borrower pursuant to this Agreement or which has been delivered to such Lender by the Borrower in connection with such Lender's credit evaluation of the Borrower prior to entering into this Agreement. (f) Regulation A. Notwithstanding any other provision set forth in this Agreement, any Lender may at any time assign and pledge all or any portion of its Loans and its Notes to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations hereunder. (g) Transfer and Exchange of Notes. Promptly after the consumma tion of any transfer to a Purchasing Lender pursuant hereto, the transferor Lender, the Agent 95 102 and the Borrower shall make appropriate arrangements so that any Notes held by such transferor Lender shall be surrendered to the Borrower for cancellation, one or more replacement Notes in exchange therefor shall be issued to such transferor Lender, and one or more new Notes shall be issued to such Purchasing Lender, in each case in notional amounts reflecting such transfer. Each such new Note shall be payable to the Purchasing Lender and shall be substantially in the form of Exhibit A or Exhibit B, as applicable. Section 10.5 Amendments and Waivers. (a) Neither this Agreement, any Note, any other Loan Document to which the Borrower is a party nor any terms hereof or thereof may be amended, supple mented, modified or waived except in accordance with the provisions of this Section. The Required Lenders and the Borrower may, from time to time, enter into written amendments, supplements, modifications or waivers for the purpose of adding, deleting, changing or waiving any provisions to this Agreement, the Notes, or the other Loan Documents to which the Borrower is a party, provided, that no such amendment, supplement, modification or waiver shall (i) extend either the Revolving Loan Maturity Date or the Term Loan Maturity Date or extend the time for payment of any installment, fee or required prepayment of any Obligations or reduce the rate or extend the time of payment of interest on any Obligations, or reduce the principal amount of any Obligations or reduce any fee payable to the Lenders hereunder, or release all or substantially all of the Collateral (except as expressly contemplated by the Loan Documents) or change the amount of any Commitment of any Lender, or amend, modify or waive any provision of this Section 10.5 or the definition of Required Lenders, or consent to or permit the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement or any other Loan Document, or modify any provision hereof providing for the pro rata sharing of payments, in each case without the written consent of all the Lenders, (ii) release (A) Carl Karcher Enterprises, Inc., the Company or any Subsidiary of the Company, Hardee's or any Subsidiary of Hardee's (other than any such Subsidiary which is an Immaterial Subsidiary), from the Guaranty and the other applicable Security Documents (including the release of such Loan Party's stock certificates from the Borrower Pledge Agreement or the Subsidiary Pledge Agreement, as applicable), in each case without the written consent of all of the Lenders or (B) any other Subsidiary of the Borrower from the Guaranty and the other applicable Security Documents (including the release of such Loan Party's stock certificates from the Borrower Pledge Agreement or the Subsidiary Pledge Agreement, as applicable) in each case without the written consent of those Lenders whose Pro Rata Shares, in the aggregate, are greater than 66-2/3%; provided that the release from the Guaranty and the other applicable Security Documents (including the release of such Loan Party's stock certificates from the Borrower Pledge Agreement or the Subsidiary Pledge Agreement, as applicable) of (1) Boston Pacific Inc., JB, JB Newco and CBI Restaurants, Inc. and each Subsidiary of CBI Restaurants, Inc. in existence on or after July 15, 1997, and (2) any Subsidiary of the Borrower (other than a Subsidiary of Hardee's or of the Company) with assets of less than $10,000,000 (as determined in accordance with GAAP) shall not require the consent of any of the Lenders in any of the foregoing circumstances if (x) such Subsidiary (a "Sold Guarantor") is being released from the Guaranty because all or a portion of the assets of 96 103 such Sold Guarantor are being sold or otherwise disposed of in an Asset Disposition or the Equity Interests of such Sold Guarantor are being sold or otherwise disposed of or an issuance of Equity Interests of such Sold Guarantor is commenced, and immediately after giving effect to such sale, other disposition or issuance of Equity Interests and as a result of such sale, other disposition or issuance of Equity Interests, such Sold Guarantor is no longer a Subsidiary of the Borrower and (y) any such Asset Disposition or sale, other disposition or issuance of Equity Interests is otherwise permitted and commenced in accordance with the terms of this Agreement (and the Agent is hereby authorized by the Lenders to execute and deliver to the Borrower all such documents evidencing any such release) or (iii) amend, modify or waive any provision of Section 9 or any other provision of any Loan Document if the effect thereof is to affect the rights or duties of the Agent, without the written consent of the then Agent. Any such amendment, supplement, modification or waiver shall apply to each of the Lenders equally and shall be binding upon the Borrower, the Lenders, the Agent and all future holders of the Notes. In the case of any waiver, the Borrower, the Lenders and the Agent shall be restored to their former position and rights hereunder and under the outstanding Notes, and any Default or Event of Default waived shall be deemed to be cured and not continuing, but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. (b) Each of the Lenders agrees that in the event that such Lender is requested to consent to any amendment, supplement, modification or waiver of any term or condition of or with respect to this Agreement or any other Loan Document, the effectiveness of which requires the consent of all of the Lenders pursuant to the first proviso of Section 10.5(a) hereof, and such Lender shall fail or refuse to give such consent, such Lender (the "Affected Lender") shall be obliged, at the request of the Borrower and with the consent of the Agent, to assign all of its rights and obligations hereunder to (i) another Lender or (ii) another qualified financial institution nominated by the Agent and reasonably acceptable to the Borrower (the "Replacement Lender"), and willing to participate in this Agreement through the Final Maturity Date in the place of such Affected Lender; provided that the Affected Lender receives payment in full, pursuant to an Assignment Agreement, of an amount equal to such Lender's Pro Rata Share of all unpaid principal and interest owing to the Lenders and all accrued but unpaid fees and other costs and expenses payable with respect to its Pro Rata Share. The Agent shall give written notice to the Borrower of any such assignment. Section 10.6 No Waiver; Remedies Cumulative. No failure or delay on the part of the Agent or any Lender or any holder of a Note in exercising any right, power or privilege hereunder or under any other Loan Document and no course of dealing between any Loan Party and the Agent or any Lender or the holder of any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Loan Document preclude any other or further exercise thereof of the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Agent or any Lender or the holder of any Note would otherwise have. No notice to or demand 97 104 on any Loan Party in any case shall entitle any Loan Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Agent, the Lenders or the holder of any Note to any other or further action in any circum stances without notice or demand. Section 10.7 Sharing of Payments. Each of the Lenders agrees that if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Loan Documents, or otherwise) which is applicable to the payment of any Obligations, of a sum which with respect to the related sum or sums received by other Lenders is in a greater proportion than the total of such Obligation then owed and due to such Lender bears to the total of such Obligation then owed and due to all of the Lenders immediately prior to such receipt, then such Lender receiving such excess payment shall purchase for cash without recourse or warranty from the other Lenders an interest in such Obligations owing to such Lenders in such amount as shall result in a proportional participation by all of the Lenders in such amount; provided that if all or any portion of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. Section 10.8 Application of Collateral Proceeds. The Agent shall, unless otherwise specified at the direction of the Required Lenders which direction shall be consistent with the last sentence of this Section 10.8, apply all proceeds of Collateral in the following order: (A) first, to pay Obligations in respect of any fees, expense reimbursements or indemnities then due to the Agent; (B) second, to pay Obligations in respect of any fees, expenses, reimbursements or indemnities then due to the Lenders and the Issuer; (C) third, to pay interest due in respect of the Loans and L/C Obligations; (D) fourth, to the ratable payment of principal outstanding on the Loans, Obligations for unreimbursed drawings under all Letters of Credit and net termi nation amounts payable in respect of Rate Hedging Obligations (with the order of application to the installments of any particular Loan, Obligation for any unreimbursed drawing under any Letter of Credit or net termination amount payable in respect of Rate Hedging Obligation to be determined by the Agent in its sole 98 105 discretion); (E) fifth, to provide required cash collateral if any pursuant to Section 8.2; and (F) sixth, to the ratable payment of all other Obligations. The order of priority set forth in this Section 10.8 and the related provisions of this Agreement are set forth solely to determine the rights and priorities of the Agent and the Lenders as among themselves. The order of priority set forth in clauses (B) through (F) of this Section 10.8 may at any time and from time to time be changed with the consent of 100% of the Lenders without necessity of notice to or consent of or approval by the Borrower, or any other Person. The order of priority set forth in clause (A) of this Section 10.8 may be changed only with the prior written consent of the Agent. Section 10.9 Governing Law; Submission to Jurisdiction. (a) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW). (b) Any legal action or proceeding with respect to this Agreement or any other Loan Document and any action for enforcement of any judgment in respect thereof may be brought in the courts of the State of Illinois or of the United States of America for the Northern District of Illinois, and, by execution and delivery of this Agreement, the Borrower hereby accepts for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and appellate courts. The Borrower irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, the Borrower at its address set forth opposite its signature below. The Borrower hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement or any other Loan Document brought in the courts referred to above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Agent, any Lender or any holder of a Note to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Borrower in any other jurisdiction. Section 10.10 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute 99 106 one and the same instrument. Section 10.11 Effectiveness. This Agreement shall become effective on the date on which all of the parties hereto shall have signed a counterpart hereof and shall have delivered the same to the Agent which delivery, in the case of the Lenders, may be given to the Agent by telecopy (with the originals delivered promptly to the Agent via overnight courier service). Section 10.12 Amendment and Restatement. This Agreement amends and restates in its entirety the Original Credit Facility. Upon the effectiveness of this Agreement, the terms and provisions of the Original Credit Facility shall, subject to this Section 10.12, be superseded hereby. Notwithstanding the amendment and restatement of the Original Credit Facility by this Agreement, the Borrower shall continue to be liable to the Lenders party to the Original Credit Facility and the Agent with respect to agreements on the part of the Borrower under the Original Credit Facility to indemnify any of such Lenders or the Agent in connection with events or conditions arising or existing prior to the effective date of this Agreement, including, but not limited to, those events and conditions set forth in Section 10 thereof. This Agreement is given in substitution for the Original Credit Facility. Upon the effectiveness of this Agreement, each reference to the Original Credit Facility in any other document, instrument or agreement executed and/or delivered in connection therewith shall mean and be a reference to this Agreement. This Agreement amends, restates and supersedes only the Original Credit Facility. This Agreement is not a novation. Nothing contained herein or in any of the other Loan Documents, unless expressly herein or therein stated to the contrary, is intended to amend, modify or otherwise affect any other instrument, document or agreement executed and/or delivered in connection with the Original Credit Facility. Section 10.13 Reallocation of Loans. (a) As of the Closing Date, (i) the Pro Rata Share of each Lender shall be immedi ately adjusted based upon the application of the definition of "Pro Rata Share" with respect to each Lender's new Term Loan Commitment and Revolving Loan Commitment as of the Closing Date after giving effect to this Agreement; (ii) each Lender listed on the signatures pages of this Agreement that was not a party to the Original Credit Facility shall become a party to this Agreement; and (iii) each Lender that was a party to the Original Credit Facility whose Pro Rata Share becomes 0% after giving effect to this Agreement shall, upon the occurrence thereof and the reallocation of Loans in accordance with the terms of Section 10.13(b), cease to be a Lender party to this Agreement, and all accrued fees and other amounts payable under the Original 100 107 Credit Facility for the account of such Lender shall be due and payable on such date; provided, however, that the provisions of Sections 2.16, 2.17, 2.18, 2.19, 9.7 and 10.1 shall continue to inure to the benefit of such Lender. (b) As of the Closing Date, (i) each Lender that, as a result of the adjustment of its Pro Rata Share, is to have a greater principal amount of Loans outstanding than such Lender had outstanding immediately prior to giving effect to this Agreement shall, if requested by the Agent, deliver to the Agent immediately avail able funds to cover such Loans (and the Agent shall, to the extent of the funds so received and the funds received from any Lenders that are not parties to the Original Credit Facility, disburse funds to each Lender that, as a result of such adjustment of the Pro Rata Shares, is to have a lesser principal amount outstand ing than such Lender had outstanding under the Original Credit Agreement); and (ii) immediately prior to giving effect to this Agreement, each Lender that is not a party to the Original Credit Facility shall deliver to the Agent immediately available funds to cover its Loans that will equal such Bank's Pro Rata Share of the aggregate amount of Obligations outstanding under this Agreement immediately after giving effect to this Agreement. (c) The principal amounts of Loans outstanding under the Original Credit Facility immediately prior to giving effect to this Agreement to each Lender that is a party thereto shall be deemed to be Loans made by that Lender hereunder (as reallocated pursuant to this Section 10.13(b)). Each Letter of Credit issued under the Original Credit Facility (other than the Existing Letter of Credit) and outstanding immediately prior to giving effect to this Agreement shall be deemed to be a Letter of Credit hereunder. Section 10.14 Headings Descriptive. The headings of the several Sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. Section 10.15 Marshalling; Recapture. Neither the Agent nor any Lender shall be under any obligation to marshall any assets in favor of any Loan Party or any other party or against or in payment of any or all of the Obligations. To the extent any Lender receives any payment by or on behalf of any Loan Party, which payment or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to such Loan Party or its estate, trustee, receiver, custodian or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such payment or repayment, the obligation or part thereof which has been paid, reduced or satisfied by the amount so repaid shall be reinstated by the amount so repaid and shall be included within the 101 108 liabilities of such Loan Party to such Lender as of the date such initial payment, reduction or satisfaction occurred. Section 10.16 Severability. In case any provision in or obligation under this Agreement or the Notes or the other Loan Documents shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. Section 10.17 Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default or Event of Default if such action is taken or condition exists. Section 10.18 Survival. All indemnities set forth herein including, without limitation, in Sections 2.16, 2.17, 2.18, 2.19, 9.7 and 10.1 shall survive the execution and delivery of this Agreement and the Notes and the making and repayment of the Loans hereunder. Section 10.19 Domicile of Loans. Each Lender may transfer and carry its Loans at, to or for the account of any branch office, subsidiary or affiliate of such Lender. Section 10.20 Limitation of Liability. No claim may be made by any Loan Party or any other Person against the Agent or any Lender or the Affiliates, directors, officers, employees, attorneys or agent of any of them for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement or any other Transactions or the Hardee's Acquisition, or any act, omission or event occurring in connection therewith; and each Loan Party hereby waives, releases and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. Section 10.21 Calculations; Computations. The financial statements to be furnished to the Agent and the Lenders pursuant hereto shall be made and prepared in accordance with GAAP consistently applied throughout the periods involved and consistent with GAAP as used in the preparation of the financial statements referred to in Section 5.5, and, except as otherwise specifically provided herein, all computations determining compliance with Section 7.1 hereof shall utilize GAAP. Section 10.22 WAIVER OF TRIAL BY JURY. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE BORROWER, THE AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN 102 109 ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY MATTER ARISING HEREUNDER OR THEREUNDER. 103 110 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Agreement as of the date first above written. CKE RESTAURANTS, INC. By: /s/ CARL A. STRUNK ------------------------------------ Print Name: Carl A. Strunk ---------------------------- Title: EVP --------------------------------- Address: 1200 N. Harbor Blvd. Anaheim, CA 92801 Attn: General Counsel Telephone: (714) 774-5796 Telecopy: (714) 520-4485 111 BANQUE PARIBAS, as Agent and as a Lender By: /s/ CLARK C. KING, III ------------------------------------ Print Name: Clark C. King, III Title: Vice President By: /s/ CLARK C. KING, III ------------------------------------ Print Name: Clark King ---------------------------- Title: Vice President --------------------------------- Address: 227 W. Monroe Street Suite 3300 Chicago, IL 60606 Attn: Telephone: (312) 853-6000 Telecopy: (312) 853-6020 with a copy to: Maureen B. Keating Banque Paribas 787 Seventh Avenue New York, NY 10019-6016 Telephone: (212) 841-2286 Telecopy: (212) 841-2275 112 Schedule 1.1 to Credit Agreement Lenders and Commitments
Name of Lender Revolving Commitment Term Loan Commitment - -------------- -------------------- -------------------- Banque Paribas $250,000,000 $250,000,000
113 Annex I Domestic Lending Office Eurodollar Lending Office Banque Paribas Banque Paribas Address: Address: ---------------------------- ------------------------------- ---------------------------------------- ---------------------------------------- Telephone: Telephone: --------------------------- ----------------------------- Telecopy: Telecopy: ---------------------------- ------------------------------ CKE Restaurants, Inc. CKE Restaurants, Inc. Address: Address: Address: Address: ---------------------------- ------------------------------- ---------------------------------------- ---------------------------------------- Telephone: Telephone: --------------------------- ----------------------------- Telecopy: Telecopy: ---------------------------- ------------------------------ EX-11.1 9 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.1 CKE RESTAURANTS, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
FISCAL YEAR ENDED JANUARY 31, ----------------------------------------------- 1998 1997 1996 1995 1994 ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) BASIC EARNINGS PER SHARE: Net income................................... $46,757 $22,302 $10,952 $ 1,264 $ 3,665 ======= ======= ======= ======= ======= Weighted average number of common shares outstanding during the year................ 42,394 32,399 30,330 30,985 30,055 Repurchase and retirement of shares..... -- -- -- -- (46) Purchase of treasury shares............. -- -- (119) (238) -- ------- ------- ------- ------- ------- 42,394 32,399 30,211 30,747 30,009 ======= ======= ======= ======= ======= Basic earnings per share..................... $ 1.10 $ 0.69 $ 0.36 $ 0.04 $ 0.12 ======= ======= ======= ======= =======
FISCAL YEAR ENDED JANUARY 31, ----------------------------------------------- 1998 1997 1996 1995 1994 ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) DILUTED EARNINGS PER SHARE: Net income................................... $46,757 $22,302 $10,952 $ 1,264 $ 3,665 ======= ======= ======= ======= ======= Weighted average number of common shares outstanding during the year................ 42,394 32,399 30,330 30,985 30,055 Incremental common shares attributable to exercise of stock options.......... 1,353 877 344 135 109 Repurchase and retirement of shares..... -- -- -- -- (46) Purchase of treasury shares............. -- -- (119) (238) -- ------- ------- ------- ------- ------- 43,747 33,276 30,555 30,882 30,118 ======= ======= ======= ======= ======= Diluted earnings per share................... $ 1.07 $ 0.67 $ 0.36 $ 0.04 $ 0.12 ======= ======= ======= ======= =======
EX-12.1 10 COMPUTATION OF RATIOS 1 EXHIBIT 12.1 CKE RESTAURANTS, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FISCAL YEAR ENDED JANUARY 31, ----------------------------------------------- 1998 1997 1996 1995 1994 ------- ------- ------- ------- ------- (DOLLARS IN THOUSANDS) Earnings before fixed charges: Income before income taxes................. $76,640 $36,710 $17,953 $ 2,398 $ 6,269 Fixed charges.............................. 16,914 9,877 10,004 9,202 10,387 ------- ------- ------- ------- ------- $93,554 $46,587 $27,957 $11,600 $16,656 ======= ======= ======= ======= ======= Fixed charges................................ $16,914 $ 9,877 $10,004 $ 9,202 $10,387 ======= ======= ======= ======= ======= Ratio of earnings to fixed charges........... 5.5x 4.7x 2.8x 1.3x 1.6x ======= ======= ======= ======= =======
EX-21.1 11 SUBSIDIARIES OF REGISTRANT 1 EXHIBIT 21.1 CKE RESTAURANTS, INC. LIST OF SUBSIDIARIES Set forth below is a list of the Registrant's subsidiaries as of January 26, 1998:
CONTROL BY JURISDICTION OF ----------------------- NAME OF SUBSIDIARY ORGANIZATION REGISTRANT SUBSIDIARY ------------------ --------------- ---------- ---------- Carl Karcher Enterprises, Inc.......... California 100% Boston Pacific, Inc.................... California 100% CBI Restaurants, Inc................... Delaware 100% Taco Bueno Restaurants, Inc............ Texas 100% Taco Bueno Equipment Company........... Texas 100% Taco Bueno West, Inc................... Delaware 100% Taco Bueno Texas, L.P.................. Texas 100% JB's Family Restaurants, Inc........... Delaware 100% Hardee's Food Systems, Inc............. North Carolina 100% Fast Food Restaurants, Inc............. Pennsylvania 100% HFS Ventures, Inc...................... North Carolina 100% FFM Marine Corporation................. North Carolina 100% Hardee's of Green Bay, Inc............. Delaware 100% HED, Inc............................... North Carolina 100% HFS Georgia, Inc....................... Georgia 100% Central Iowa Food Systems, Inc......... Iowa 100% Hardee's of Ames, Inc.................. Iowa 100% Hardee's at Onslow Mall, Inc........... North Carolina 100% Burger Chef Systems, Inc............... North Carolina 100% Rix Systems, Inc....................... Indiana 100% Burger Chef Distributing Corporation... Delaware 100% 1233 Corporation....................... Ohio 100% Sandy's Franchise, Inc................. Illinois 100% Hardee's Capital USA, Inc.............. Delaware 100% Hardee's Venture Properties, Inc....... Delaware 100% Hardee's of Sam Houston................ Texas 100%
EX-23.1 12 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors CKE Restaurants, Inc. and Subsidiaries: We consent to incorporation by reference in the Registration Statements (Nos. 33-56313, 33-55337, 333-12399, 33-53089-01, 2-86142-01, 33-31190-01 and 33-12401) on Forms S-8 of CKE Restaurants, Inc. and Subsidiaries of our report dated March 17, 1998, relating to the consolidated balance sheets of CKE Restaurants, Inc. and Subsidiaries as of January 31, 1998 and 1997 and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended January 31, 1998, which report appears in the January 31, 1998 Annual Report on Form 10-K of CKE Restaurants, Inc. and Subsidiaries. KPMG Peat Marwick LLP Orange County, California April 23, 1998 EX-27.1 13 FINANCIAL DATA SCHEDULE FOR THE YEAR ENDED 1/26/98
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CKE RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AS OF AND FOR THE YEAR ENDED JANUARY 26, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K FOR THE YEAR ENDED JANUARY 26, 1998. 1,000 YEAR JAN-26-1998 JAN-28-1997 JAN-26-1998 30,382 0 47,276 0 17,024 92,156 797,222 170,196 957,368 176,484 0 0 0 465 498,047 957,368 1,022,453 1,149,659 832,460 1,063,468 (7,363) 0 16,914 76,640 29,883 46,757 0 0 0 46,757 1.10 1.07
EX-27.2 14 FINANCIAL DATA SCHEDULE FOR THE YEAR ENDED 1/27/97
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CKE RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AS OF AND FOR THE YEAR ENDED JANUARY 27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K FOR THE YEAR ENDED JANUARY 27, 1997. 1,000 YEAR JAN-27-1997 JAN-30-1996 JAN-27-1997 46,330 0 25,565 0 9,223 80,197 359,225 151,126 410,367 83,124 0 0 0 365 214,439 410,367 536,808 613,380 424,794 569,241 (2,448) 0 9,877 36,710 14,408 22,302 0 0 0 22,302 .69 .67
EX-27.3 15 FINANCIAL DATA SCHEDULE FOR THE YEAR ENDED 1/29/96
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CKE RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AS OF AND FOR THE YEAR ENDED JANUARY 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K FOR THE YEAR ENDED JANUARY 29, 1996. 1,000 YEAR JAN-29-1996 JAN-31-1995 JAN-29-1996 24,063 2,510 17,042 0 6,132 56,473 272,135 152,792 248,009 55,756 0 0 0 317 100,872 248,009 393,486 464,667 310,191 437,667 (957) 0 10,004 17,953 7,001 10,952 0 0 0 10,952 .36 .36
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