INDEBTEDNESS AND INTEREST EXPENSE

Our senior secured revolving credit facility (the “Credit Facility”) provides for senior secured revolving facility loans, swingline loans and letters of credit in an aggregate amount of up to $100,000. As of August 13, 2012, we had no outstanding loan borrowings, $30,603 of outstanding letters of credit and remaining availability of $69,397 on our Credit Facility. Borrowings under the Credit Facility bear interest at a rate equal to, at our option, either: (1) the higher of Morgan Stanley’s “prime rate” plus 2.75% or the federal funds rate, as defined in our Credit Facility, plus 3.25%, or (2) the London Interbank Offered Rate (“LIBOR”) plus 3.75%.

The terms of our Credit Facility include financial performance covenants, which include a maximum secured leverage ratio and a minimum interest coverage ratio. As of August 13, 2012, our financial performance covenants did not limit our ability to draw on the remaining availability of $69,397 under our Credit Facility.

On July 16, 2012, we redeemed $60,000 of the principal amount of our senior secured second lien notes (the "Senior Secured Notes") at a redemption price of 103% of the principal amount of the Senior Secured Notes pursuant to the terms of the indenture governing the Senior Secured Notes. During the twelve and twenty-eight weeks ended August 13, 2012, we recognized a loss of $3,695 on the early extinguishment of the Senior Secured Notes. Subsequent to the redemption, and as of August 13, 2012, the remaining aggregate principal amount of the Senior Secured Notes was $472,122. As of August 13, 2012, the carrying value of the Senior Secured Notes was $464,710, which is presented net of the remaining unamortized portion of the original issue discount of $7,412 in our accompanying unaudited Condensed Consolidated Balance Sheet. The Senior Secured Notes bear interest at a rate of 11.375% per annum, payable semi-annually in arrears on January 15 and July 15. During the twelve and twenty-eight weeks ended August 15, 2011, we recognized a loss of $2,641 on the early extinguishment of $40,000 principal amount of our Senior Secured Notes.

In accordance with the indenture governing the Senior Secured Notes, we are required to make offers to repurchase a portion of our Senior Secured Notes at a price of 103% of the principal amount of the Senior Secured Notes with a portion of the net proceeds received from certain sale-leaseback transactions. Pursuant to these requirements, on July 18, 2012, we commenced a tender offer to purchase up to $29,875 of the principal amount of our Senior Secured Notes (the “Tender Offer”) at a redemption price of 103%, which expired on August 16, 2012 with no Senior Secured Notes tendered. As of August 13, 2012, pursuant to the requirements of the Tender Offer, we had $31,073 of cash and cash equivalents that were held by a trustee, which were restricted as to use. Following the expiration of the Tender Offer on August 16, 2012, the restrictions on the use of the escrowed cash and cash equivalents were removed and the amounts held by the trustee were returned to us in full.

Each of our wholly-owned domestic subsidiaries that guarantees indebtedness under the Credit Facility also guarantees the performance and punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all our obligations under the Senior Secured Notes. Separate financial statements and other disclosures of each of the guarantors are not presented because: (i) CKE Restaurants, Inc. is a holding company with no material independent assets or operations; (ii) the guarantor subsidiaries are, directly or indirectly, wholly-owned subsidiaries of CKE Restaurants, Inc.; (iii) such guarantees are full, unconditional and joint and several; (iv) the aggregate assets, liabilities, earnings and equity of the guarantor subsidiaries are substantially equivalent to the assets, liabilities, earnings and equity of CKE Restaurants, Inc. on a consolidated basis; (v) the one non-guarantor subsidiary is minor; and (vi) there are no significant restrictions on the ability of CKE Restaurants, Inc. or any of the guarantors to obtain funds from its respective subsidiaries by dividend or loan.

Interest Expense

Interest expense consisted of the following:



	Twelve Weeks Ended				Twenty-Eight Weeks Ended
	August 13, 2012		August 15, 2011		August 13, 2012		August 15, 2011
Senior secured revolving credit facility	$	—	$	—	$	—	$	—
Senior secured second lien notes	13,397		15,358		32,021		36,474
Amortization of deferred financing costs and discount on notes	950		925		2,278		2,169
Capital lease obligations	943		1,117		2,223		2,579
Financing method sale-leaseback transactions⁽¹⁾	2,241		101		4,331		101
Letter of credit fees and other	303		315		780		888
	$	17,834	$	17,816	$	41,633	$	42,211

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(1)	See Note 5.

As of August 13, 2012 and January 31, 2012, accrued interest was $4,456 and $2,650, respectively, which is included in other current liabilities in our accompanying unaudited Condensed Consolidated Balance Sheets.

CKE Inc. Senior Unsecured PIK Toggle Notes

During fiscal 2012, CKE Inc. (formerly known as CKE Holdings, Inc.), our parent, issued $200,000 aggregate principal amount of senior unsecured PIK toggle notes (the “Toggle Notes”). We have not guaranteed the Toggle Notes, nor have we pledged any of our assets or stock as collateral for the Toggle Notes. As a result, we have not reflected the Toggle Notes in our unaudited Condensed Consolidated Financial Statements.

The interest on the Toggle Notes, which is payable semi-annually on March 15 and September 15 of each year, can be paid (1) entirely in cash, at a rate of 10.50% (“Cash Interest”), (2) entirely by increasing the principal amount of the note or by issuing new notes for the entire amount of the interest payment, at a rate per annum equal to the cash interest rate of 10.50% plus 0.75% (“PIK Interest”) or (3) with a 25%/75%, 50%/50% or 75%/25% combination of Cash Interest and PIK Interest. CKE Inc. paid the March 15, 2012 and September 15, 2012 interest payments entirely in PIK Interest and has elected to pay the March 15, 2013 interest payment entirely in Cash Interest.

As of August 13, 2012, the principal amount of CKE Inc.’s total long-term debt on a stand-alone basis was $223,199, which includes PIK Interest payments that have been added to the principal amount of the Toggle Notes. The principal amount of CKE Inc.’s long-term debt on a stand-alone basis has not been reduced by the $10,508 principal amount of Toggle Notes held by CKE Restaurants as of August 13, 2012 (the “Purchased Toggle Notes”) since the Purchased Toggle Notes remain outstanding. As of August 13, 2012, the carrying value of CKE Inc.’s total long-term debt on a stand-alone basis, including the current portion and the Purchased Toggle Notes, was $220,022, which is presented net of the unamortized portion of the original issue discount of $3,177.