10-K

FORM 10-K

Securities And Exchange Commission Washington, D.C. 20549

(Mark One)

l Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended January 28, 2002

or

O Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 1-11313

CKE RESTAURANTS, INC.

(Exact name of registrant as specified in its charter)

Delaware	33-0602639
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
Incorporation or organization)

3916 State Street, Suite 300,

Santa Barbara, California 93105

(Address of principal executive offices)

(714) 774-5796

Registrant’s telephone number, including area code

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 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  [X]    No  [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation

S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [X]

The aggregate market value of the voting stock held by non-affiliates of the registrant as of April 5, 2002 was $505,635,841.

The number of outstanding shares of the registrant’s common stock was 56,987,127 as of April 5, 2002.

Documents Incorporated By Reference: Portions of the registrant’s Proxy Statement for the 2002 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission on May 10, 2002, are incorporated by reference into Part III of this Report.

CKE RESTAURANTS, INC. AND SUBSIDIARIES

Index To Annual Report On Form 10-K

For the Fiscal Year Ended January 28, 2002

Table of Contents
Part I		Page No.
Item 1.	Business	1
Item 2.	Properties	17
Item 3.	Legal Proceedings	17
Item 4.	Submission of Matters to a Vote of Security Holders	18
Part II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	19
Item 6.	Selected Financial Data	20
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 7a.	Quantitative and Qualitative Disclosure About Market Risk	37
Item 8.	Financial Statements and Supplementary Data	37
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	37
Part III
Item 10.	Directors and Executive Officers of the Registrant	38
Item 11.	Executive Compensation	38
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	38
Item 13.	Certain Relationships and Related Transactions	38
Part IV
Item 14.	Exhibits, Financial Statements, Schedules and Reports on Form 8-K	42

Part I

Item 1. Business

Overview

We own, operate and franchise approximately 3,400 quick-service restaurants (“QSR”), primarily under the brand names Carl’s Jr., and Hardee’s. Carl’s Jr. restaurants are predominately located in California. Hardee’s restaurants are located primarily in the Midwest and Southeast. According to Finance Corporation of America’s 2001 Chain Restaurant Industry Review and Outlook report (based on system-wide sales), CKE Restaurants, Inc.’s (“CKE”, “Management” or the “Company”) Hardee’s and Carl’s Jr. chains are the seventh and eleventh largest QSR hamburger restaurant chains in the United States, respectively. Our system-wide restaurant portfolio at January 28, 2002 consisted of:

	Carl’s Jr.	Hardee’s	Total
Company-operated	443	742	1,185
Franchised and licensed	526	1,648	2,174
Total	969	2,390	3,359

We acquired Hardee’s in 1997. At that time, we had just completed a turnaround of operations at Carl’s Jr. We were aware of Hardee’s operational difficulties, including a trend of declining same-store sales, however we believed that we could implement a strategy to counter the operational difficulties Hardee’s was experiencing. We also believed this acquisition would enable us to expand the scope of our operations and become one of the leading nationwide operators of quick-service hamburger restaurants. Appraisals we obtained from a third party indicated that we had effectively acquired the brand for the value of the property and equipment. We believed that there was significant value in Hardee’s and Carl’s Jr.’s complementary geographic markets and relative menu strengths.

Since the initial acquisition, we acquired an additional 691 Hardee’s restaurants from franchisees in key markets, including 557 restaurants operated by Flagstar Enterprises, Inc. (“FEI”), then the largest Hardee’s franchisee, on April 1, 1998. We believed these additional acquisitions would enable us to exercise further control over, and strengthen, the Hardee’s brand. Additionally, we were advised that FEI planned to sell their restaurants to a competitor, and we believed the loss of these restaurants in Hardee’s prime territory would negatively impact Hardee’s long-term success.

In conjunction with the two-step acquisition of Hardee’s, we incurred a substantial amount of long-term debt and became a highly-leveraged company after the acquisition. We were initially unable to materially alter the declining same-store sales trend at Hardee’s after the acquisition. In fact, the decline in same-store sales continued. Beginning with fiscal year 2000, Hardee’s operating losses and increased interest expense resulted in our operating at a loss. When those Hardee’s operating losses arose, we had approximately $280 million outstanding under our bank facility. Furthermore, although we were not declared in default, we were not in compliance with all of the financial covenants under our bank facility. As a result of these circumstances, we embarked upon a program to sell restaurants with the objectives of reducing bank debt and shifting our restaurant system mix to one that is more franchise than company-operated. We also identified unprofitable restaurants and closed them. We incurred net losses on the sales of Hardee’s restaurants and recorded charges to establish a reserve for closed restaurants. Additionally, we reduced our operating costs to a level more commensurate with the revenue mix resulting from the rebalancing of our system-wide restaurant portfolio. We also were required to write down the carrying value of certain properties and charge a loss to operations, as their performance did not support their carrying values. We have reported losses for each of the last 9 quarters that largely consisted of facility action charges, which are asset impairment charges, restaurant closure reserve charges, and net gains and losses on sale of restaurants.

Our objective is to complete the turnaround of the Company’s operations such that we operate profitably.

Business Turnaround

As discussed above, we are attempting to complete a business turnaround of our operations. To achieve this objective we have taken the following actions:

Ÿ Sold 443 Hardee’s restaurants since the end of fiscal 2000, resulting in $120.7 million of cash proceeds and incurring net losses on sales of $71.7 million.

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Ÿ Sold 143 Carl’s Jr. restaurants, resulting in $116.7 million of cash proceeds and realizing net gains on sales of $69.4 million.

Ÿ Closed 283 Hardee’s and 40 Carl’s Jr. restaurants that we determined could not reasonably be returned to our desired level of profitability.

Ÿ Sold our Taco Bueno concept, consisting of 125 Mexican quick-service restaurants. The net cash proceeds from this sale were approximately $62.4 million.

Ÿ Reduced the operating costs of the Company, including general and administrative expenses. This included reducing our work force.

Ÿ Reduced the outstanding balance on the revolving loan portion of our bank facility to zero during the third quarter of fiscal 2002, through the application of the proceeds from the above activities. Following this, we amended our bank credit facility (see Recent Developments below).

Ÿ Focused our operational efforts on improving the level of quality, service and cleanliness of our Hardee’s restaurants, as we believed that until we made improvements in those areas the declining trend in same-store sales could not be reversed.

Ÿ Focused our new product development efforts on premium products that offer high profit margins. We introduced The Six Dollar Burger^™ during fiscal year 2002 at both Carl’s Jr. and Hardee’s.

Ÿ Focused on our brands’ images to ensure they remain relevant to consumers. We believe we have made substantial progress in this regard for Carl’s Jr., and have identified this as a goal for Hardee’s.

Ÿ Remodeled many restaurants and incurred material repair and maintenance charges with the objective of increasing sales in the remodeled and repaired restaurants.

Ÿ Changed our strategy at Hardee’s from the past practice of frequent introduction of new products and offering of products at a discounted price to consumers to a strategy focusing on premium products with less emphasis on the offering of products at discounted prices.

The results of our business turnaround activities have been:

Ÿ We have changed the system-wide mix of restaurants to one that is primarily franchise-operated. At the end of the fiscal year, approximately 55% and 70% of Carl’s Jr. and Hardee’s restaurants were franchised, respectively.

Ÿ We have closed many unprofitable restaurants.

Ÿ We paid down our existing bank facility and arranged for a new bank facility (see Recent Developments below).

Ÿ We have improved the quality, service and cleanliness of our Hardee’s restaurants.

Ÿ Our same-store sales trends, for company-operated restaurants, by quarter, for each brand are:

Fiscal 2002	Carl’s Jr.	Hardee’s
First Quarter	0.7%	(4.2)%
Second Quarter	2.3%	1.0%
Third Quarter	6.1%	1.0%
Fourth Quarter	4.3%	6.4%
Fiscal 2001
First Quarter	3.6%	(6.2)%
Second Quarter	2.3%	(8.4)%
Third Quarter	1.1%	(6.3)%
Fourth Quarter	(0.4)%	(10.7)%

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Ÿ Quarterly net income (loss) by segment has been (in millions):

Fiscal 2001	Carl’s Jr.			Hardee’s			Other			Total Without Facility Action Charges			Facility Action Charges (Gains)		As Reported
First Quarter	$	9.5		$	(10.1	)	$	(2.8	)	$	(3.4	)	(0.9	)	(2.5	)
Second Quarter	$	6.5		$	(2.0	)	$	(0.5	)	$	4.0		17.9		(13.9	)
Third Quarter	$	1.9		$	5.9		$	(2.9	)	$	4.9		34.3		(29.4	)
Fourth Quarter	$	(7.1	)	$	(46.0	)	$	(1.9	)	$	(55.0	)	93.3		(148.3	)
Fiscal 2002
First Quarter	$	16.5		$	(15.8	)	$	(9.7	)	$	(9.0	)	28.2		(37.1	)
Second Quarter	$	9.4		$	(14.1	)	$	(1.6	)	$	(6.3	)	30.5		(36.8	)
Third Quarter	$	14.3		$	(9.5	)	$	(4.4	)	$	0.4		2.1		(1.7	)
Fourth Quarter	$	13.2		$	(12.3	)	$	1.4		$	2.3		10.6		(8.3	)

See further discussion regarding facility action charges in Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Our Strategies

As shown in the segment quarterly net income (loss), table above, as well as the information contained in the notes to the consolidated financial statements, Carl’s Jr. operates profitably and Hardee’s operates at a loss. In viewing the segments, we allocate much of our general and administrative expenses and all of our interest to each of the segments. On that basis, Hardee’s has been operating at a loss, excluding facility action charges, of approximately $4.3 million per month during the last fiscal year. In order for our business turnaround to be successful, we must improve Hardee’s operations.

We expect to execute our business turnaround through the following strategies:

Ÿ Continue our focus on quality, service and cleanliness at Hardee’s.

Ÿ Working with our outside advertising firm, develop an updated brand image for Hardee’s with the objective of reconnecting the brand with today’s QSR consumer.

Ÿ Continue to maintain the Carl’s Jr. brand’s profitability.

Ÿ Continue our focus on premium, rather than discounted, products.

Ÿ Continue our focus on cost control.

Ÿ Grow our system by opening 5 to 10 new Carl’s Jr. restaurants and 5 to 10 new Hardee’s restaurants next fiscal year.

Ÿ Continue our programs to remodel up to 180 Hardee’s restaurants, and install charbroilers in all our Hardee’s restaurants.

Ÿ Integrate the acquisition of Santa Barbara Restaurant Group, Inc. (“SBRG”) (see Recent Developments below).

Ÿ Develop a strategy for addressing the maturity of our approximately $159.2 million of convertible notes (see Item 7– Management’s Discussion and Analysis of the Results of Operations below).

The key success factor in operating Hardee’s profitably is increasing sales. At the end of the fiscal year, the average-unit volume (“AUV”) at our company-owned Hardee’s restaurants was approximately $763,000. We estimate that for the concept to operate profitably, the AUV must be in the range of $850,000 to $900,000. We can provide no assurance that we will be successful in improving Hardee’s AUV to those levels. For fiscal 2002, Hardee’s franchisee AUV was $835,000

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Restaurant Concepts

Carl’s Jr.

Concept.    We believe that our Carl’s Jr. restaurants offer superior food quality, a diverse menu and attentive customer service, which differentiate Carl’s Jr. from its competitors and are critical to its success. Carl’s Jr. restaurants focus on offering customers a quality dining experience, including premium products, at a reasonable price. The menu at Carl’s Jr. features freshly prepared food items that appeal to a broad audience. We generally make Carl’s Jr. charbroiled hamburgers, chicken sandwiches and signature items at the time of the customer’s order, applying exacting quality standards and offering them in generous portions. By providing partial table service, unlimited drink refills and an attractive restaurant decor, Carl’s Jr. restaurants offer a pleasant, customer-friendly environment. We believe that our focus on our customers and customer service, superior food quality and generous portions enables Carl’s Jr. restaurants to maintain a strong price-value image with customers that has met with relative success. Our Carl’s Jr. AUV’s were $1.2 million at January 28, 2002.

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 Six Dollar Burger^™, Famous Star, Western Bacon Cheeseburger, Super Star, Charbroiler Chicken Sandwiches, Crispy Chicken Sandwiches, the Sourdough Bacon Cheeseburger and the Spicy Chicken Sandwich. We also offer a fish sandwich, stuffed baked potatoes, prepackaged salads, french fries, onion rings and fried zucchini. Most Carl’s Jr. restaurants also have self-service salad bars and a breakfast menu including eggs, bacon, sausage, French Toast Dips^®, the Sunrise Sandwich^®, Croissant Sunrise Sandwich^™ and a breakfast burrito. In addition, the restaurants sell a variety of promotional products on a limited basis. Carl’s Jr. was 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.

Substantially all of our Carl’s Jr. restaurants have bright colored exteriors, red awnings and a large, tilted Happy Star^® logo. The interiors feature the same bright colors, food murals, display cases for salads and desserts and accent lighting throughout the dining area. We believe that Carl’s Jr.’s restaurant design further increases consumer awareness of the Carl’s Jr. brand. Over the next year we plan to develop a prototype for a more updated design and commence on a remodel program for selected Carl’s Jr. restaurants.

Operations.    We strive to maintain high standards in all products and equipment used by our restaurants, as well as our operations related to food preparation, service and cleanliness. We generally prepare or assemble hamburgers and chicken sandwiches at Carl’s Jr. restaurants after the customer has placed an order and serve them promptly. We charbroil hamburger patties and chicken breasts in a gas-fired double broiler that sears the meat on both sides in a uniform heating and cooking time.

A general manager who has received nine to 13 weeks of management training operates each company-operated Carl’s Jr. restaurant. This training program involves a combination of classroom instruction and on-the-job training in specially designated training restaurants. The general manager trains other employees in accordance with our guidelines. District managers, who are responsible for 11 to 14 restaurants, also supervise general managers. Approximately 50 district managers are under the supervision of a regional vice president, who regularly inspects the operations in their respective district and region.

Dual-Branding.    Dual-branding allows a single restaurant to offer consumers two distinct brand menus. In May 1995, we entered into an initial agreement with SBRG to offer the Green Burrito^® menu at selected Carl’s Jr. locations. We believe 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 menu boards located at the same counter. Both menus are also available to customers utilizing the drive-thru. The Green Burrito menu offered at the dual-brand restaurants features a wide variety of traditional Mexican food items, including burritos, enchiladas, tacos, taquitos and nachos, as well as combination meals which are served with rice and beans. A variety of

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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. 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. We believe that this dual-branding program has attracted new customers, while increasing the frequency of customer visits at converted restaurants. Our dual-branded Carl’s Jr./Green Burrito restaurants have the highest average unit volumes in the system, at $1.3 million at January 28, 2002.

As of January 28, 2002, 107 Carl’s Jr. company-operated locations have been converted to Carl’s Jr./Green Burrito dual concept restaurants, and we paid a franchise fee and royalty to SBRG, the owner of the Green Burrito brand. At the end of fiscal 1996, we elected to sub-franchise, and shortly thereafter began offering, the Carl’s Jr./Green Burrito dual-brand to our franchise community. As of January 28, 2002, 88 franchised Carl’s Jr. restaurants have been converted to the Carl’s Jr./Green Burrito concept. On March 1, 2002, we acquired SBRG (see Recent Developments below), which owns the Green Burrito brand. This acquisition gives us control of the menu and further development of the brand, and eliminates our franchise fee and royalty expense. We receive a franchise fee for each franchise conversion and royalties from our franchisees’ Green Burrito food sales.

Franchised and Licensed Operations.    Our franchise strategy is designed to further the development of the Carl’s Jr. chain and reduce the total capital we need to develop new Carl’s Jr. restaurants. Franchise arrangements with Carl’s Jr. franchisees, which operate in Arizona, California, Colorado, Hawaii, Idaho, Nevada, New Mexico, Oklahoma, Oregon, Texas and Utah, generally provide for initial fees and continuing royalty payments and advertising fees to us based upon a percentage of gross sales (generally 4% for royalties and 5% to 7% for advertising). Additionally, most franchisees purchase food, paper and other supplies from us. 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. We also plan to continue to pursue non-traditional franchise development opportunities through innovative formats, including gasoline stations, convenience stores and institutional food service outlets.

Our franchising and licensing philosophy is that only candidates with appropriate operational experience and financial stability are considered for the program. Specific net worth and liquidity requirements must 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 28, 2002, our Carl’s Jr. franchisees and licensees operated 526 Carl’s Jr. restaurants. The majority of our Carl’s Jr. franchisees own more than one restaurant, with 22 franchisees owning seven or more restaurants. We presently anticipate that our Carl’s Jr. franchisees and licensees will open approximately 35 new Carl’s Jr. restaurants during fiscal 2003.

Purchasing and Distribution.    We purchase most of the primary food products and packaging supplies used in our Carl’s Jr. restaurant system and warehouse and distribute such items to both company-operated and franchised Carl’s Jr. restaurants. Although not required to do so, all of our Carl’s Jr. franchisees in California purchase most of their supplies from us. Our 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 because we believe our mature procurement process allows us to effectively manage our food costs, provide adequate quantities of food and supplies at competitive prices, and generate revenue from Carl’s Jr. franchisees by adding a nominal mark-up to cover direct costs and provide better overall service to our restaurants in California. We seek competitive bids from suppliers on many of our products, approve suppliers of those products and require them to adhere to our established product specifications. However, for our outlying markets, we are in the process of analyzing our distribution center business and other options for distributing food products and supplies to these Carl’s Jr. restaurants.

Hardee’s

Concept.    Hardee’s has a leading market presence in the Southeastern and Midwestern United States. The Hardee’s restaurant chain offers a variety of menu items, including breakfast and certain made-to-order lunch and dinner offerings

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(including charbroiled hamburgers in those restaurants that have been remodeled). Hardee’s restaurants emphasize hometown hospitality by providing generous portions at reasonable prices in a friendly environment. Currently, Hardee’s has shifted its focus from discount, variety products to premium products, such as The Six Dollar Burger^™.

Menu and Restaurant Design.    Hardee’s restaurants currently offer hamburgers, chicken sandwiches, roast beef sandwiches and fish sandwiches for lunch and dinner, as well as fried chicken in our restaurants located in certain markets. Unlike many quick-service hamburger restaurants, a significant portion of Hardee’s day part is breakfast. Breakfast generates approximately 40% of Hardee’s overall operating revenue, one of the highest in the quick-service hamburger industry. Hardee’s breakfast menu features Made From Scratch^™ biscuits, biscuit breakfast sandwiches and other items such as hash rounds and breakfast platters. Substantially all of Hardee’s restaurants have drive-thru facilities, and selected restaurants are open 24 hours a day, primarily on the 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.

Since our acquisition of Hardee’s, we introduced certain made-to-order lunch and dinner menu items that are currently served in our Carl’s Jr. restaurants, such as The Six Dollar Burger^™, the Famous Star and other signature products from Carl’s Jr. Our efforts to improve operations at Hardee’s have begun producing positive results. As shown in the table on page 2, Hardee’s has experienced three consecutive quarters of positive same-store sales after several years’ decline. We have also begun implementing the Carl’s Jr.-style limited table service and added “all-you-can-drink” beverage bars in all of our Hardee’s restaurants. Additionally, we are remodeling our Hardee’s restaurants to a new “Star Hardee’s” format, which we designed to update and revitalize the Hardee’s brand with the menu and operating qualities of Carl’s Jr. A Star Hardee’s remodel involves installing charbroilers in the kitchens, remodeling the interior and exterior of the restaurant and installing new signage that accents the Hardee’s name with a Star logo. Over the past year, we, along with some franchisees, have been able to revise the remodel, and thus have been able to significantly reduce the cost. We believe that the revised remodels offer consumers the same quality dining experience as the original Star Hardee’s conversion.

As of January 28, 2002, we had remodeled 385, or approximately 52%, of our Hardee’s company restaurants.

Operations.    We strive to maintain high standards in all products and equipment used by our Hardee’s restaurants, as well as the operations related to food preparation, service and cleanliness. Our initial attempts to implement all of the elements in a typical Carl’s Jr. restaurant at a Hardee’s did not yield the improvements that we had anticipated. Therefore, we identified those elements that we believed had been successfully transitioned in Hardee’s markets, primarily the installation of gas-fired charbroilers, and focused on those changes on a go-forward basis. Additionally, we have focused on the fundamentals of restaurant operations: quality, service and cleanliness. It is our belief that a renewed focus on those factors forms the basis for improved restaurant operations and the recent increases in same-store sales.

Franchised and Licensed Operations.    Franchise agreements with Hardee’s franchisees, who operate restaurants in the Southeastern and Midwestern United States, generally provide for initial fees and continuing royalty payments to us based upon a percentage of gross sales (generally 4%). 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 franchised restaurant, the general manager of each franchise is required to attend and complete our company-sponsored training program. Franchisees may also be required to remit lease payments for the use of our company-owned or leased restaurant facilities and to pay related occupancy costs.

At Hardee’s, average unit volumes for our international licensed restaurants were $762,000 in fiscal 2002 and total sales at Hardee’s international restaurants exceeded $78.1 million.

Since our acquisition of Hardee’s, we have worked to develop and enhance a productive relationship with our Hardee’s franchisees. We have been supportive in establishing a franchise association and have improved communications with franchisees. As a result, our Hardee’s franchisees have collectively increased their level of royalty payment and advertising contribution compliance. Our Hardee’s franchisees have joined us in our Star Hardee’s remodel program and, as of January 28, 2002, operated 500 franchised Star Hardee’s restaurants.

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As of January 28, 2002, franchisees and licensees operated 1,648 Hardee’s restaurants. The majority of our Hardee’s franchisees own more than one restaurant, with 32 franchisees owning 10 or more restaurants.

Purchasing and Distribution.    We currently purchase substantially all of the food, packaging and cleaning products sold or used in our Hardee’s restaurants from Fast Food Merchandisers, Inc. (“FFM”) and MBM Corporation (“MBM”). MBM, which was the primary distributor for FEI, acquired FFM in 1998, and consequently consolidated substantially all of Hardee’s distribution requirements. FFM and MBM currently distribute products to company-operated restaurants and to many of the Hardee’s restaurants operated by our franchisees. Pursuant to the terms of the distribution agreements, we are obligated to purchase substantially all of our specified product requirements from FFM and MBM for remaining terms of four years each. The prices we pay for FFM and MBM products, and the delivery fees we pay each distribution service, are subject to adjustment in certain circumstances, which may include increases resulting from changes in the distributor’s cost structure.

Investments in Other Restaurant Concepts

In the past, we have invested in other restaurant concepts, as described below (see also Note 8 of Notes to the Consolidated Financial Statements). In fiscal 2002, we shifted our primary focus to our core concepts.

Rally’s and Checkers.    Through a series of transactions, the Company has various investments in Checkers Drive-In Restaurants, Inc. (“Checkers”) which, as of January 28, 2002, consisted of common stock and warrants to purchase common stock. Checkers operates and franchises approximately 427 Checkers and 427 Rally’s double drive-thru quick-service hamburger restaurants, primarily in the Southeastern and Midwestern United States. Through fiscal 2002, we accounted for our investment in Checkers under the equity method of accounting, as our Chairman of the Board was the Chairman of Checkers. During the fourth quarter of fiscal 2000, we wrote-down our investment in Checkers by $16.6 million to its fair market value upon our conclusion that the investment had experienced an other than temporary decline in value. Further, as a result of recognizing our share of the net losses of Checkers, our investment in Checkers was zero as of January 31, 2000. Our Chairman is no longer the chairman of Checkers, however, he is still a member of the Board of Directors. During fiscal 2002 and 2001, we sold 358,000 and 657,000 shares respectively, and generated net proceeds of $2.2 million and $1.9 million respectively. On April 5, 2002, CKE exercised its warrant to purchase shares of Checker’s stock and received net shares of 436,000. As of April 5, 2002 we own 982,030 shares of Checker’s stock, respresenting 8.6% of the outstanding shares.

Boston Market.    We held a minority interest in Boston West, LLC (“Boston West”), which operated Boston Market restaurants in designated markets in Southern California as a franchised area developer of Boston Chicken, Inc. (“BCI”), the franchisor of the Boston Market restaurant concept. BCI and its Boston Market subsidiaries filed for protection under Chapter 11 of the Federal Bankruptcy Code on October 5, 1998. In a separate action, on November 9, 1998, Boston West filed a voluntary petition under Chapter 11 of the Federal Bankruptcy Code in order to restructure its overall operations. In April 2000, Boston Market Corporation (“BMC”), a wholly-owned subsidiary of McDonald’s Corp., acquired BCI’s rights, claims and interests relating to Boston West. As a result, Boston West and BMC filed a joint plan of reorganization that was approved by the bankruptcy court. Under this plan, we no longer have an ownership interest in Boston West or any of the Boston Market restaurants operated by Boston West. Additionally, under the plan, Boston West was dissolved.

Taco Bueno.    On June 10, 2001, we sold our Taco Bueno concept. The net proceeds from the sale were approximately $59.1 million and were used to permanently reduce our bank debt (see Note 2 of Notes to the Consolidated Financial Statements).

Santa Barbara Restaurant Group.    On March 1, 2002 we acquired Santa Barbara Restaurant Group, Inc. and its La Salsa, Green Burrito and Timber Lodge Steakhouse restaurant brands (see Recent Developments and Note 2 of Notes to the Consolidated Financial Statements).

Although we have no present intention to acquire additional interests in other restaurant concepts, we may do so in the future depending on the business prospects of the restaurant concept, the availability of financing at attractive terms, alternative business opportunities available to us, the consent of our senior lenders, if required, and general economic conditions.

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Critical Accounting Policies

Our reported results are impacted by the application of certain accounting policies that require us to make subjective or complex judgments. These judgements involve estimations about the effect of matters that are inherently uncertain and may significantly impact our quarterly or annual results of operations and financial condition. Specific risks associated with these critical accounting policies are described in the following paragraphs.

For all of these policies, we caution that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. We believe our most significant policies require:

Ÿ Estimation of future cash flows used to assess the recoverability of long-lived assets and establishment of store closure reserves.

Ÿ Determination of the appropriate allowances associated with franchise and license receivables and contingent liabilities.

Ÿ Estimation, using actuarially determined methods, of our self-insured losses under our workers’ compensation and fire and general liability insurance programs not covered under our stop-loss policy.

Ÿ Estimation of our net deferred income tax asset valuation allowance.

A detailed description of the critical accounting policies are as follows.

Impairment of property, equipment, property held for sale and goodwill

We evaluate the carrying value of assets for impairment when the operations of the brand, or certain restaurants in the brand, experience a negative event (i.e., significant downturn in operations, natural disaster, restaurant closures, etc.). When these events are identified, we review the last two years of operations on a restaurant-by-restaurant basis and, if there are increasing losses, we estimate future undiscounted cash flows. If the projected cash flows do not exceed the carrying value of the assets, including goodwill, which is allocated to each restaurant for this purpose, we write-down the assets to fair value, based on either (1) estimated net proceeds our third party broker (a related party — see Item 13. – Certain Relationships and Related Transactions) believes it can obtain in a sale of the site, (2) discounted projected cash flows, or (3) historical net proceeds obtained on other similar surplus property sales.

The most significant assumptions we use in this analysis are those made in estimating future cash flows. In estimating future cash flows we generally use the financial assumptions in our strategic plan and modify them if the operators believe other factors should be used. Additionally, in determining the amount we can obtain in a sale of a site, we use our broker’s knowledge of the area the property is located in and current sales trends. See discussion of SFAS 142 “Goodwill and Other Intangible Assets” on page 33.

Statement or Financial Accounting Standard No. 142 (“SFAS 142”)

Self-insurance

We are self-insured for a portion of our current and prior years’ losses related to workers’ compensation, fire and general liability insurance programs. We have obtained stop loss insurance for individual workers’ compensation claims over $250,000 and individual general liability claims over $500,000. Insurance liabilities and reserves are accounted for based on the net present value of independent actuarial estimates of the amount of loss expected. These estimates rely on actuarial observations of historical claim loss development for similar events. We continually evaluate the potential for changes in loss estimates, and use the results of these evaluations to adjust recorded provisions.

The assumptions used by the independent actuary to determine the liability balance are based on the average historical loss rates we’ve incurred. If the actual loss development is better or worse than the development estimated by the actuary, we will modify the reserve and it will be reflected in future operating performance. Additionally, if we experience a higher than expected number of claims or the costs of claims rise more than we expected, then the actuary will probably adjust expected losses upward and our future self-insurance costs will rise.

Store closure reserves

We make decisions to close restaurants based on prospects for future estimated profitability. Our restaurant operators evaluate each restaurant’s performance each financial period. When restaurants perform poorly, we consider the

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demographics of the location as well as the likelihood of being able to turn an unprofitable restaurant around. Based on the operator’s judgment, we estimate the future cash flows. If we determine that the restaurants will not be profitable, and there are no contractual requirements to continue operating the restaurant, we close the restaurant. Additionally, franchisees may close restaurants for which we are the primary lessee. If the franchisee cannot make payments on the lease, we continue making the lease payments and establish a store closure reserve if we decide not to operate the restaurant as a company-operated restaurant. We establish the reserve in the period we decide to close a restaurant, which may be before the actual closure date.

The store closure reserve for vacant properties is generally based on the term of the lease and the lease termination fee we expect to pay, as well as maintenance costs. The amount of the reserve established is generally the net present value of these estimated future payments.

The interest rate used to calculate the net present value of these reserves is based on our incremental borrowing rate at the time the reserve is established. The related discount is amortized and shown as interest expense in our Statement of Operations.

One significant assumption used in determining the amount of store closure reserves is the estimated costs to maintain leased and owned vacant properties. Additionally, the amount of the reserve established for future lease payments on vacant restaurants is based upon our third-party broker’s assessment of its ability to successfully negotiate early termination of our lease agreements with the lessors.

If the costs to maintain properties increase, or it takes longer than anticipated to sell properties or terminate leases, we may need to record additional reserves. If the leases on the vacant restaurants are not terminated on the terms we used to estimate the reserves, we may be required to record losses in future periods. Conversely if the leases on the vacant restaurants are terminated on more favorable terms than we used to estimate the reserves, we may reverse previously established reserves.

Franchise and licensed operations

We monitor the financial condition of franchisees and record provisions for estimated losses on receivables when we believe that our franchisees are unable to make their required payments to us. We review quarterly each franchisee’s account, focusing on those that are past due, and determine a specific reserve for each account, if necessary, including notes receivable. Additionally, we cease recording royalties from franchisees that are delinquent in paying or in default until such time as we have a history of timely payments.

Depending on the facts and circumstances, there are a number of different actions we may take to resolve collections issues. These may include the sale of franchise restaurants to us or to other franchisees, a modification to the franchise agreement which may include a provision for reduced royalty rates in the future (if royalty rates are not sufficient to cover our costs of service over the life of the franchise agreement, we record the estimated loss at the time we modify the agreements), a restructuring of the franchisee’s business and/or finances (including the restructuring of leases for which we are the primary obligee – see further discussion below) or, if necessary, the termination of the franchise agreement. The allowance established is based on our assessment of the most probable action that will occur. If we believe we will operate the restaurants as company operated restaurants, the allowance for loss is recorded net of the estimated fair value of the related restaurant assets.

As part of our re-franchising program, many of the restaurants that we sold to franchisees were on leased sites. Generally, we remained principally liable for the lease and entered into a sublease with the franchisee for the same terms of the primary lease. We account for the sublease payments received as franchising rental income and our payments on the leases as rental expense in franchising expense. As of January 28, 2002, the net present value of the total obligation on such lease arrangements was $40.2 million.

The determination of when to establish a reserve for future lease obligations on restaurants operated by franchisees for which we are the primary obligee is based on the date that the following events occur:

(1) a franchisee and the Company mutually make the decision to close a restaurant and we will assume the responsibility for the lease;

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(2) when a franchise agreement is terminated or the franchisee declares bankruptcy; or

(3) we enter into a workout agreement with a financially troubled franchisee, where we agree to make part or all of the lease payment for the franchisee.

The amount of the reserve is established using the methodology described in the “Store Closure Reserve” section above. We have not established reserves for troubled franchisees (i.e., those franchisees that are delinquent or for which we have entered into a workout arrangement) who, as of January 28, 2002, are still making timely rent payments but may have problems in the future. The net present value of the related lease obligation with franchisees in these circumstances is approximately $14 million.

The lease reserve for closed franchise restaurants is dependent on our ability to successfully negotiate early termination of our lease agreements with our lessors within the ranges we estimated to establish the reserve.

If sales trends/economic conditions worsen for our franchisees, their financial health may worsen, our collection rates may decline and we may be required to assume the responsibility for additional lease payments on franchised restaurants. Entering into restructured franchise agreements may result in reduced franchise royalty rates in the future.

Valuation allowance for net deferred tax asset

As disclosed in Note 1 of Notes to the Consolidated Financial Statements, we record net deferred tax assets. Annually, we assess the likelihood that our net deferred tax assets will be recovered from future taxable income.

During fiscal 2001, because we had experienced two years of net operating losses, we established a 100% valuation reserve for our net deferred tax asset. Reversal of the reserve is dependent upon the Company reporting taxable operating profits in future periods.

The assumptions used to determine this reserve are based on suggested guidance from the Securities and Exchange Commission regarding the definition of the ‘more likely than not” criterion contained in SFAS No. 109.

Competition

The restaurant business is intensely competitive and affected by changes in a geographic area, changes in the public’s eating habits and preferences, local and national economic conditions affecting consumer spending habits, population trends and local traffic patterns. Key elements of competition in the industry are the quality and value of food products offered, quality and speed of service, advertising effectiveness, brand name identification, restaurant locations and attractiveness of facilities.

We primarily compete with major restaurant chains, some of whom dominate the quick-service restaurant industry, and also compete with a variety of other take-out foodservice companies and fast-food restaurants. Our competitors also include a variety of mid-price, full- service casual-dining restaurants, health and nutrition-oriented restaurants, delicatessens and prepared food restaurants, as well as supermarkets and convenience stores. In selling franchises, we compete with many other restaurant franchisors, some of whom have substantially greater financial resources and higher franchise AUV’s.

Trademarks and Service Marks

We own numerous trademarks and service marks, and have 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. and Hardee’s menu items, with the United States Patent and Trademark Office. We believe our trademarks and service marks have value and play an important role in our marketing efforts.

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 must comply with federal and state environmental regulations, but those regulations have not had a material effect on the restaurants’ operations. Stringent and varied requirements of local governmental bodies with respect to

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zoning, land use and environmental factors can delay and sometimes prevent development of new restaurants and remodeling of existing restaurants in particular locations.

We are 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 include substantive standards regarding the relationship between franchisor and franchisee, including limitations on the ability of franchisors to terminate franchise agreements or otherwise alter franchise arrangements. We believe we are operating in substantial compliance with applicable laws and regulations governing our franchise operations.

We, and our franchisees, must comply with the Fair Labor Standards Act and various federal and state laws governing employment matters, such as minimum wages, overtime pay practices, child labor laws and other working conditions and citizenship requirements. Many of our employees are paid hourly rates related to the federal and state minimum wage laws and, accordingly, increases in the minimum wage increase our labor costs.

The Company monitors its facilities for compliance with the Americans with Disabilities Act (“ADA”) in order to conform to its requirements. Under the ADA, the Company could be required to expend funds to modify its restaurants to better provide service to, or make reasonable accommodation for the employment of, disabled persons. We believe that such expenditures, if required, would not have material adverse effect on the Company’s operations.

Environmental Matters

We are subject to various federal, state and local environmental laws. These laws govern discharges to air and water from our restaurants, as well as handling and disposal practices for solid and hazardous wastes. These laws may impose liability for damages from and the costs of cleaning up sites of spills, disposals or other releases of hazardous materials. We may be responsible for environmental conditions relating to our restaurants and the land on which our restaurants are located, regardless of whether we lease or own the restaurants or land in question and regardless of whether such environmental conditions were created by us or by a prior owner or tenant.

We cannot assure you that all such environmental conditions have been identified by us. These conditions include the presence of asbestos-containing materials, leaking underground storage tanks and on-site spills. Further, certain properties formerly had landfills, historic industrial use, gasoline stations and/or dry cleaning businesses located on or near the premises. Corrective action, as required by the regulatory agencies, has been undertaken at some of the sites, although the majority of these sites are being remediated by former landowners or tenants. The enforcement of our rights against third parties for environmental conditions, such as off-site sources of contamination, may result in additional transaction costs for us.

Seasonal Operations

Our operations, particularly those of the Hardee’s brand, are seasonal in nature and subject to disruption from severe weather.

Government Contracts

No material portion of our business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the U.S. government.

Research and Development

We operate a research and development facility in California. While research and development activities are important to our business, these expenditures are not material.

Backlog

Our company-operated restaurants and our distribution centers have no material backlog orders.

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Employees

We employ approximately 31,000 persons, primarily in restaurants we own and operate and also in our corporate offices and distribution facilities. None of our employees are covered by a collective bargaining agreement and we have never experienced a work stoppage attributable to labor disputes. Past attempts to unionize our distribution center employees have been rejected by employee votes. We believe our employee relations are good.

Working Capital Practices

Information about our liquidity is contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations for the years ended January 31, 2002, 2001 and 2000 in Part II, Item 7, pages 34 through 36, and the Consolidated Statement of Cash Flows for the years ended January 31, 2002, 2001 and 2000 in Part II, Item 8, page 37 of this Form 10-K.

Recent Developments

Acquisition of Santa Barbara Restaurant Group

On March 1, 2002, we acquired SBRG in a stock-for-stock exchange wherein each share of the common stock of SBRG was exchanged for 0.491 shares of CKE common stock. We issued 6.4 million CKE shares in the merger in exchange for the SBRG shares, and issued 1.6 million CKE options in exchange for SBRG options and warrants, for an estimated purchase price of $81.5 million.

SBRG owns, operates and franchises restaurants under the La Salsa, Timber Lodge Steakhouse and Green Burrito brand names. The La Salsa restaurants are quick-service restaurants featuring traditional Mexican food items. The restaurants, modeled after “taquerias” of Mexico, primarily cater to the lunch and dinner segment, and feature freshly prepared items such as tacos, burritos, taquitos and quesadillas. The Green Burrito restaurants feature a menu of traditional Mexican food items including burritos, tostadas, enchiladas, tacos, gorditas, chile rellenos, tortilla soup, appetizers and non-alcoholic Mexican drinks. Timber Lodge Steakhouse restaurants offer consistently high-quality traditional American meals at moderate prices and in generous portions. Each Timber Lodge Steakhouse incorporates a “north woods’ theme with its log-framed interior, fireplaces, hardwood floors and wood tables, chairs and booths, all of which help to create a cozy feeling of dining in a warm comfortable north woods log cabin.

We believe the SBRG acquisition is a strategic acquisition for us and will provide us with benefits that include control of the Green Burrito brand and the opportunity to enter the fresh-mex segment of the QSR industry through the established La Salsa brand.

Amended Credit Facility

On January 31, 2002, we amended our revolving credit facility to replace our existing $120 million, which expired on February 1, 2002. The amended facility amounts to $100 million. See Note 11 of Notes to the Consolidated Financial Statements for further discussion of the terms.

This new facility will allow us to grow and develop our brands as well as provide for our daily working capital needs and issuance of self-insurance letters of credit.

Disclosure Regarding Forward-Looking Statements

Matters discussed in this Form 10-K contain certain forward-looking statements that are based on management’s beliefs and assumptions, which are derived from information currently known to the Company’s management. Forward-looking statements may include, but are not limited to, descriptions of plans or objectives of the Company’s management for future or past operations, products or services, earnings or other measures of economic performance including statements of profitability of business segments and subsidiaries, estimates of recoverability of long-lived assets, and current repositioning activities including anticipated restaurant closures. Such statements reflect the view of the Company’s management with respect to future events and are subject to risks and uncertainties, such as changes in the fast food industry and changes to the Company’s plans, objectives, expectations and intentions. Should one or more of these risks materialize or should

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underlying beliefs or assumptions prove incorrect, the Company’s actual results could differ materially from those discussed in this Form 10-K. Factors that could cause or contribute to such differences are consumers’ concerns or adverse publicity regarding the Company’s products, effectiveness of operating initiatives and advertising and promotional efforts (especially at the Hardee’s brand), changes in economic conditions, changes in the price or availability of commodities, ability to hire and retain qualified personnel and contain labor costs, ability to compete with competitors, ability to integrate acquisitions or mergers, availability and cost of energy, workers’ compensation and general liability claim experience, ability to judge the impact of competitive products and pricing, changes in the Company’s suppliers’ ability to provide quality and timely products to the Company, our ability to select appropriate restaurant locations, delays in opening new restaurants or completing remodels, severe weather conditions, the operational and financial success of the Company’s franchisees, franchisees’ willingness to participate in our strategy, availability of financing for the Company and its franchisees, unfavorable outcomes on litigation, changes in accounting policies and practices, new legislation or government regulation, including environmental laws, and other factors as discussed in the Company’s filings with the Securities and Exchange Commission.

Risk Factors

We are engaged in a business turnaround at the Company. The success of a business turnaround, by its very nature, involves a significant number or risks, many of which are discussed below:

Our ability to pursue new business opportunities, remodel older restaurants and open new restaurants, which are necessary in order to remain competitive and grow, may be impacted by the fact that we are a highly leveraged company

As of the end of the fiscal year, our outstanding indebtedness, including capital leases, was $445.1 million. Our debt level may restrict the pursuit of new opportunities such as business acquisitions. Our substantial indebtedness requires us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, which may prevent us from pursuing plans to open new restaurants and make other capital expenditures necessary to remain competitive in the QSR segment. For instance, the principal measure of success in the QSR segment is same-store sales. Remodeling older restaurants is an effective way to stimulate sales. If we are required to divert cash flow to repayment of debt from the remodeling of older restaurants, as well as opening new restaurants, our future profitability would be adversely affected. Failure to maintain certain financial ratios could cause us to violate the terms of our credit facility and thereby result in acceleration of our indebtedness, impair our liquidity and limit our ability to operate. Our failure to make required debt payments could result in an acceleration of our indebtedness, in which case the lenders would be entitled to exercise their remedies. Our highly-leveraged status may prevent us from accessing credit or equity markets at favorable terms to address future financing needs. The lack of availability of financing to us may prevent us from implementing growth plans or proceeding with operational improvement initiatives, which may place us at a disadvantage compared to our competitors and increase our vulnerability to general adverse economic and industry conditions. Additionally, because we are highly leveraged, it may be more difficult for us to satisfy our obligations under our debt securities, Senior Credit Facility and other indebtedness.

Our future success may be affected by our ability to revitalize Hardee’s

We have been challenged by our efforts to reestablish the connection between Hardee’s and consumers. Our efforts have included new marketing strategies, remodeling restaurants, refranchising restaurants, product variety, use of discounting and a focus on the fundamentals (quality, service and cleanliness). Although Hardee’s has experienced three consecutive quarters of positive same-store sales, Hardee’s is an under-performing brand. Failure to further revitalize the brand may have a significant negative effect on our success.

Our success may be dependent on our franchisees’ participation in our strategy

Our franchisees are an integral part of our business. We may be unable to successfully implement our brand strategies if our franchisees do not participate in that implementation. The failure of our franchisees to continue to focus on the fundamentals of restaurant operations (quality, service and cleanliness) may have a negative impact on our success.

Our financial results may be affected by our franchisees

We receive revenue from our franchisees. Our financial results are somewhat contingent upon the operational and financial success of our franchisees, including implementation of our strategic plans, as well as their ability to secure adequate financing. If sales trends/economic conditions worsen for our franchisees, their financial health may worsen, our collection

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rates may decline and we may be required to assume the responsibility for additional lease payments on franchised restaurants. Additionally, refusal on the part of franchisees to renew their franchise agreements may result in decreased revenues. Entering into restructured franchise agreements may result in reduced franchise royalty rates in the future.

Our business may be adversely affected by unfavorable economic conditions and increased operating costs adversely affect our results of operations and financial condition

Recently, the United States of America has experienced an economic downturn. When the American consumer has more to spend, restaurant trends are positively impacted, especially the QSR-segment, as it is a cash market. Because of the relatively low average guest check in the QSR segment, approximately $5.00, the QSR has historically attracted consumers that are either lower income and/or pressed for time. Due to the low average check, the QSR segment is relatively recession resistant. However, if the national trend were to be a severe economic downturn, the resulting impact on our customers’ disposable incomes would have a negative impact on our sales. Our profitability could also be negatively impacted if we face increased costs for food, fuel, utilities, wages, clothing and equipment, and are unable to recover them through price increases.

Our business depends on our ability to obtain commodities

Operation of our restaurants requires the purchase of energy and agriculture products. Occasionally, the availability of such commodities is limited due to circumstances beyond our control. If we are unable to obtain such products we may be unable to offer certain products. Also, if the cost of such commodities increases we may be unable to implement appropriate price increases.

Our success depends on our ability to compete with our competitors

The foodservice industry is intensely competitive with respect to the quality and value of food products offered, concept, service, price, dining experience and location. We compete with major restaurant chains, some of whom dominate the quick-service restaurant industry. Our competitors also include a variety of mid-price, full-service casual-dining restaurants, health and nutrition-oriented restaurants, delicatessens and prepared food restaurants, as well as supermarkets and convenience stores. Many of our competitors have substantially greater brand recognition and financial, marketing, operating and other resources than we have, which may give them competitive advantages. Our competitors could also make changes to pricing or other marketing strategies that may impact us. As our competitors expand operations, we expect competition to intensify. Such increased competition could have a material adverse effect on our financial condition and results of operations.

Our business depends on our suppliers’ abilities to provide quality products to us timely.

Our profitability is dependent upon, among other things, our ability to offer fresh, high-quality food at moderate prices. While we continue to operate our own distribution business for most of our Carl’s Jr. system, we rely upon independent distributors for our Hardee’s restaurants. In particular, our Hardee’s restaurants depend on the distribution services of two distributors, MBM Corporation, (“MBM”) an independent supplier and distributor of food and other products, and Fast Food Merchandisers, Inc. (“FFM”), which MBM recently acquired. MBM and FFM are responsible for delivering food, paper and other products from our vendors to our Hardee’s restaurants on a regular basis. MBM and FFM also provide distribution services to a large number of our Hardee’s franchisees. Any disruption in these distribution services could have a material adverse effect on our business. In addition, our dependence on frequent deliveries of food and paper products subjects our restaurants to the risk that shortages or interruptions in supply, caused by adverse weather or other conditions, could adversely affect the availability, quality and cost of ingredients.

Given recent events regarding livestock diseases in various parts of the world, it is possible that the production and supply of beef could be negatively impacted in the future. A reduction in the supply of beef could have a material effect on the price at which it could be obtained, which could have a material negative impact on our results.

Our business may be significantly impacted by consumer preferences and perceptions

Foodservice businesses are often affected by changes in consumer tastes and perceptions. Traffic patterns and demographics, as well as the type, number and locations of competing restaurants may adversely affect the performance of individual restaurants. Multi-unit foodservice businesses such as ours can also be materially and adversely affected by publicity resulting from poor food quality, illness, injury or other health concerns or operating issues stemming from one or a limited number of restaurants. We can be similarly affected by consumer concerns with respect to the nutritional value of quick-service food.

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Unfavorable trends or developments concerning factors such as inflation, increased food, labor and employee benefit costs (including increases in hourly wage and unemployment tax rates), increases in the number of locations of competing quick-service restaurants, regional weather conditions and the availability of experienced management and hourly employees may also adversely affect our financial condition and results of operations.

Our business may suffer due to our ability to hire and retain qualified personnel or if labor costs continue to increase

Until recently, the United States of America has experienced reduced levels of unemployment. Given that our restaurant level workforce requires large numbers of both entry level and skilled employees, low levels of unemployment could compromise our ability to provide quality service in our restaurants. From time to time, we have had difficulty hiring and maintaining qualified restaurant management personnel. Increases in the minimum wage have impacted our labor costs. Due to the labor-intensive nature of our business, a continued shortage of labor or increases in wage levels could have a negative effect on our results of operations.

Our sales and profits may be materially and adversely affected by our ability to successfully integrate acquisitions or mergers or derive the benefits we expect

Out future results of operations and cash flow may depend in part upon our ability to integrate acquisitions and mergers such as the acquisition of SBRG. If we are unable to achieve the strategic operating objectives we anticipate from such acquisitions we may experience increased costs or decreased sales which would have a negative impact on our results from operations. Strategic operating initiatives that we may be unable to achieve include, economies of scale in operations, cost reduction, sales increases or marketing initiatives. The recoverability of the goodwill expected to arise from the acquisition, approximately $40 million as disclosed in the Joint Proxy Statement/Prospectus dated January 30, 2002, is dependent upon the ability of SBRG to operate profitably.

Our business may be impacted by increased insurance costs

In the past we have been negatively affected by increases in both workers’ compensation insurance and general liability insurance due to our claims experience and rising healthcare costs. Although we seek to manage our claims to prevent increases, such increases can occur unexpectedly and without regard to our efforts to limit them. If such increases occur, we may be unable to pass them along to the consumer through product price increases, resulting in decreased income.

Our operations are seasonal and heavily influenced by weather conditions

Weather, which is unpredictable, can impact our sales. Harsh weather conditions that keep customers from dining out result in lost opportunities for our restaurants. A heavy snowstorm can leave an entire metropolitan area snowbound, resulting in a reduction in sales. Our first and fourth quarters, notably the fourth quarter, include winter months when there is historically a lower level of sales. Because a significant portion of our restaurant operating costs is fixed or semi-fixed in nature, the loss of sales during these periods adversely impacts our operating margins, resulting in restaurant operating losses. These adverse, weather-driven events principally arise at our Hardee’s restaurants. For these reasons, a quarter-to-quarter comparison is not a good indication of our performance or how we may perform in the future.

Our financial results may be impacted by our ability to construct new restaurants or complete remodels

In recent years, we have not opened a significant number of new restaurants as all available cash was used to repay bank indebtedness . Our strategic plan, and a component of our business turnaround, includes the construction of new restaurants and the remodeling of existing restaurants, including the installation of charbroilers. The Company and its franchisees face competition from other restaurants 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. If we experience delays in the construction process we may be unable to complete such construction activities at the planned cost, thereby adversely affecting our future results from operations. Additionally, there can be no assurance that such remodels and conversions will increase the revenues generated by these restaurants or, even if revenues are initially increased, that such increases will be sustainable. Likewise, we cannot be sure that the sites we select for new restaurants will indeed result in restaurants whose sales results meet our expectations.

Our business may be affected by unfavorable outcomes on litigation.

As discussed below under the heading Item 3 – Legal Proceedings, we have thousands of interactions and transactions each day with vendors, franchisees, customers, employees and others. In the ordinary course of business, disputes may arise for a number of reasons. We cannot be certain that we will prevail in every action brought against us.

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Our business is subject to requirements imposed by governmental regulations or interpretation of governmental regulations may change and require us to incur substantial expenditures to comply

We are subject to governmental regulation at the federal, state and local level in many areas of our business, such as food safety and sanitation, the sale of alcoholic beverages, environmental issues and minimum wage. While we endeavor to comply with all applicable laws and regulations, governmental units may make changes in the regulatory frameworks that we operate in that may require us to incur substantial cost increases in order to comply with such laws and regulations. While we attempt to comply with all applicable laws and regulations, we cannot assure you that we are in full compliance with all laws and regulations at all times or that we will be able to comply with any future laws or regulations. If we fail to comply with applicable laws and regulations, we may be subject to sanctions or civil remedies, including fines and injunctions. The cost of compliance or the consequences of non-compliance could have a material adverse effect on our business and results of operations.

Our operations are regulated by environmental laws

We are subject to various federal, state and local environmental laws. These laws govern discharges to air and water, as well as handling and disposal practices for solid and hazardous wastes. These laws may also impose liability for damages from and the costs of cleaning up sites of spills, disposals or other releases of hazardous materials. We may be responsible for environmental conditions relating to our restaurants and the land on which our restaurants are located, regardless of whether we lease or own the restaurant or land in question and regardless of whether such environmental conditions were created by us or by a prior owner or tenant. Although we are not aware of any such conditions, the costs of such cleanup could be significant have a material effect on our financial results.

Executive Officers of the Registrant

Our executive officers are as follows:

Name	Age	Position
Andrew F. Puzder	51	Chief Executive Officer and President
Theodore Abajian	39	Executive Vice President, Chief Administrative Officer
John J. Dunion	44	Executive Vice President, Supply Chain Management
Renea S. Hutchings	44	Executive Vice President, Development
Dennis J. Lacey	48	Executive Vice President, Chief Financial Officer
E. Michael Murphy	50	Executive Vice President, General Counsel and Secretary
Barbara Pacifico	45	Executive Vice President, Corporate Affairs

Andrew F. Puzder became Chief Executive Officer and President in September 2000. Since June 2000 he served as President of Hardee’s and since February 1997 he served as Executive Vice President, General Counsel and Secretary of the Company. Mr. Puzder also served as Chief Executive Officer of SBRG from August 1997 to June 2000 and Executive Vice President of Fidelity National Financial, Inc. from January 1995 to June 2000. From March 1994 to December 1994, he was a shareholder 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 is a member of the Board of Directors.

Theodore Abajian was appointed Executive Vice President and Chief Administrative Officer upon our acquisition of Santa Barbara Restaurant Group, Inc. Mr. Abajian was appointed President and Chief Executive Officer of SBRG in November 2000. Previously he served as Executive Vice President and Chief Financial Officer of SBRG beginning in May 1998. Mr. Abajian has also held positions with several other restaurant companies during his career.

Dennis J. Lacey was appointed Executive Vice President and Chief Financial Officer in April 2001. From April 1998 to April 2001, he was employed by Imperial Bank Corporation where his last position was Chief Financial Officer. Prior to that, he served as Chief Executive Officer of Capital Associates Inc., and prior to that he was a partner with Coopers and Lybrand.

E. Michael Murphy became Executive Vice President, General Counsel and Secretary in February 2001. Since August 1998 he served as Senior Vice President, General Counsel of Hardee’s. From March 1987 to August 1998, Mr. Murphy was a partner of the Stolar Partnership.

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John J. Dunion was appointed Executive Vice President, Supply Chain Management in July 2001. Prior to that he held the position of Executive Vice President and Chief Administrative Officer. Before joining CKE in 1996, Mr. Dunion held various management positions with Black-Eyed Pea Management Corporation, Jack-in-the Box Restaurants and Taco Bell Restaurants.

Renea S. Hutchings was appointed Executive Vice President, Development in February 2001. Ms. Hutchings began her career with CKE in 1982, and has held various positions with us, most recently as Vice President, Franchising.

Barbara Pacifico was appointed Executive Vice President, Corporate Affairs in July 2001. Ms. Pacifico began her career at Hardee’s in 1990, holding various management positions, most recently as Vice President, Franchising.

Item 2. Properties

The following table sets forth information regarding our restaurant properties at January 28, 2002:

	Land and Building Owned	Land Leased And Building Owned	Land and Building Leased	Operating Agreement	Total
Carl’s Jr.:
Company-operated	53	95	294	1	443
Franchise-operated (1)	13	37	188	—	238
Third party-operated/vacant (2)	14	5	36	—	55
Subtotal	80	137	518	1	736
Hardee’s:
Company-operated	311	162	269	—	742
Franchise-operated(1)	66	95	153	—	314
Third party-operated/vacant(2)	73	50	131	—	254
Subtotal	450	307	553	—	1,310
Total
Company-operated	364	257	563	1	1,185
Franchise-operated (1)	79	132	341	—	552
Third party-operated/vacant (2)	87	55	167	—	309
Subtotal	530	444	1,071	1	2,046

⁽¹⁾ “Franchise-operated” properties are those which we own or lease and lease or sublease to franchisee operators.

⁽²⁾ “Third party-operated/vacant” properties are those we own that are either operated by unaffiliated entities or are currently vacant.

The terms of our leases or subleases vary in length expiring on various dates through. We do not expect the expiration of these leases to have a material impact on our operations in any particular year, as the expiration dates are staggered over a number of years and many of the leases contain renewal options. Our corporate headquarters, located in Santa Barbara, California, our primary distribution center and Carl’s Jr. brand headquarters, both located in Anaheim, California, and Hardee’s corporate facility, located in St. Louis, Missouri, are leased and contain approximately 21,000, 102,000, 78,000 and 39,000 square feet, respectively.

Item 3. Legal Proceedings

There are currently a number of lawsuits pending against us. These lawsuits cover a variety of allegations spanning our entire business. The following is a brief description of the more significant of these categories of lawsuits. In addition, we are subject to various federal, state and local regulations that affect of our business. We do not believe that any such claims, lawsuits or regulations will have a material adverse effect on the financial condition or results of operations of the Company.

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Employees

We employ many thousands of persons, both by us and in restaurants owned and operated by subsidiaries of ours. In addition, thousands of persons from time to time seek employment in such restaurants. In the ordinary course of business, disputes arise regarding hiring, firing and promotion practices.

Customers

Our restaurants serve a large cross-section of the public and, in the course of serving that many people, disputes arise as to products, services, accidents and other matters typical of an extensive restaurant business such as ours.

Suppliers

We rely on large numbers of suppliers, who are required to meet and maintain our high standards, to operate our restaurants. On occasion, disputes arise between us and our suppliers on a number of issues including, but not limited to, compliance with product specifications and our business relationship with suppliers. Additionally, disputes may arise on a number of issues between us and individuals or entities who claim they should have been granted the opportunity to supply products or services to our restaurants.

Franchising

A substantial number of our restaurants are franchised to independent entrepreneurs operating under contractual arrangements with us. In the course of the franchise relationship, occasional disputes arise between the Company and its franchisees relating to a broad range of subjects including, without limitation, quality, service and cleanliness issues, contentions regarding grants or terminations of franchises, and delinquent payments. Additionally, on occasion disputes arise between us and individuals who claim they should have been granted a franchise.

Summary of Significant Pending Litigation

On October 3, 2001, an action was filed by Adam Huizar and Michael Bolden, individually and on behalf of all others similarly situated, in the Superior Court of the State of California, Los Angeles County, seeking class action status and alleging violations of California wage and hour laws. On April 5, 2002, a similar action was filed by Mary Jane Amberson, individually and on behalf of others similarly situated, in the Superior Court of the State of California, Alameda County. The complaints allege that salaried restaurant management personnel at our Carl’s Jr. restaurants in California were improperly classified as exempt from California overtime laws, thereby depriving them of overtime pay. The complaints seek damages in an unspecified amount, injunctive relief, prejudgment interest, costs and attorneys’ fees. We believe our employee classifications are appropriate, that we comply with state and federal wage and hour laws and plan to vigorously defend these actions.

Item 4. Submission of Matters to a Vote of Security Holders

None.

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Part II

Item 5. Market For Registrant’s Common Equity and Related Stockholder Matters

Our common stock is listed on the New York Stock Exchange under the symbol “CKR”. As of April 5, 2002, there were approximately 1,950 record holders of our common stock. The following table sets forth, for the periods indicated, the high and low closing sales prices of our common stock, as reported on the New York Stock Exchange Composite Tape:

	High		Low
Fiscal 2002
First Quarter	$	3.80	$	2.05
Second Quarter		5.40		2.28
Third Quarter		7.80		5.06
Fourth Quarter		10.30		7.00
Fiscal 2001
First Quarter	$	7.00	$	3.25
Second Quarter		3.63		2.63
Third Quarter		4.56		2.06
Fourth Quarter		3.44		2.00

During fiscal 1999, we paid dividends at the annual rate of $0.07 per share (adjusted to give retroactive effect to 10% stock dividends in February 1998 and January 1999) and at a semi-annual rate of $0.04 per share during fiscal 2000. In fiscal 2001, we paid a semi-annual cash dividend of $0.04 per share in May 2000. In September 2000, our Board of Directors announced that the Company would not be making the second semi-annual cash dividend payment, scheduled for November 2000. In accordance with our Senior Credit Facility, as amended, we are now prohibited from making any cash dividend payments to our shareholders and, accordingly, have not declared any cash dividends for fiscal 2002.

Equity Compensation Plan Information

Plan Category	Number of Securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding option warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
	(a)		(b)	(c)
Equity compensation plans approved by security holders	7,455,000	$	11.47	275,000(1)
Equity compensation plans not approved by security holders (2)	241,000	$	8.39	560,000
Total	7,696,000	$	11.37	835,000

⁽¹⁾ A total of 4.2 million shares of common stock are available for grants of options or other awards under the 1999 stock incentive plan, with the amount of available shares increased by 350,000 shares on the date of each annual meeting of shareholders.

⁽²⁾ Represents options that are part of a “broad-based plan” as defined by the New York Stock Exchange. See Note 21 of Notes to the Consolidated Financial Statements.

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Item 6. Selected Financial Data

The information set forth below should be read in conjunction with the consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K. Per share data has been retroactively adjusted for stock splits and stock dividends.

Selected Financial and Operating Data

(In thousands except per share amounts, restaurant counts, and percentages)		Fiscal-year-ended-as-of-January 31, (1)(4)
	2002				2001				2000 (2)				1999 (2)				1998 (3)
Consolidated Statements of Operations Data:
Total revenue (7)		$	1,438,127			$	1,784,784			$	1,990,073			$	1,892,044			$	1,149,659
Operating income (loss) (7)			(26,293	)			(131,994	)			63,055				168,220				86,191
Interest expense (7)			57,659				70,541				63,283				43,453				16,914
Net income (loss) (5)			(83,956	)			(194,116	)			(29,117	)			77,712				46,757
Net income (loss) per share — diluted		$	(1.66	)		$	(3.84	)		$	(0.56	)		$	1.37			$	0.97
Weighted average paid per common share			50,507				50,501				51,668				56,714				48,121
Cash dividends paid per common share		$	—			$	0.04				0.08			$	0.07			$	0.07
Ratio of earnings to fixed charges (6)			—				—				0.5	x			2.8	x			3.2	x
Consolidated Balance Sheet Data:
Total assets (7)		$	931,589			$	1,207,537			$	1,568,514			$	1,496,914				957,144
Total long-term debt and capital lease obligations, including current portion			445,117				624,335				741,419				625,393				216,905
Stockholder’s equity		$	261,666			$	349,557			$	545,757			$	586,842				498,512

⁽¹⁾ Our 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. Fiscal 2000 includes 53 weeks. Fiscal 2002, 2001, 1999 and 1998 include 52 weeks.

⁽²⁾ Fiscal 1999 includes operating results of FEI from and after April 1, 1998.

⁽³⁾ 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 10,088,375 shares of common stock, completed in July 1997.

⁽⁴⁾ Fiscal 2002, 2001, 2000, 1999 and 1998 include $43.1 million, $219.0 million, $209.5 million, $229.5 million and $282.2 million, respectively, of revenue generated from other restaurant concepts we acquired prior to fiscal 1998, and have since sold. See Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations.

⁽⁵⁾ Net income (loss) for fiscal 2000 and 1999 includes an extraordinary gain of $0.3 million and $3.3 million, respectively, net of applicable income tax expense, on early retirement of debt. Fiscal 2002, 2001 and 2000 also include repositioning charges $76.9 million, $146.4 million and $29.4 million, respectively. See Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations.

⁽⁶⁾ For purposes of calculating the ratio of earnings to fixed charges (a) earnings represent income (loss) before income taxes and extraordinary item and fixed charges, and (b) fixed charges consist of interest on all indebtedness, interest related to capital lease obligations, amortization of debt issuance costs and a portion of rental expense that is representative of the interest factor (deemed by us to be one-third). Earnings were insufficient to cover fixed charges for the years ended January 28, 2002 and January 29, 2001 by $84.5 million and $205.3 million, respectively.

⁽⁷⁾ Certain reclassifications to prior year amounts were made to conform to fiscal 2002 presentation.

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	Fiscal year ended January 31, (1)
	2002			2001			2000 (2)			1999 (2)			1998
Carl’s Jr. Restaurants
Restaurants open (at end of fiscal year):
Company-operated		443			491			563			539			443
Franchised and licensed		526			486			371			322			265
Total		969			977			934			861			708
Systemwide restaurant revenue:
Company-operated restaurants	$	516,998		$	604,928		$	613,155		$	535,038		$	488,495
Franchised and licensed restaurants		586,144			432,387			306,564			261,341			214,534
Total systemwide revenue	$	1,103,142		$	1,037,315		$	919,719		$	796,379		$	703,029
Average annual sales per company- operated restaurant (3)	$	1,204		$	1,078		$	1,086		$	1,185		$	1,157
Percentage increase (decrease) in comparable company-operated restaurant sales (4)		2.9	%		1.8	%		(3.0	)%		3.0	%		4.8	%
Company-operated restaurant-level operating margins:		19.9	%		19.4	%		22.8	%		25.9	%		24.2	%
	Fiscal year ended January 31,
	2002			2001			2000			1999 (5)			1998 (6)
Hardee’s Restaurants
Restaurants open (at end of fiscal year):
Company-operated		742			923			1,354			1,403			863
Franchised and licensed		1,648			1,737			1,434			1,401			2,175
Total		2,390			2,660			2,788			2,804			3,038
Systemwide restaurant revenue:
Company-operated restaurants	$	614,291		$	855,060		$	1,096,805		$	1,063,075		$	339,942
Franchised and licensed restaurants		1,390,072			1,370,656			1,219,229			1,412,929			1,123,034
Total systemwide revenue	$	2,004,363		$	2,225,716		$	2,316,034		$	2,476,004		$	1,462,976
Average annual sales per company-operated restaurant (3)	$	763		$	715		$	769		$	793		$	803
Percentage increase (decrease) in comparable company-operated restaurant sales (4)		0.1	%		(7.6	)%		(5.0	)%		(7.5	)%		(7.2	)%
Company-operated restaurant-level operating margins:		9.6	%		(2.7	)%		9.7	%		16.7	%		12.9	%

⁽¹⁾ Our 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. Fiscal 2000 includes 53 weeks. Fiscal 2002, 2001, 1999 and 1998 include 52 weeks.

⁽²⁾ The Hardee’s-to-Carl’s Jr. converted restaurants operating in Oklahoma, Kansas and Texas are included in the number of Carl’s Jr. restaurants open at January 31, 2002, 2001, 2000 and 1999. The operating results of these restaurants, however, are included in the Carl’s Jr. financial information beginning in fiscal 2000. In fiscal 1999 and prior, these operating results are included as part of Hardee’s financial results. There were 63 company-operated and franchised restaurants open during fiscal 1999 and 64 company-operated and franchised restaurants open during fiscal 2000 in these markets.

⁽³⁾ Calculated on a 52-week trailing basis for all years presented.

⁽⁴⁾ Includes only restaurants open throughout the full years being compared.

⁽⁵⁾ Fiscal 1999 includes operating results of FEI from and after April 1, 1998.

⁽⁶⁾ Includes results of operations for Hardee’s from and after July 15, 1997.

CKE RESTAURANTS, INC.

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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

We are a nationwide owner, operator and franchisor of quick-service restaurants, operating principally under the Carl’s Jr. and Hardee’s brand names. Based on domestic systemwide sales, our Hardee’s and Carl’s Jr. chains are the seventh and eleventh largest quick-service hamburger restaurant chains in the United States, respectively (according to Finance Corporation of America’s 2001 Chain Restaurant Industry Review and Outlook Report, based on system-wide sales). As of January 31, 2002, the Carl’s Jr. system included 969 restaurants, of which we operated 443 restaurants and our franchisees and licensees operated 526 restaurants. The Carl’s Jr. restaurants are located in the Western United States, predominantly in California. As of January 31, 2002, the Hardee’s system consisted of 2,390 restaurants, of which we operated 742 restaurants and our franchisees and licensees operated 1,648 restaurants. Hardee’s restaurants are located primarily throughout the Southeastern and Midwestern United States.

We derive our revenue primarily from sales by company-operated restaurants and revenue 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 revenue from the sale of equipment to our franchisees. 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 our franchised and licensed restaurants include the cost of food and packaging products sold to Carl’s Jr.’s franchisees and licensees, lease payments on properties subleased to our franchisees and the costs of equipment purchases. Other operating expenses, including advertising expenses and general and administrative expenses, relate to company-operated restaurants as well as franchisee and licensee operations. Our revenue and expenses are directly affected by the number and sales volume of company-operated restaurants and, to a lesser extent, franchised and licensed restaurants.

Factors Affecting Comparability of Fiscal Years 2002, 2001 and 2000

Our fiscal year results in a fifty-third week every fifth or sixth year. Fiscal 2000 includes 53 weeks of operations. Fiscal 2002 and 2001 include 52 weeks of operations.

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Our results reflect the substantial changes we have made in executing our business turnaround including the sale and closure of restaurants, the reduction of corporate overhead and our efforts to improve margins and repay down bank indebtedness. The table below is a condensed presentation of those activities, and other changes in the components of income, designed to facilitate the discussion of results in this Form 10-K. As shown, the sale and closure of restaurants involved in facility actions caused a reduction in operating earnings of $9.7 million and $40.3 million in fiscal 2002 and 2001, respectively. These amounts include field-level general and administrative expenses. In order to sell restaurants to franchisees to generate funds to repay bank indebtedness, we had to sell restaurants that generated positive cash flows. The bulk of these sales occurred in fiscal 2001 and, accordingly, the disposition of these restaurants resulted in a reduction of operating income. Additionally, we closed more unprofitable restaurants in the current fiscal year as compared to the prior year.

(All amounts are approximate and in millions)	Fiscal year 2002 vs. Fiscal year 2001			Fiscal year 2001 vs. Fiscal year 2000
Current Year Analyzed:
Reported net loss under generally accepted accounting principles	$	(84.0	)	$	(194.1	)
Repositioning activities:
Facility action charges, net		71.4			144.6
Write-off of deferred financing costs		4.1			1.8
Severance		1.4			—
Repositioning subtotal		76.9			146.4
Year analyzed results without repositioning activities	$	(7.1	)	$	(47.7	)
Year Compared To:
Reported net loss under generally accepted accounting principles	$	(194.1	)	$	(29.1	)
Repositioning activities:
Facility action charges, net		144.6			26.8
Write-off of deferred financing costs		1.8			3.6
Severance		—			(1.0	)
Repositioning subtotal		146.4			29.4
Prior year results without repositioning activities	$	(47.7	)	$	0.3
Increase (decrease) in earnings, without repositioning activities	$	40.6		$	(48.0	)
Items causing earnings to increase (decrease) from the prior year to the year being analyzed:
(Increase) reduction in corporate overhead		21.0			(12.4	)
(Increase) reduction in interest expense		15.2			(3.8	)
Approximate operating income of restaurants involved in facility actions		(9.7	)		(40.3	)
Increase in net franchising income		8.6			18.0
Approximate store margin improvement (decline) in stores owned at January 28, 2002 and January 29, 2001, respectively.		6.1			(36.0	)
Increase (decrease) in distribution center income		2.9			(9.4	)
Favorable (unfavorable) claim development/settlement on insurance programs		2.9			(7.3	)
(Increase) decrease in the provision for doubtful accounts		(2.7	)		5.3
Reduction in advertising expenses		1.9			2.5
One time franchising agreement settlement fee		1.8			—
Write down of investments		—			37.3
Write-off of distribution center software		—			9.1
Change in income taxes		(10.6	)		(7.2	)
All other, net		3.2			(3.8	)
Increase (decrease) in earnings, without repositioning charges	$	40.6		$	(48.0	)

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Restaurant Portfolio Strategy

As described above, in late fiscal 2000 we embarked on a re-franchising initiative to generate cash to reduce outstanding borrowings on our Senior Credit Facility, as well as increase the number of franchise-operated restaurants. Additionally, as sales trends for the Hardee’s restaurants and certain Carl’s Jr. restaurants (primarily in the Oklahoma area) continued to decline in fiscal 2000 through fiscal 2001, we determined that it was necessary to close certain restaurants for which a return to profitability was not likely. These repositioning activities resulted in the charges generally reflected in our financial statements as facility action charges. We have made reductions to operating expenses in an effort to bring them to levels commensurate with our re-balanced restaurant portfolio.

During fiscal 2002, we recorded repositioning charges of $76.9 million. These charges, which were primarily non-cash in nature, consisted of net facility action charges of $71.4, a charge of $4.1 million recorded as interest expense reflecting the write-off of deferred loan costs as a result of modification of our credit facility and $1.4 million relating to severance costs. During fiscal 2001 and 2000, we recorded repositioning charges of $146.4 million and $29.4 million, respectively, relating primarily to facility action charges.

We believe we have substantially completed our repositioning activities and are now able to focus on the operations of our core brands, Carl’s Jr. and Hardee’s. We have substantially completed the closure of under-performing restaurants. However, there can be no guarantee that we will not determine in the future that additional repositioning activities will be necessary or that we would not take advantage of opportunities to further improve our financial position through additional restaurant asset sales which could result in losses, which may be material. Our management team remains focused on revitalizing Hardee’s. Even though Hardee’s has experienced three consecutive quarters of same-store sales increases this year for the first time in many years (see discussion below), Hardee’s is still an under-performing brand. In June 2001, we took a more basic approach to addressing the issues in the Hardee’s restaurants and launched a program focused on quality, service and cleanliness. That program focuses on the fundamentals of restaurant operations: hiring good people, focusing them on the guests, serving hot quality food, and keeping the restaurants clean. We have returned to salaried managers running the restaurants, which provides an extra manager to hire, train and manage our workforce. We have implemented a new incentive compensation plan to focus our operators on building sales, providing service to our guests and reducing work injuries. Additionally, we have acknowledged regional differences by adjusting product promotions and advertising to a regional scope. The continuation of our business turnaround is based on the following next steps:

• Re-define the Hardee’s brand image so that we re-connect with today’s customer;

• Deliver premium products to our customers;

• Contain costs;

• Grow our brands;

• Integrate the SBRG brands – LaSalsa, Green Burrito and Timber Lodge; and

• Continue our focus on improving our restaurant operations so that each restaurant visit is a satisfying one for our customers.

If we are unable to continue the recent sales and operating margin improvements at Hardee’s, it would significantly affect our future profitability and cash flows. Such circumstances would affect our ability to access both the amount and terms of financing available to us in the future, (See Financial Condition section below).

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The asset sales arising from our repositioning activities have resulted, and will continue to result, in a decline in restaurant revenue and costs simply because we operate fewer restaurants. Additionally, we expect the closure of unprofitable restaurants to improve our future overall profit margin. The following table summarizes the historical operating results of restaurants that we sold, closed or identified to be closed:

	Fiscal Year 2002						Fiscal Year 2001
(Dollars in thousands)	No. Of Stores	Revenue		Operating Income/ (Loss) (1)			Revenue		Operating Income/ (Loss) (1)
Carls Jr.
Stores sold	119	$	12,141	$	884		$	114,547	$	14,990
Stores closed or to be closed	32		2,261		(956	)		14,321		(3,748	)
Subtotal	151		14,402		(72	)		128,868		11,242
Hardee’s
Stores sold	351		8,926		(1,488	)		164,175		1,230
Stores closed or to be closed	273		35,251		(9,301	)		126,856		(14,842	)
Subtotal	624		44,177		(10,789	)		291,031		(13,612	)
Rally’s stores sold	21		5,557		160			12,201		363
Taco Bueno stores sold	125		37,538		3,693			97,316		(3.545	)
Total
Stores sold	762		64,162		3,249			388,239		13,038
Stores closed or to be closed	305		37,512		(10,257	)		141,171		(18,590	)
Total	1,067	$	101,674	$	(7,008	)	$	529,416	$	(5,552	)

⁽¹⁾ Represents the operating income (loss) before corporate general and administrative expenses associated with these stores that is included in our Consolidated Statements of Operations for the fiscal year noted.

As a result of these circumstances, we have reduced costs, principally general and administrative expenses, which included a reduction in headcount as well as other expenses.

Franchise operations

From time to time, some of our franchise operators experience financial difficulties with respect to their franchise operations. A number of franchise operators in the Hardee’s system have experienced significant financial problems. We are working with them in an attempt to maximize our future franchising income. During the fourth quarter, we recorded a charge of approximately $6 million related to one of those franchisees who is closing about 20 restaurants subleased to him by Hardee’s. We also recorded bad debt expense related to the another franchisee who is experiencing financial difficulties and we believe may be unable to repay its note to us.

There are a number of courses of action available in these situations. They include, but are not limited to, a sale of some or all of the franchise operator’s restaurants to us or another Hardee’s franchisee, a modification to the franchise agreement which may include a provision for reduced royalty rates in the future (if royalty rates are not sufficient to cover our costs of service over the life of the franchise agreement we record the estimated loss at the time we modify the agreement), a restructuring of the franchisee’s business and/or finances, or, if necessary, a termination of the franchise agreement. We have increased the allowance for doubtful accounts at Hardee’s from 38% of the gross balance of accounts and notes receivable at the beginning of the year to 49% at the end of the year. On a quarterly basis, we assess our exposure from franchise-related risks, which include estimated uncollectibility of accounts receivable related to unpaid royalties and advertising fees, contingent lease liabilities, guarantees to support certain third party financial arrangements with franchisees and potential claims by franchisees. Although the ultimate impact of these franchise financial issues cannot be predicted with certainty at this time, we have provided for the current estimate of our probable loss as of January 28, 2002. However, there can be no assurance that the number of franchise operators or franchised restaurants experiencing financial difficulties will not change from our current estimates, nor can there be any assurance that we will be successful in resolving financial issues relating to any specific franchise operator.

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Our franchise agreements typically have terms of 20 years. We are now beginning to see agreements come up for renewal. There are 18 Carl’s Jr. franchise agreements, pertaining to 27 restaurants, maturing during the next year. Additionally, there are 23 Hardee’s franchise agreements, pertaining to 52 restaurants, maturing during the same period. In the event those agreements are not renewed, we would suffer a loss of revenue.

The discussion of our financial condition and our results of operations that follows is based on the consolidated financial statements as presented on pages 42 through 75.

Fourth Quarter Adjustments

During the fourth quarter of fiscal 2002, we recorded facility action charges of $10.6 million. These charges consisted of (a) an impairment charge of $5.8 million, (b) store closure expense and goodwill impairment of $6.2 million for Hardee’s restaurants formerly operated by a franchisee and for which the we are the primary obligor on the leases, and (c) net gains on the sale of restaurants to franchisees and surplus properties of $1.4 million.

During the fourth quarter of fiscal 2001, we recorded facility action charges of $93.3 million. These charges, which were primarily non-cash in nature, consisted of (a) a $19.1 million restaurant closure reserve for approximately 80 Hardee’s and approximately 20 Carl’s Jr. restaurants that we have closed or plan to close, (b) an impairment charge of $76.8 million for certain restaurants that we will close or for restaurants that we plan to continue to operate but for which the net book value is not supported by future estimated cash flows, (c) a credit for a net $11.3 million gain on the sale of restaurants sold to franchisees, and (d) a loss of $8.7 million from the sale of Taco Bueno.

Operating Review

The following table sets forth the percentage relationship to total revenue, unless otherwise indicated, of certain items included in our consolidated statements of operations for the years indicated:

	Fiscal year ended January 31
	2002		2001		2000
Revenue:
Company-operated restaurants	81.7	%	87.9	%	91.2	%
Franchised and licensed restaurants and other	18.3		12.1		8.8
Total revenue	100.0	%	100.0	%	100.0	%
Operating costs and expenses:
Restaurant operations (1):
Food and packaging	30.3		30.9		30.5
Payroll and other employee benefits	32.5		32.8		31.2
Occupancy and other operating expenses	22.7		23.4		21.1
Franchised and licensed restaurants and other (2)	77.1		74.1		73.1
Advertising expenses (1)	6.2		6.4		6.7
General and administrative expenses	7.8		8.1		7.4
Facility action charges (gains), net	5.0		8.1		(1.4	)
Operating income (loss)	(1.8	)	(7.4	)	3.2
Interest expense	(4.0	)	(4.0	)	(3.2	)
Other expense, net	—		(0.2	)	(2.4	)
Loss before income taxes and extraordinary item	(5.9	)	(11.5	)	(2.4	)
Income tax benefit	0.1		(0.6	)	(0.9	)
Loss before extraordinary item	(5.8	)	(10.9	)	(1.5	)
Extraordinary item — gain on early retirement of debt	—		—		—
Net loss	(5.8	)%	(10.9	)%	(1.5	)%

⁽¹⁾ As a percentage of revenue from company-operated restaurants.

⁽²⁾ As a percentage of revenue from franchised and licensed restaurants and other.

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The following tables are presented to facilitate Management’s Discussion and Analysis and is presented in the same format as we present segment information (see Note 20 of Notes to the Consolidated Financial Statements).

	Fiscal Year 2002
(Dollars in thousands, except average check data)	Carl’s			Hardee’s			Other			Total
Company-operated sales	$	516,998		$	614,291		$	43,095		$	1,174,384
Company-operated same-store sales increase		2.9	%		0.1	%
Franchise-operated same-store sales increase (decrease)		2.4	%		(1.2	)%
Operating costs (as a % of co.-operated sales):
Food and paper		29.0	%		31.5	%
Payroll and other employee benefits		29.1	%		35.3	%
Occupancy and other operating costs		22.0	%		23.6	%
Gross margin		19.9	%		9.6	%
Franchising revenue:
Royalties	$	19,830		$	46,264					$	66,094
Distribution center		145,733			13,231						158,964
Rent		20,741			14,108						34,849
Other		1,259			2,577						3,836
Total franchising revenue	$	187,563		$	76,180					$	263,743
Franchising expense:
Administrative expense (including provision for accounts receivable bad debts)	$	2,459		$	13,267					$	15,726
Distribution center		142,353			14,999						157,352
Rent and other occupancy		20,898			9,388						30,286
Total franchising expense	$	165,710		$	37,654					$	203,364
Net franchising income	$	21,853		$	38,526					$	60,379
Operating income (loss)	$	58,374		$	(70,258	)	$	(14,409	)	$	(26,293	)
Facility action charges, net		942			65,740			4,707			71,389
Operating income (loss) excluding facility action charges, net	$	59,316		$	(4,518	)	$	(9,702	)	$	45,096
EBITDA (A)	$	78,477		$	(30,290	)	$	(3,899	)	$	44,288
Facility action charges, net		942			65,740			4,707			71,389
EBITDA excluding facility action charges, net	$	79,419		$	35,450		$	808		$	115,677

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	Fiscal Year 2001
(Dollars in thousands, except average check data)	Carl’s			Hardee’s			Other			Total
Company-operated sales	$	604,927		$	855,060		$	109,517		$	1,569,504
Company-operated same-store sales increase (decrease)		1.8	%		(7.6	)%
Franchise-operated same-store sales increase (decrease)		4.7	%		(4.7	)%
Operating costs (as a % of co.-operated sales):
Food and paper		29.6	%		32.1	%
Payroll and other employee benefits		29.0	%		35.5	%
Occupancy and other operating costs		22.0	%		24.9	%
Gross margin		19.4	%		7.5	%
Franchising revenue:
Royalties	$	13,686		$	45,946					$	59,632
Distribution center		100,717			23,461						124,178
Rent		11,650			8,996						20,646
Other		2,504			8,320						10,824
Total franchising revenue	$	128,557		$	86,723					$	215,280
Franchising expense:
Administrative expense (including provision for accounts receivable bad debts)	$	4,184		$	12,790					$	16,974
Distribution center		98,439			27,076						125,515
Rent and other occupancy		13,092			3,903						16,995
Total franchising expense	$	115,715		$	43,769					$	159,484
Net franchising income	$	12,842		$	42,954					$	55,796
Operating income (loss)	$	73,871		$	(185,489	)	$	(20,376	)	$	(131,994	)
Facility action charges (gains), net		(29,959	)		165,901			8,700			144,642
Operating income (loss) excluding facility action charges	$	43,912		$	(19,588	)	$	(11,676	)	$	12,648
EBITDA (A)	$	100,732		$	(123,759	)	$	(9,563	)	$	(32,590	)
Facility action charges (gains), net		(29,959	)		165,901			8,700			144,642
EBITDA excluding facility action charges	$	70,773		$	42,142		$	(863	)	$	112,052

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	Fiscal Year 2000
(Dollars in thousands, except average check data)	Carl’s			Hardee’s			Other			Total
Company-operated sales	$	613,155		$	1,096,805		$	104,735		$	1,814,695
Company-operated same-store sales increase (decrease)		(3.0	)%		(5.0	)%
Franchise-operated same-store sales increase (decrease)		(0.6	)%		(1.3	)%
Operating costs (as a % of co.-operated sales):
Food and paper		29.2	%		31.4	%
Payroll and other employee benefits		27.0	%		33.5	%
Occupancy and other operating costs		21.0	%		21.5	%
Gross margin		22.8	%		13.6	%
Franchising revenue:
Royalties		10,273			42,419						52,692
Distribution center		80,094			27,876						107,970
Rent		9,879			1,037						10,916
Other		1,103			2,697						3,800
Total franchising revenue		101,349			74,029						175,378
Franchising expense:
Administrative expense (including provision for accounts receivable bad debts)		4,719			12,929						17,648
Distribution center		78,881			21,006						99,887
Rent and other occupancy		9,554			1,039						10,593
Total franchising expense		93,154			34,974						128,128
Net franchising income		8,195			39,055						47,250
Operating income (loss)	$	73,369			(1,935	)	$	(8,379	)	$	63,055
Facility action charges (gains), net		(12,200	)		39,002			—			26,802
Operating income (loss) excluding facility action charges, net	$	61,169			37,067		$	(8,379	)	$	89,857
EBITDA (A)	$	102,900		$	43,310		$	(32,805	)	$	113,405
Facility action charges (gains), net		(12,200	)		39,002			—			26,802
EBITDA excluding facility action charges, net	$	90,700		$	82,312		$	(32,805	)	$	140,207

^(A) EBITDA, is not a recognized term under generally accepted accounting principles. EBITDA represents net income before interest, taxes, depreciation and amortization. Because not all companies calculate EBITDA identically, our use of EBITDA may not be comparable to other similarly titled measures of other companies.

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Fiscal 2002 Compared with Fiscal 2001 and Fiscal 2001 Compared with Fiscal 2000

Carl’s Jr.

During the year, we sold 30 restaurants to franchisees, closed 24, acquired 1 from a franchisee and opened 5. Carl’s Jr. franchisees and licensees opened 25 new restaurants, acquired 30 from us, sold 1 to us, and closed 14. As of January 28, 2002, the Carl’s Jr. system consisted of the following:

	Restaurant Portfolio		Fiscal Year Revenue
(Dollars in millions)	2002	2001	2002		2001		Change
Company	443	491	$	517.0	$	604.9	$	(87.9	)
Franchised and licensed	526	486		187.6		128.6		59.0
Total	969	977	$	704.6	$	733.5	$	(28.9	)

Revenue from company-operated Carl’s Jr. restaurants decreased $87.9 million, or 14.5%, to $517.0 million during fiscal year 2002, as compared to fiscal 2001, and revenue declined $8.3 million or 1.4% when comparing fiscal 2001 to fiscal 2000. The decrease in revenue is due primarily to the sale of company-operated restaurants to franchisees, as well as the closure of certain underperforming company-operated restaurants. The table above provides a comparison of the number of company-operated restaurants at the end of fiscal year 2002 and 2001 with the revenue earned. Same-store sales for company-operated Carl’s Jr. restaurants increased 2.9% during fiscal 2002, on top of a 1.8% increase the prior year. Carl’s Jr. company-operated restaurants’ average unit volumes were $1.204 million for the trailing thirteen periods ended January 28, 2002. Net franchising income increased $9.0 million or 70.2% during fiscal 2002, as compared to the fiscal year 2001 and $4.6 million or 56.7% when comparing fiscal 2001 to 2000. This increase is due primarily to increased royalties from the sale of restaurants to franchisees and lower administrative costs.

Restaurant-level margins for our company-operated Carl’s Jr. restaurants were 19.9% during fiscal 2002, a slight increase from the 19.4% operating margin achieved during fiscal 2001. The increase in margins is due to (i) decreased food and packaging costs, which were down 0.6% during fiscal 2002 as compared to fiscal 2001, from 29.6% to 29.0% as a percentage of company-operated restaurant revenue, (ii) an increase in payroll and other employee benefits, which increased 0.1% in the current year as compared to the prior year, from 29.0% to 29.1% as a percentage of company-operated restaurant revenue, and (iii) flat occupancy and other expense. The decrease in food and packaging is primarily due to a shift in focus to high margin, premium products. The slight increase in payroll and other employee benefits is due to a mid-year increase in the minimum wage rate in California and Washington that was partially offset by lower workers’ compensation costs. Occupancy and other operating expenses remained flat because reduced depreciation levels due to cumulative asset impairment charges reducing the depreciable base of restaurants this year and a reduction in restaurant operating costs due to renegotiated service contracts, which were offset by higher repair and maintenance costs. Carl’s Jr. fiscal 2001 company-operated restaurant-level margins were 3.4% lower than fiscal 2000. Food and packaging costs increased 0.4%, mainly due to increases in certain commodity costs during the year (primarily beef and bacon) and the introduction of a plastic cup that has a higher cost than the traditional paper cup. Payroll and employee benefit expenses increased 2.0%, primarily due to an increase in the actuarially determined liability for our workers’ compensation program and a tighter labor market. Occupancy and other operating expenses increased 1.0%, which was attributable to increased energy costs in California and higher rent costs arising from sales leaseback transactions.

Currently, the legislature of the State of California is considering a bill which, if passed by two-thirds majorities in both California’s Senate and Assembly, would implement a surtax of $2 per gallon of beverage syrup and 21 cents per gallon for bottled, canned or reconstituted drinks sold in California. We have not determined the financial impact that passage of this bill would have on our business.

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Hardee’s

During fiscal 2002, we acquired 5 restaurants from franchisees, sold 27 to franchisees and closed 159 restaurants. Hardee’s franchisees and licensees opened 22 new restaurants, acquired 27 restaurants from us, sold 5 to us and closed 132. As of January 28, 2002, the Hardee’s system consisted of the following:

	Restaurant Portfolio		Fiscal Year Revenue
(Dollars in millions)	2002	2001	2002		2001		Change
Company	742	923	$	614.3	$	855.1	$	(240.8	)
Franchise and licensed	1,648	1,737		76.2		86.7		(10.5	)
Total	2,390	2,660	$	690.5	$	941.8	$	(251.3	)

Revenue from company-operated Hardee’s restaurants decreased $240.8 million, or 28.2%, to $614.3 million for the year ended January 28, 2002, when compared to the prior year, and decreased $241.7 million, or 22.0% when comparing fiscal 2001 to fiscal 2000. The decrease in revenue for both time periods is due primarily to the sale of company-operated restaurants to franchisees, as well as the closure of certain underperforming company-operated restaurants. The table above provides a comparison of the number of company-operated restaurants at the end of fiscal year 2002 and 2001 with the revenue earned. Same-store sales during fiscal 2002 for company-operated Hardee’s restaurants increased 0.1% during the current year and Hardee’s company-operated restaurant average unit volumes were $763,000 for the trailing thirteen periods. During fiscal 2001, company-operated Hardee’s restaurants had same-store sales decline 7.6% and average unit volumes of $715,000.

Net franchising income decreased $4.4 million or 10.3% during fiscal 2002, as compared to the prior fiscal year. This decrease is due primarily to the decreased revenue at Hardee’s equipment division because franchisees remodeled more restaurants in fiscal 2001 than they did in fiscal 2002. and the fact that the increased royalties we received from new franchisees in the current year was less than the franchise fees we received last year when we were selling restaurants. During fiscal 2001, Hardee’s net franchising income increased $3.9 million, as compared to fiscal 2000, primarily due to the increased number of company-operated restaurants sold to franchisees.

Restaurant-level margins for company-operated Hardee’s restaurants increased 2.1% during fiscal 2002, when measured as a percentage of company-operated restaurant revenue, from 7.5% to 9.6%. Food and packaging costs decreased 0.6%. Payroll and other employee benefits decreased 0.2% in the current year. Occupancy and other operating expenses decreased 1.3% in the current year. Our improved margin was due to the closing of unprofitable restaurants, a focus on premium products and less discounting, improved self-insurance claims management, and reduced comparative deprecation levels due to a reduced depreciable base of restaurants, partially offset by increased repair and maintenance expenses to improve the visual appeal of our restaurants. During fiscal 2001, Hardee’s company-operated restaurant margins decreased from 13.6% to 7.5%. Our fixed and semi-fixed costs, as a percentage of revenue vary greatly with changes in restaurant sales. As same-store sales decline at Hardee’s, fixed and semi-fixed costs such as rent and restaurant management represent a higher percentage of revenue even though the dollar amount remains relatively the same.

Taco Bueno

Taco Bueno’s restaurant-level operating margins were 20.5% in fiscal 2002, a 0.7% decline from fiscal 2001. In fiscal 2001, restaurant-level operating margins were 21.2%, a decrease of 3.3% from fiscal 2000. The decrease in fiscal 2002 was due to increased food and paper costs, partially offset by lower occupancy and other expenses. The 3.3% decrease in margins during fiscal 2001 was a result of increased labor costs resulting from a tight labor market in Texas and Oklahoma, as well as an increase in the workers’ compensation insurance reserve due to an actuarially determined liability. Taco Bueno was sold during the second quarter of fiscal 2002 (see Note 5 of Notes to the Consolidated Financial Statements). In addition, the sale of the Taco Bueno brand has and will continue to result in less operating income than reported in prior periods.

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Other Consolidated Expenses

Advertising expenses decreased $27.0 million, or 27.0%, to $73.2 million during fiscal 2002. Advertising expenses, as a percentage of company-operated revenue, have decreased slightly from 6.4% to 6.2%. This is due to the enhanced commercial production cost management and more effective utilization of point-of-purchase sales materials. During fiscal year 2001, advertising expenses decreased $21.5 million, or 17.7% as compared to fiscal year 2000, due to significantly higher expenditures for special advertising campaigns during fiscal 2000.

General and administrative expenses decreased $33.7 million or 23.2% year ended January 28, 2002, as compared to the prior fiscal year and were 7.8% of total revenue. This decrease is primarily due to lower corporate and field salaries due to a decrease in headcount this year, as well as reduced consulting and professional service expenses, which were partially offset by increased relocation costs due to the completion of the relocation of Hardee’s corporate offices to St. Louis, Missouri and the relocation of our executive offices to Santa Barbara, California. This decline from the prior year is consistent with our goal to have general and administrative expenses be commensurate with our mix of company-operated and franchise-operated restaurants.

During fiscal 2001, general and administrative expenses decreased $2.0 million or 1.4% and were 8.1% of total revenue, compared to 7.4% of total revenue during fiscal 2000. The increase as a percentage of revenue was primarily due to the fact that our costs in fiscal 2001 had not declined as quickly as our revenue had, and that we incurred added contract labor during the first two quarters of fiscal 2001 relating to information technology support and depreciation on computer systems that were installed in the prior year. Additionally, in the early part of fiscal 2001, we incurred significant recruiting expenses to fill open positions. Prior to filling these positions, temporary labor was used to fill these vacancies. We also incurred $8.5 million of charges, in fiscal 2000, including: (a) $2.1 million of restructuring charges in connection with consolidating certain administrative functions from Rocky Mount, North Carolina to Anaheim, California; (b) $2.6 million of Y2K expenses associated with restaurant computer systems; (c) $6.6 million in capitalized software development costs which were written-off because they will not by utilized; (d) $1.7 million in additional vacation expense in connection with a change in our vacation policy; (e) offset by $2.8 million gain on the sale of an aircraft that we acquired in connection with the original Hardee’s acquisition; and (f) $1.7 million in other miscellaneous items.

In November 1999, we decided that we would consolidated the majority of the corporate functions of our Hardee’s subsidiary, located in Rocky Mount, North Carolina, within our corporate headquarters in Anaheim, California, creating a single support and administrative center for our Carl’s Jr., Hardee’s and Taco Bueno restaurants. During the fourth quarter of fiscal 2000, we incurred a charge of $2.1 million of termination benefits for approximately 150 employees that were laid off during fiscal 2001.

Interest Expense

Interest expense for fiscal 2002 decreased $12.9 million or 18.3% as compared with fiscal 2001. This decrease was due to lower levels of borrowings outstanding under our Senior Credit Facility throughout the fiscal year. During fiscal 2001, we had increased levels of borrowing on our Senior Credit Facility and incurred an entire year of interest expense on our $200.0 million, 9.125% senior subordinated notes, while in fiscal 2000, we incurred only a partial year of interest expense as the notes were issued during fiscal 2000.

Other Income (Expense), Net

Other income (expense), net, mainly consists of interest income, lease income from parties other than franchisees, dividend income, income, (gain) and loss on long-term investments, and net property management income for sites leased to third parties. Other income (expense), net was an expense of $588,000 in fiscal 2002. Other income (expense), net in fiscal 2001 was an expense of $2.7 million. The decreased net expense in fiscal 2002 was primarily due to the recognition of a $1.9 million gain on sale of long-term investments. In fiscal 2000, we had other net expense of $47.2 million, which consists primarily of (a) recording an impairment charge and our equity in the operating losses of our investments of $37.3 million to write-down our investments in Checkers, SBRG, and Boston West to fair market value based upon our conclusion that these investments had experienced an other than temporary decline in value; and (b) writing-off approximately $10.9 million of Hardee’s acquisition-related assets which we believe had no future benefit.

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Income Taxes

As a result of our net operating losses in fiscal 2002 and 2001, we have recorded a valuation allowance of approximately $82 million for all of our net deferred tax asset at January 28, 2002. While we have been able to carryback approximately $35 million of these losses against amounts previously paid, we have provided a valuation allowance for the remaining net operating loss carryforward as well as the net deferred tax asset that existed at the beginning of the fiscal year 2001. At January, 28, 2002, the Company had a federal net operating loss (“NOL”) carryforward of approximately $44.0 million, expiring in varying amounts in the years 2021 through 2022 and various state NOL carryforwards in varying amounts expiring in the years 2006 through 2022. Additionally, the Company has an alternative minimum tax credit carryforward of approximately $4.0 million and general business credit carryforwards expiring in varying amounts in the years 2019 through 2022 and foreign tax credits which expire in varying amounts in the years 2004 through 2006. In fiscal 2000, we recorded income tax at the statutory rates.

We expect to receive a $4.3 million income tax refund in the first quarter of fiscal year 2003. This refund results from the NOL carryback of our fiscal year 2002 operating loss. We paid Alternative Minimum Tax on our fiscal year 2000 results and will now receive a refund of that tax.

Extraordinary Item

During the third quarter of fiscal 1999, our Board of Directors approved the buyback of up to $50.0 million aggregate principal amount of convertible subordinated notes. In fiscal 2000, we repurchased $3.0 million of such notes for $2.5 million in cash, including accrued interest thereon. In connection with this repurchase, we recognized an extraordinary gain on the early retirement of debt of $290,000, net of applicable income taxes of $186,000 for fiscal 2000.

New Accounting Pronouncements Not Yet Adopted

In 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, “Business Combinations” (“SFAS 141”) which supersedes APB Opinion No. 16, “Business Combinations.” SFAS 141 eliminates the pooling-of-interest methods of accounting for business combinations and modifies the application of the purchase accounting method. SFAS 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported separately from goodwill. The provisions of SFAS 141 were effective for transactions accounted for using the purchase method that were completed after June 30, 2001. We have used the purchase method for all previous acquisitions and will do so for the acquisition of SBRG (see Note 2 of Notes to the Consolidated Financial Statements).

In 2001, the FASB also issued SFAS 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), which supercedes APB Opinion No. 17, “Intangible Assets.” SFAS 142 requires that goodwill and other intangible assets be reported separately, eliminates the requirement to amortize goodwill and indefinite-lived intangible assets, addresses the amortization of intangible assets with a defined life, and addresses impairment testing and recognition for goodwill and intangible assets. SFAS 142 applies to goodwill and intangible assets arising from transactions completed before and after its effective date. SFAS 142 is effective for the Company for fiscal year 2003.

SFAS 142 changes the method of accounting for the recoverability of goodwill such that, for the Company, it will be evaluated at the brand level, based upon the estimated fair value of the brand. Currently, we allocate goodwill to each restaurant and, we evaluate the recoverability of goodwill on a restaurant-by-restaurant basis. Under the SFAS 142, the valuation methodology is significantly different and could result in a substantial write-down of the recorded goodwill. The impairment review will involve a two-step process as follows:

Ÿ Step 1 – Compare the fair value for each brand to its carrying value, including goodwill. For each brand where the carrying value, including goodwill, exceeds the brand’s fair value, move on to step 2. If a brand’s fair value exceeds the carrying value, no further work is performed and no impairment charge is necessary.

Ÿ Step 2 – Allocate the fair value of the brand to its identifiable tangible and non-goodwill intangible assets and liabilities. This will derive an implied fair value for the brand’s goodwill. Then, compare the implied fair value of the reporting brand’s goodwill with the carrying amount of reporting brand’s goodwill. If the carrying amount of the reporting brand’s goodwill is greater than the implied fair value of its goodwill, an impairment loss must be recognized for the excess.

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We have not finalized our evaluation of adopting SFAS 142, but do know that approximately $6 million of goodwill amortization will no longer be recorded as amortization expense in general and administrative costs. We expect upon adoption of this pronouncement that a significant goodwill impairment charge relating to our Hardee’s brand will be recorded as a cumulative effect of accounting change in the first quarter of fiscal 2003.

In 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS 143”), which will be effective for the Company in the first quarter of fiscal year 2004. SFAS 143 addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. We have not yet determined the impact of adopting SFAS 143 on our financial statements.

In 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), which addresses the impairment for all tangible assets. SFAS 144 will be effective for the Company in the first quarter of fiscal 2003. We have not yet determined the impact of adopting SFAS No. 144 on the Company’s financial statements.

Impact of Inflation

Inflation has an impact on food, construction, occupancy, labor and benefit costs, all of which can significantly affect our operations. Historically, consistent with the industry, we have been able to pass along to our customers higher costs arising from these inflationary factors

Seasonality

Our business is affected by seasonality. Average restaurant sales are normally higher in the summer months than during the winter months for each of our restaurant concepts. In comparison with our Carl’s Jr. restaurant concept, the weather has a greater impact on average restaurant sales at our Hardee’s restaurants, because a significant number of them are located in rural areas that experience severe winter conditions without the benefit of municipal storm services typical of more urban areas.

Competition

As discussed previously in Item 1 — Business, the foodservice industry is intensively competitive with respect to several factors. We compete with a variety of foodservice companies. Because our competition is a diverse group (major restaurant chains, casual dining restaurants, nutrition-oriented restaurants and prepared food stores), it is difficult for us to attribute specific results of operations to the actions of any of our competitors.

Financial Condition

Liquidity and Capital Resources

Free cash flow – cash provided by operations less capital expenditures – for fiscal 2002 was $46.0 million. Free cash flow, together with proceeds from asset sales, was used primarily to pay back borrowings on our revolving credit facility. For the year, we generated cash flows from operations of $71.5 million, as compared to $23.4 million during fiscal 2001. This increase was due to improved operations, as well as the receipt of an income tax refund of approximately $34.6 million. Investing activities generated $116.1 million primarily from asset sales. Financing activities used $179.8 million primarily to pay down our Senior Credit Facility. Cash and cash equivalents increased $7.9 million to $24.6 million in fiscal 2002. Earnings were insufficient to cover fixed charges by $84.5 million. Excluding the effect of the repositioning charges discussed above, earnings would be insufficient to cover fixed charges by $7.6 million (See Exhibit 12.1).

As discussed above, in fiscal year 2000, we embarked on an asset sale program designed to generate cash to reduce indebtedness under our Senior Credit Facility. During fiscal 2002, we made a net repayment on our revolving credit facility of approximately $168.5 million, of which approximately $134.8 million was provided by cash proceeds from assets sales (including $62.4 million from the sale of Taco Bueno). The balance of the repayment was generated from operations.

In fiscal 2000, we repurchased $3.0 million aggregate principal amount of convertible notes for $2.5 million in cash, including accrued interest thereon. We recognized an extraordinary gain on the early retirement of debt of $290,000 net of applicable taxes of $186,000 for fiscal 2000.

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On March 4, 1999, we completed a private placement of $200.0 million aggregate principal amount of 9.125% senior subordinated notes due 2009. We received net proceeds of $194.8 million, of which $190.0 million was used to repay outstanding term loan balances under our Senior Credit Facility. The indenture relating to the senior subordinated notes imposes certain restrictions on our ability (and the ability of our subsidiaries) to incur indebtedness (including, but not limited to, indebtedness under the credit facility, indebtedness to refinance existing debt, which must become subordinate to these notes, and indebtedness required in the ordinary course of business) pay dividends on, redeem or repurchase our capital stock, make restricted payments (as defined in the agreement) in excess of $75 million (as of January 28, 2002 we have made approximately $25 million in restricted payments), make investments, incur liens on our assets, sell assets other than in the ordinary course of business, or enter into certain transactions with our affiliates. The senior subordinated notes represent unsecured general obligations subordinate in right of payment to our senior indebtedness, including our Senior Credit Facility.

We amended and restated our senior facility on January 31, 2002, securing a $100 million lender’s commitment under a revolving credit facility. The amended facility includes a letter of credit sub-facility, and changed the maturity date to December 14, 2003, extendable to November 15, 2006, provided we are able to earlier refinance our convertible subordinated notes due March 2004. The credit facility is collateralized by all of our personal property assets and certain restaurant property deeds of trust with a carrying value of $218.2 million as of January 31, 2002.

The amended and restated credit facility, which may be used for working capital and other general corporate purposes, including permitted investments and acquisitions, includes the following features among others:

Ÿ We are permitted to spend on targeted restaurant development as specified in our strategic plan.

Ÿ We are permitted to divest restaurants not in the collateral pool, to balance our portfolio or achieve strategic direction, and invest the proceeds back into the business.

Ÿ We are restricted from incurring new indebtedness.

Ÿ The interest rate under the facility is the lower of LIBOR or prime, plus applicable margins based on our leverage ratio.

Ÿ We are allowed to repurchase up to $10.0 million of convertible subordinated notes.

Ÿ We are prohibited from repurchasing our common stock.

Ÿ We must comply with specified covenants including minimum EBITDA, fixed charges coverage, and consolidated tangible net worth and maximum leverage ratios.

During the last three years, we sold approximately 143 Carl’s Jr. restaurants to franchisees, generating net cash proceeds (as defined in the Company’s Senior Credit Facility) of approximately $116.7 million, and approximately 443 Hardee’s restaurants to franchisees, generating net cash proceeds of approximately $120.7 million. This strategy was intended to generate cash to pay down borrowings under our Senior Credit Facility, and to allow us to focus on running the balance of our Hardee’s system with a smaller number of company-operated restaurants.

The quick-service restaurant business generally receives simultaneous cash payment for sales. We presently use the net cash flow from operations to repay outstanding indebtedness and to reinvest in long-term assets, primarily for the remodeling and construction of restaurants. Normal operating expenses for inventories and current liabilities generally carry longer payment terms (usually 15 to 30 days). As a result, we typically maintain current liabilities in excess of current assets.

We believe that cash generated from our various restaurant operations and the cash and cash equivalents on hand as of January 28, 2002, and amounts available under our Senior Credit Facility, will provide the funds necessary to meet all of our capital spending and working capital requirements for the foreseeable future. Under our amended credit facility, we have $55.1 million of outstanding letters of credit at January 28, 2002 and, as we had not borrowed on the facility at that date, we had $44.9 million available for our use.

Subsequent to the end of fiscal year 2002 (January 28, 2002), we began repurchasing convertible notes under the terms provided in our amended credit facility. The new facility allows us to repurchase up to $10 million of convertible notes. Through March 15, 2002, we repurchased $11.1 million (face value) of convertible notes for $10.0 million, at various prices ranging from $87.25 to $90.25. Those transactions resulted in recognition of a gain on retirement of debt of $1.1 million, which will be recognized in the first quarter of fiscal year 2003.

CKE RESTAURANTS, INC.

35

The repurchase of convertible debt subsequent to the end of the fiscal year was the first step in addressing our plan to begin developing a strategy for retiring our maturing $159.2 million of convertible notes, due March 2004. Strategies we may consider include the sale of assets (including restaurants), a debt or equity offering, a debt swap or some combination of those items. In the event that we are unable to successfully implement one or more of those options, we may be required to sell additional restaurants at a loss to raise sufficient funds to retire the debt. Those losses may be material and have a significant negative impact on our operating results.

Long-term Obligations

The following table presents our long-term contractual obligations:

Contractual Obligations

	Payments due by periods
(Dollars in thousands)	Total		Less than one year		1—3 years		4—5 years		After 5 years
Long-term debt (1)	$	359,205	$	—	$	159,205	$	—	$	200,000
Capital lease obligations (1)(2)		135,091		18,851		41,948		20,312		53,980
Operating leases		704,965		86,722		215,315		107,080		295,848
Unconditional purchase obligations (3)		20,442		20,400		42		—		—
Total contractual cash obligations	$	1,219,703	$	125,973	$	416,510	$	127,392	$	549,828

⁽¹⁾ The amounts reported above as operating leases and capital lease obligations include leases contained in the restaurant closure reserve and leases for which we are the obligee to the property owner and sublease to franchisees. Additional information regarding operating leases and capital lease obligations can be found in Note 7 of Notes to the Consolidated Financial Statements.

⁽²⁾ Represents the undiscounted value of capital lease payments.

⁽³⁾ Unconditional purchase obligations include contacts for goods and services, primarily related to restaurant operations. We have classified the payments due by periods based on our average usage for each individual contract rather than the remaining term of the contract to better match expected expenditures with actual usage rates (see further discussion regarding these obligations in Item 7A –Quantitative and Qualitative Disclosures About Market Risk.

The following table presents our other commercial commitments including lines of credit, letters of credit and guarantees. The specific commitments are discussed previously in Item 7 – Management Discussion and Analysis – as well as the Notes to the Consolidated Financial Statements.

Other Commitments

	Amount of commitment expirations per period
(Dollars in thousands)	Total amounts committed		Less than one year		1—3 years
Standby letters of credit under the Company’s Senior Credit Facility	$	55,120	$	34,304	$	20,816
Guarantees (1)		4,719		19		4,700
Total commercial commitments	$	59,839	$	34,323	$	25,516

⁽¹⁾ See further discussion regarding guarantees in Note 24 of Notes to the Consolidated Financial Statements.

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36

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

Our principal exposure to financial market risks is the impact that interest rate changes could have on our $100.0 million Senior Credit Facility, of which $0 million was outstanding as of January 28, 2002 (and as of April 1, 2002, we had $13.5 million outstanding). Borrowings under our Senior Credit Facility bear interest at the prime rate or at LIBOR plus an applicable margin based on certain financial ratios (averaging 9.7% in fiscal 2002). A hypothetical increase of 100 basis points in short-term interest rates at fiscal year end would result in no reduction in annual pre-tax earnings as no amounts were borrowed at that time. The estimated reduction is based upon the outstanding balance of our Senior Credit Facility and assumes no change in the volume, index or composition of debt at January 28, 2002. Substantially all of our business is transacted in U.S. dollars. Accordingly, foreign exchange rate fluctuations have never had a significant impact on us and are not expected to in the foreseeable future.

Commodity Price Risk

We purchase certain products which are affected by commodity prices and are, therefore, subject to price volatility caused by weather, market conditions and other factors which are not considered predictable or within our control. Although many of the products purchased are subject to changes in commodity prices, certain purchasing contracts or pricing arrangements contain risk management techniques designed to minimize price volatility. The purchasing contracts and pricing arrangements we use typically result in unconditional purchase obligations, which are not reflected in the consolidated balance sheet. As noted in the table above, our unconditional purchase obligations currently total $20.4 million and are due at various dates during the next 3 years. Typically, we use these types of purchasing techniques to control costs as an alternative to directly managing financial instruments to hedge commodity prices. In many cases, we believe we will be able to address commodity cost increases, which are significant and appear to be long-term in nature by adjusting our menu pricing or changing our product delivery strategy. However, increases in commodity prices could result in lower restaurant-level operating margins for our restaurant concepts.

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.

CKE RESTAURANTS, INC.

37

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 from our Proxy Statement to be used in connection with our 2002 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 28, 2002. Information concerning the current executive officers 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 from our Proxy Statement to be used in connection with our 2002 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 28, 2002.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information pertaining to security ownership of certain beneficial owners and management is hereby incorporated by reference from our Proxy Statement to be used in connection with our 2002 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 28, 2002.

Item 13. Certain Relationships and Related Transactions

From time-to-time we enter into transactions with parties or entities that may be deemed related parties or affiliates. This may include parties with whom we, or our related parties, have a relationship that enables the parties to negotiate terms of material transactions that may not be available from others. Such transactions contribute to our operating results, which may be materially affected if we were to conduct such transactions with independent vendors and suppliers.

CKE RESTAURANTS, INC.

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During fiscal years 2002, 2001 and 2000, we entered into the following transactions with those parties:

Involved Party	Business Purpose	How Transaction Prices are Determined	On-going Contractual Commitments	FY 2002 $000’s	FY 2001 $000’s	FY 2000 $000’s
Carl N. Karcher (Chairman Emeritus)	Leased property for Anaheim, Ca. office, distribution facility and three restaurants.	Lease based upon the prevailing market for similar space within the area.	Several leases with varying expiration dates	$1,661	$1,500	$1,500
Fidelity National Financial, Inc. (“FNF”) (Our Chairman is also the Chairman of FNF)	Title and escrow work on sale of restaurant properties and mortgages on properties for collateral on Senior Credit Facility	Escrow and title fees are determined per transaction based upon the stated standard rates as set by Fidelity to the general public at the time of each transaction.	None	1,216	—	—
FNF Capital, Inc. (100% owned subsidiary of FNF)	Leased equipment	Bids for the lease of equipment were submitted and most favorable terms were selected.	Several leases with varying expiration dates	5,455	5,804	2,334
Kensington Development (100% owned subsidiary of FNF)	Lease of Santa Barbara, Ca. office	Lease based upon the prevailing market for similar space within the area.	Lease agreement expires September 2003	195	63	—
M&N Foods, Inc. (Affiliate of a current board member)	Sale of Carl’s Jr. restaurants to franchisee	Purchase price based on a multiple of cash flow from operations as achieved in other sales of Carl’s Jr. restaurants to other franchisees. Transaction was evaluated for fairness by First Tennessee Securities Corp., an investment banking firm.	None, other than those contained in the franchise agreement and asset purchased agreement	4,100	—	14,059
Orion Realty Corp. (100% owned subsidiary of FNF)	Sale of surplus properties and termination of leases	(A)	Contractual arrangement	329	58	—
Praetorian Group (Formerly an investment of FNF)	Sale of restaurants to franchisees	(A)	None	60	6,959	—
Rally’s Restaurants (Owned by Checkers Drive-In Restaurants, Inc. of which we own 4.9%)	Purchase of food and paper products from the Company	Mark-up consistent with price charged to Carl’s Jr. franchises.	Contract no longer in effect	1,652	3,634	3,781
Rocky Mountain Aviation (100% owned subsidiary of FNF)	Expenses associated with Company’s leased aircraft	Based on contracted lease rates, partially offset by income from others use of contracted planes. Contracted lease rates depend on number of passengers, distance, weights, airport fees and other factors to determine the cost for each specific trip.	Lease agreement expires June 2007	414	554	507
SBRG	License the Green Burrito Brand	According to License Agreement.	Requirements cease after acquisition of SBRG	443	621	810

CKE RESTAURANTS, INC.

39

Involved Party	Business Purpose	How Transaction Prices are Determined	On-going Contractual Commitments	FY 2002 $000’s	FY 2001 $000’s	FY 2000 $000’s
TWM Industries, Inc. (Affiliate of a former CEO and board member of the Company)	Sale of Carl’s Jr. restaurants to franchisee	Purchase price based on a multiple of cash flow from operations as achieved in other sales of Carl’s Jr. restaurants to other franchisees. Reduced by final payout due under employment agreement. Transaction was evaluated for fairness by First Tennessee Securities Corp., an investment banking firm.	None, other than those contained in the franchise agreement and asset purchased agreement	12,080	4,192	—

(A) During fiscal 2000, we were in a workout situation with our lenders and we had to immediately begin to dispose of a significant number of assets to raise cash to repay our bank indebtedness. Also, during this time, we began closing a significant number of underperforming restaurants which resulted in a significant number of surplus properties that needed to be converted to cash. Under these circumstances, we determined that it was impractical under the time constraints to develop an internal real estate sales competency and, accordingly, we retained the services of these affiliates that possessed the requisite real estate competency. We periodically benchmark the fees charged by these affiliates.

CKE RESTAURANTS, INC.

40

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/                  ANDREW F. PUZDER
	Andrew F. Puzder

Date: April 25, 2002

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                     William P. Foley II	Chairman of the Board	April 25, 2002
/s/                  ANDREW F. PUZDER                     Andrew F. Puzder	Chief Executive Officer and President (Principal Executive Officer)	April 25, 2002
/s/                BYRON ALLUMBAUGH                    Byron Allumbaugh	Director	April 25, 2002
/s/                    PETER CHURM                             Peter Churm	Director	April 25, 2002
/s/                  CARL L. KARCHER                        Carl L. Karcher	Director	April 25, 2002
Carl N. Karcher	Director	April 25, 2002
/s/                    DENNIS J. LACEY                        Dennis J. Lacey	Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer)	April 25, 2002
/s/                    DANIEL D. LANE                         Daniel D. Lane	Vice Chairman of the Board	April 25, 2002
/s/                    DANIEL PONDER                         Daniel Ponder	Director	April 25, 2002
/s/                FRANK P. WILLEY                         Frank P. Willey	Director	April 25, 2002

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Part IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

		Page
(a)(1)	Index to Consolidated Financial Statements:
	Independent Auditors’ Report	43
	Consolidated Balance Sheets — as of January 31, 2002 and 2001	44
	Consolidated Statements of Operations — for the fiscal years ended January 31, 2002, 2001 and 2000	45
	Consolidated Statements of Stockholders’ Equity — for the fiscal years ended January 31, 2002, 2001 and 2000	46
	Consolidated Statements of Cash Flows — for the fiscal years ended January 31, 2002, 2001 and 2000	47
	Notes to Consolidated Financial Statements	48
(a)(2)	Index to Financial Statement Schedules: Schedule II — Valuation and Qualifying Accounts	75
	All other 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 76 hereof and is incorporated herein by reference.
(b)	Current Reports on Form 8-K: None.

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42

Independent Auditors’ Report

The Board of Directors and Stockholders

CKE Restaurants, Inc.:

We have audited the accompanying consolidated financial statements of CKE Restaurants, Inc. and Subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended January 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information shown therein.

KPMG LLP

Orange County, California

March 13, 2002

CKE RESTAURANTS, INC.

43

CKE RESTAURANTS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

Part 1. Financial Information

Item 1. Consolidated Financial Statements

(Dollars in thousands)	January 31, 2002		January 31, 2001
ASSETS
Current assets:
Cash and cash equivalents	$	24,642	$	16,860
Accounts receivable, net		38,942		73,956
Related party trade receivables		5,404		2,505
Inventories		17,365		17,694
Prepaid expenses		8,318		10,212
Other current assets		1,703		2,534
Net assets of subsidiary held for sale		–		66,912
Total current assets		96,374		190,673
Property and equipment, net		542,193		656,214
Property under capital leases, net		64,834		73,617
Long-term investments		1,186		3,461
Notes receivable		7,352		14,098
Costs in excess of assets acquired, net		186,868		203,900
Other assets		32,782		65,574
Total assets	$	931,589	$	1,207,537
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of bank indebtedness	$	–	$	67,000
Current portion of capital lease obligations		10,266		9,845
Accounts payable		47,414		53,759
Other current liabilities		91,167		86,489
Total current liabilities		148,847		217,093
Bank indebtedness		–		101,500
Senior subordinated notes		200,000		200,000
Convertible subordinated notes		159,205		159,225
Capital lease obligations		70,107		81,173
Other long-term liabilities		91,764		98,989
Total liabilities		669,923		857,980
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 52,162,000 shares and 52,086,000 shares		522		521
Additional paid-in capital		383,319		383,016
Non-employee director and officer notes receivable		(4,239)		–
Accumulated deficit		(107,530)		(23,574	)
Treasury stock at cost, 1,585,000 shares		(10,406)		(10,406	)
Total stockholders’ equity		261,666		349,557
Total liabilities and stockholders’ equity	$	931,589	$	1,207,537

See Accompanying Notes to Consolidated Financial Statements

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

	Fiscal years ended January 31,
(In thousands except per share amounts)	2002			2001			2000
Revenue:
Company-operated restaurants	$	1,174,384		$	1,569,504		$	1,814,695
Franchised and licensed restaurants and other		263,743			215,280			175,378
Total revenue		1,438,127			1,784,784			1,990,073
Operating costs and expenses:
Restaurant operations:
Food and packaging		356,157			484,439			553,451
Payroll and other employee benefits		381,756			514,535			566,394
Occupancy and other operating expenses		266,874			368,100			383,144
		1,004,787			1,367,074			1,502,989
Franchised and licensed restaurants and other		203,364			159,484			128,128
Advertising expenses		73,184			100,199			121,727
General and administrative expenses		111,696			145,379			147,372
Facility action charges, net		71,389			144,642			26,802
Total operating costs and expenses		1,464,420			1,916,778			1,927,018
Operating income (loss)		(26,293	)		(131,994	)		63,055
Interest expense		(57,659	)		(70,541	)		(63,283	)
Other expense, net		(588	)		(2,729	)		(47,232	)
Loss before income taxes and extraordinary item		(84,540	)		(205,264	)		(47,460	)
Income tax benefit		(584	)		(11,148	)		(18,053	)
Loss before extraordinary item	$	(83,956	)	$	(194,116	)		(29,407	)
Extraordinary item – gain on early retirement of debt net of applicable income taxes of $186		—			—			290
Net loss	$	(83,956	)	$	(194,116	)	$	(29,117	)
Basic and diluted: Loss per share before extraordinary item	$	(1.66	)	$	(3.84	)	$	(0.57	)
Extraordinary item – gain on early retirement of debt net of applicable income taxes		—			—			0.01
Net loss per share	$	(1.66	)	$	(3.84	)	$	(0.56	)
Weighted average shares outstanding, basic and diluted		50,507			50,501			51,668

See Accompanying Notes to Consolidated Financial Statements

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

	Common Stock			Treasury Stock
(In thousands except per  share amounts)	Number of Shares	Amount		Number of Shares		Amount			Additional Paid-In Capital		Non-employee Director and Officer Notes Receivable			Retained Earnings (Accumulated Deficit)			Total Stockholder’s Equity
FISCAL YEARS ENDED JANUARY 31, 2002, 2001 AND 2000
Balance at January 31, 1999	51,850	$	519	—		$	—		$	380,423	$	—		$	205,900		$	586,842
Cash dividends ($.08 per share)	—		—	—			—			—		—			(4,157	)		(4,157	)
Exercise of stock options	181		2	—			—			1,363		—			—			1,365
Purchase of treasury shares	—		—	(1,585	)		(10,406	)		—		—			—			(10,406	)
Shares issued to third-party	55		—	—			—			722		—			—			722
Tax benefit associated with exercise of stock options	—		—	—			—			508		—			—			508
Net loss	—		—	—			—			—		—			(29,117	)		(29,117	)
Balance at January 31, 2000	52,086	$	521	(1,585	)	$	(10,406	)	$	383,016		—		$	172,626		$	545,757
Cash dividends ($.04 per share)	—		—	—			—			—		—			(2,084	)		(2,084	)
Net loss	—		—	—			—			—		—			(194,116	)		(194,116	)
Balance at January 31, 2001	52,086	$	521	(1,585	)	$	(10,406	)	$	383,016		—		$	(23,574	)	$	349,557
Exercise of stock options	76		1	—			—			283		—			—			284
Conversion of convertible subordinated notes	—		—	—			—			20		—			—			20
Non-employee director and officer notes receivable	—		—	—			—			—		(4,239	)		—			(4,239	)
Net loss	—		—	—			—			—		—			(83,956	)		(83,956	)
Balance at January 31, 2002	52,162	$	522	(1,585	)	$	(10,406	)	$	383,319	$	(4,239	)	$	(107,530	)	$	261,666

See Accompanying Notes to Consolidated Financial Statements

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

	Fiscal years ended January 31,
(In thousands)	2002		2001			2000
Net cash flow from operating activities:
Net loss	$  (83,956	)	$	(194,116	)	$	(29,117	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	76,639			106,981			104,450
Provision for losses on accounts and notes receivable	10,641			8,602			1,485
(Gain) loss on investments, sale of property equipment, capital leases,and extinguishment of debts	–			3,046			(2,398	)
Facility action charges, net	71,389			144,642			26,802
Other, non cash charges	4,146			17,618			64,521
Deferred income taxes	–			15,006			(30,035	)
(Gain) loss on non-current asset and liability transactions	(1,846	)		(2,104	)		4,744
Change in store closure and self-insurance reserves	(17,493	)		(4,908	)		(6,109	)
Net change in receivables, inventories, prepaid expenses and other current assets	28,650			(27,879	)		(12,457	)
Net change in accounts payable and other current liabilities	(16,633	)		(43,496	)		(13,406	)
Net cash provided by operating activities	71,537			23,392			108,480
Cash flow from investing activities:
Purchase of:
Property and equipment	(25,503	)		(74,680	)		(263,589	)
Long-term investments	–			(2,957	)		–
Proceeds from sale of:
Marketable securities and long-term investments	4,121			4,210			–
Property and equipment	68,278			154,132			52,753
Increase in notes receivable and related party receivables	–			(18,305	)		(5,544	)
Collections on notes receivable and related party receivables	2,625			13,791			7,725
Cash of subsidiary in property held for sale	–			(3,827	)		–
Net change in other assets	4,154			2,653			(5,012	)
Dispositions of brand, net of cash surrendered	62,412			–			(2,491	)
Net cash provided by (used in) investing activities	116,087			75,017			(216,158	)
Cash flow from financing activities:
Net change in bank overdraft	6,633			(7,565	)		14,210
Repayments of short-term debt	–			(1,123	)		(3,600	)
Long-term borrowings	140,217			266,000			467,500
Repayments of long-term debt	(308,737	)		(371,313	)		(350,853	)
Repayments of capital lease obligations	(10,645	)		(10,095	)		(7,689	)
Payment of deferred financing costs	(2,775	)		(904	)		(10,759	)
Net change in other long-term liabilities	(600	)		9,030			1,767
Payment of dividends	–			(2,084	)		(4,157	)
Purchase of treasury stock	–			–			(10,406	)
Issuance of non-employee director and officer notes receivable	(4,239	)		–			–
Exercise of stock options	304			–			1,365
Tax benefit associated with the exercise of stock options	–			–			508
Net cash provided by (used in) financing activities	(179,842	)		(118,054	)		97,886
Net increase (decrease) in cash and cash equivalents	7,782			(19,645	)		(9,792	)
Cash and cash equivalents at beginning of year	16,860			36,505			46,297
Cash and cash equivalents at end of year	$    24,642		$	16,860		$	36,505

See Accompanying Notes to Consolidated Financial Statements

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

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. Carl’s Jr. restaurants are located in the Western United States, predominantly in California. Hardee’s restaurants are located throughout the Southeastern and Midwestern United States. The Company’s system-wide restaurant portfolio as of January 31, 2002 consisted of:

	Carl’s Jr.	Hardee’s	Total
Company-operated	443	742	1,185
Franchised and licensed	526	1,648	2,174
Total	969	2,390	3,359

CKE acquired Hardee’s in 1997. At the time Hardee’s was acquired, a turnaround of operations at Carl’s Jr. had just been completed. Hardee’s had historical trends of operational difficulties, including declining same-store sales. Management believed it could implement a strategy to counter the operational difficulties Hardee’s was experiencing. In conjunction with the Hardee’s acquisition, the Company incurred a substantial amount of long-term debt and became a highly-leveraged company. Management was initially unable to materially alter the declining same-store sales trend at Hardee’s after the acquisition. In fact, the decline in same-store sales continued. Beginning with fiscal year 2000, Hardee’s operating losses resulted in the Company operating at a loss. When those operating losses arose, there was approximately $280,000 outstanding under the Company’s facility. Under these circumstances, the Company was compelled to reduce its level of bank debt and embarked upon a program to sell restaurants with the objectives of reducing bank debt and shifting the restaurant system mix to one that is more franchised than company-operated. Management also identified many under-performing restaurants for closure. The Company incurred net losses on the sales of restaurants, recorded charges for restaurant closure reserves and wrote-down the carrying value of certain properties and charged a loss to operations as their performance did not support their corresponding carrying values. Additionally, management reduced operating costs to a level more commensurate with the revenue mix resulting from the rebalancing of its systems. The Company has reported losses for each of the last three years. The Company is in the midst of a business turnaround and has made several changes to its business. The Company not only sold or closed Carl’s Jr. and Hardee’s restaurants, but also sold the Taco Bueno brand and ceased to operate certain Rally’s restaurants under a management agreement. These changes have significantly impacted the comparability of results from year to year.

Basis of Presentation and Fiscal Year

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions are eliminated. Transactions between subsidiaries with different fiscal periods relate solely to transfers of cash and are accounted for in other current liabilities. The Company’s fiscal year is 52 or 53 weeks, ending the last Monday in January each year. Fiscal year 2000 included 53 weeks of operations. Fiscal years 2002 and 2001 each included 52 weeks of operations. For clarity of presentation, the Company has labeled all years presented as fiscal year ended January 31.

The equity method of accounting is used for investments in which the Company has the ability to exercise significant influence. Under the equity method, the Company recognizes its share of the net earnings or losses of these entities and adjusts the carrying value of its investment by the amount of net earnings or losses recognized and by the amount of contributions made or distributions received. The Company’s share of net earnings or losses is calculated based on the Company’s expected share of the investment’s estimated profit or loss. The Company accounted for its investments in Santa Barbara Restaurant Group, Inc. and Checkers Drive-Thru Restaurants, Inc. under the equity method.

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

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.

Deferred Financing Costs

Costs related to the issuance of debt are deferred and amortized, utilizing a method which approximates the effective interest method, as a component of interest expense over the terms of the respective debt issues. In accordance with Emerging Issues Task Force Bulletin 98-14, “Debtor’s Accounting for Changes in Line of Credit or Revolving Debt Arrangements” (“EITF 98-14”), the Company writes-off a portion of these deferred financing charges when the borrowing capacity of its Senior Credit Facility is reduced.

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.

Property and Equipment

Property and equipment are recorded at cost, less accumulated depreciation and amortization, impairment writedowns and valuation allowances. 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.

Goodwill

Goodwill represents the excess of the purchase price for certain assets over the estimated fair value of the tangible assets. Through fiscal 2002, this asset is amortized over 40 years. Through fiscal 2002, for purposes of recoverability testing, goodwill is allocated to individual restaurants (both company-operated restaurants and restaurants that the Company previously owned and has subsequently sold to franchisees).

Facility Action Charges

In late fiscal 2000, the Company embarked on a refranchising initiative to reduce outstanding borrowings under its revolving credit facility, as well as to increase the number of franchise-operated restaurants. In addition, it identified and closed under-performing restaurants. The results of these strategies have caused the following transactions to be recorded in the financial statements as facility action charges, net:

(i) Impairment of long-lived assets for restaurants the Company plans to continue to operate and restaurants the Company intends to close beyond the quarter in which the closure decision is made.

(ii) Store closure costs; and

(iii) Gains (losses) on the sale of restaurants.

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

(i) Impairment of Long-Lived Assets

The Company evaluates the carrying value of assets for the possibility of impairment when the operations of the brand, or certain restaurants in the brand, experience a negative event (i.e. significant downturn in operations, natural disaster, restaurant closures, etc.). When events are identified that indicate the assets may be impaired, management reviews the last two years of operations on a restaurant-by-restaurant basis and if there are increasing losses in both of those years, management estimates future un-discounted cash flows. If the projected cash flows do not support the net respective book values including goodwill, which is allocated to each restaurant for this purpose, the assets are written-down to their fair value, based on either: (1) the estimated net proceeds that the Company’s broker (a related party) believes it can obtain for the particular site; (2) the discounted projected cash flows or (3) historical net proceeds that have been obtained on other similar surplus property sales.

(ii) Store Closure Costs

Management makes decisions to close restaurants based on the prospects for future estimated profitability. The Company’s restaurant operators evaluate each restaurant’s performance each financial period. When restaurants are performing poorly, management considers the demographics associated with the location as well as the likelihood of being able to turn an unprofitable restaurant around. Based on the operator’s judgement, an estimate of future cash flows is made. If it is determined that the restaurants will not be profitable, additional evaluation of the site is done to determine whether or not there is a provision in the lease that would prohibit the restaurant from being closed (i.e. a continuous operating clause). If management decides to close a restaurant, then a reserve for the net present value of future rent and fixed costs (i.e. taxes, utilities) is estimated and asset impairment charges, if necessary, are recorded in the period the decision is made. Additionally, franchisees may close restaurants for which the Company is the primary lessee. If the franchisee cannot make payments on the lease, we continue making the lease payments and establish a store closure reserve if management decides not to operate the restaurants as company-operated restaurants.

The store closure reserve for vacant properties is generally based on the term of the lease and the lease termination fee we expect to pay, as well as maintenance costs. The interest rate used to calculate the net present value of these reserves is based on the Company’s incremental borrowing rate at the time the reserve is established. The related discount is amortized and shown as interest expense in the Statements of Operations.

(iii) Gains (Losses) on the Sale of Restaurants

The Company records gains and losses on the sale of restaurants as the difference between the net proceeds received and net asset values of the restaurants sold, excluding goodwill. Additionally, the gains (losses) are further impacted by lease obligations management has agreed to pay on behalf of the franchises the Company sold restaurants to.

Self-insurance

The Company is self-insured for a portion of it’s current and prior years’ losses related to worker’s compensation, fire and general liability insurance programs. The Company has obtained stop-loss insurance for individual workers’ compensation claims over $250 and individual general liability claims over $500. Insurance liabilities and reserves area accounted for based on the net present value of independent actuarial estimates of the amount of loss expected. These estimates rely on actuarial observations of historical claim loss development which is generally the average historical loss rate for similar events. Management continually evaluates the potential for changes in loss estimates, and uses the results of these evaluations to adjust recorded provisions.

Franchise and License Operations

The Company executes franchise or license agreements for each brand that sets out the terms of our arrangement with the franchisee or licensee. Our franchise and certain license agreements require the franchisee or licensee to pay an initial, non-refundable fee and continuing fees based upon a percentage of sales. Subject to our approval and payment of renewal fee, a franchisee may generally renew the franchise agreement upon its expiration.

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

The Company recognizes initial fees as revenue when we have performed substantially all initial services required by the franchise or license agreement, which is generally upon opening of a restaurant. Further, continuing fees are recognized as earned with an appropriate provision for estimated uncollectible amounts, which is included in franchise and license expenses. We recognize renewal fees in income when a renewal agreement becomes effective. Initial fees collected upon the sale of a restaurant to a franchisee are included in franchising revenue.

The Company incurs expenses that benefit both our franchise and license communities. These expenses, along with other costs of sales and servicing of franchise and license agreements are charged to franchising expense as incurred. Finally, net franchise and license income also includes rent income from leasing or subleasing restaurants to franchisees net of the related occupancy costs. If the Company leases restaurants to a franchisee that results in a loss over the term of the lease, a lease subsidy reserve is established at inception.

The Company monitors the financial condition of our franchisees and records provisions and estimated losses on receivables when management believes that certain franchisees are unable to make their required payments. Each individual franchisee’s account is reviewed quarterly, focusing on those that are past due and, if necessary, a specific reserve for each account is recorded including notes receivable. Additionally, the Company ceases recording royalties from franchisee that are delinquent until such time as there is a history of timely payments.

Depending on the facts and circumstances, there are a number of different actions that may be taken to resolve collection issues. These include the sale of franchisee restaurants to the Company or to other franchisees, a modification to the franchise agreement which may include a provision for reduced royalty rates in the future (if royalty rates are not sufficient to cover the Company’s costs of service over the life of the franchise agreement, the Company records the estimated loss at the time it modifies the agreement), a restructuring of the franchisee’s business and /or finances (including the restructuring of leases for which we are the primary obligee) or, if necessary, the termination of the franchisee agreement. The amount of the allowance established is based on our assessment of the most probable action that will occur. In the event that the Company decides to operate the restaurants as company-operated restaurants, the allowance for loss is recorded net of the estimated fair value of the related restaurant assets.

Advertising

The Company charges marketing costs to expense ratably in relation to revenues over the year in which incurred and in the case of advertising production costs it is charged when the commercial is first aired. The Company’s contributions to independent advertising cooperatives are expensed when paid.

Income Taxes

Income taxes are accounted for under the asset and liability method. The Company estimates its income taxes in each of the jurisdictions in which it operates. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as depreciation, restaurant closure reserves, self-insurance reserves, tax credits and operating losses for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheet. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The recovery of net tax assets is evaluated each year using the “more likely than not” criterion contained in Statement of Financial Accounting Standard No. 109, “Accounting for Income Taxes”. To the extent a valuation allowance is recorded or increased, an expense within the tax provision in the statement of operations is recorded. Reversal of the reserve is dependent upon the Company reporting taxable operating profits in future years.

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

Estimations

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

The Company’s most significant areas of estimation are:

Ÿ Estimation of future cash flows used to assess the recoverability of long-lived assets and the establishment of store closure reserves.

Ÿ Determination of the appropriate allowances associated with franchise and license receivables and contingent liabilities.

Ÿ Estimation, using actuarially determined methods, of self-insured losses under the Company’s worker’s compensation, fire and general liability insurance programs.

Ÿ Estimation of net deferred income tax valuation allowances.

Loss per share

The Company presents “basic” loss per share, which represents net loss divided by the weighted average shares outstanding excluding all potentially dilutive securities as they would be anti-dilutive. Diluted loss per share will therefore be the same as the basic loss per share.

In fiscal 2002, 2001 and 2000, 7.7 million, 8.1 million and 6.2 million shares, respectively, relating to the possible exercise of outstanding stock options and in fiscal 2002, 2001 and 2000, 3.6 million shares issuable upon conversion of convertible subordinated notes, were not included in the computation of net loss per share as their effect would have been anti-dilutive.

Comprehensive Income

The Company did not have any other comprehensive income items requiring reporting under Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income”.

Segment Information

Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker(s) in deciding how to allocate resources and in assessing performance.

New Accounting Pronouncements Not Yet Adopted

In 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141 “Business Combinations” (“SFAS 141”), which supersedes APB Opinion No. 16, “Business Combinations.” SFAS 141 eliminates the pooling-of-interests method of accounting for business combinations and modifies the application of the purchase accounting method. SFAS 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported separately from goodwill. The provisions of SFAS 141 were effective for transactions accounted for using the purchase method that were completed after June 30, 2001. The Company has used the purchase method for all previous acquisitions and will do so for the acquisition of SBRG (see Note 2).

In 2001, the FASB also issued SFAS 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) which supercedes APB Opinion No. 17, “Intangible Assets.” SFAS 142 requires that goodwill and other intangibles be reported separately, eliminates the requirement to amortize goodwill and indefinite-lived intangible assets, addresses the amortization of intangible assets with a defined life, and addresses impairment testing and recognition for goodwill and intangible assets. SFAS 142 applies to goodwill and intangible assets arising from transactions completed before and after its effective date. SFAS 142 is effective for the Company for fiscal year 2003.

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52

CKE RESTAURANTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

SFAS 142 changes the accounting for the recoverability of goodwill such that, for the Company, it will be evaluated at the brand level, based upon the estimated fair value of the brand. As noted above, the Company has allocated goodwill to each restaurant, and evaluates the recoverability of goodwill on a restaurant-by-restaurant basis. Under the SFAS 142, the valuation methodology is significantly different and could result in a substantial write-down of the recorded goodwill. The impairment review will involve a two-step process as follows:

Step 1 – Compare the fair value for each brand to its carrying value, including goodwill. For each brand where the carrying value, including goodwill, exceeds the brands, fair value, move on to step 2. If a brand’s fair value exceeds the carrying value, no further work is performed and no impairment charge is necessary.

Step 2 – Allocate the fair value of the brand to its identifiable tangible and non-goodwill intangible assets and liabilities. This will derive an implied fair value for the brand’s goodwill. Then, compare the implied fair value of the reporting brand’s goodwill with the carrying amount of reporting brand’s goodwill. If the carrying amount of the reporting brand’s goodwill is greater than the implied fair value of its goodwill, an impairment loss must be recognized for the excess.

The Company has not finalized it evaluation of adopting SFAS 142, but management does know that approximately $6,000 of goodwill amortization will no longer be recorded as amortization expense in general and administrative costs. Management expects upon adoption of this pronouncement that a significant goodwill impairment charge relating to its Hardee’s brand will be recorded as a cumulative effect of accounting change in the first quarter of fiscal 2003.

In 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS 143”), which will be effective for the Company beginning fiscal year 2004. SFAS 143 addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Management has not yet determined the impact of adopting SFAS 143 on the Company’s financial statements.

In 2001, the FASB issued SFAS No. 144 – Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”) which addresses the impairment of all intangible assets. SFAS 144 will be effective for The Company in the first quarter of fiscal year 2003. Management has not yet determined the impact of adopting SFAS No. 144 on the Company’s financial statements.

Reclassifications

Prior year amounts in the accompanying consolidated financial statements are reclassified to conform with the current year presentation. On the Balance Sheet, the Company reclassified asset impairment reserves originally reported in the store closure reserves directly to property and equipment. Additionally, to conform to industry practice, the Company has classified usage of the store closure reserve (previously shown as a financing activity) as a component of cash flow from operations for all periods presented.

Note 2  –  Acquisitions

Subsequent to fiscal year 2002, on March 1, 2002, the Company acquired Santa Barbara Restaurant Group, Inc. (“SBRG”). SBRG owns, operates and franchises The Green Burrito and La Salsa quick-service Mexican food restaurants, and Timber Lodge Steakhouse. Through the Company’s dual-branding relationship with The Green Burrito, the Company is SBRG’s largest franchisee. Under the terms of the stock purchase agreement, each outstanding share of SBRG stock was converted into 0.491 shares of Company common stock. The purchase price was based on the average closing price of the Company’s commons stock for the 10 trading days ending two days before completion of the acquisition (“Pricing Period”). The average

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53

CKE RESTAURANTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

closing price of the Company’s common stock was $10.19 for the Pricing Period. SBRG had approximately 12.9 million shares of stock outstanding and approximately 3.2 million of options and warrants outstanding. As a result of purchasing SBRG through an exchange of stock, Fidelity National Financial, Inc. owns 6.6% of the Company. For the fifty-two weeks ended December 31, 2001, SBRG had revenue and net income of $88,728 (unaudited) and $2,954 (unaudited), respectively. The resulting purchase price was $81,547. The Company will begin consolidating SBRG’s operating results in the first quarter of Fiscal year 2003, from the March 1, 2002 date of acquisition. The Company has not yet determined the allocation of the purchase price to the net assets acquired.

Note 3 — Facility Action Charges, Net

A summary of the impact of facility actions on the reduction to each brand’s company-operated restaurant count is as follows:

	2002		2001		2000
	Carl’s Jr.	Hardee’s	Carl’s Jr.	Hardee’s	Carl’s Jr.	Hardee’s
Sold	30	27	89	324	24	61
Closed	24	159	8	114	8	10
Total	54	186	97	438	32	71

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

The components of facility action charges are as follows:

	2002			2001			2000
Hardee’s
Store closure reserves provided, net	$	14,045		$	17,253		$	16,274
Impairment on stores closed, to be closed or sold		39,170			53,453			25,331
Impairment on stores that will continue to be operated		7,093			16,705			383
Losses (gains) on sales of restaurants, net		5,432			78,490			(2,986	)
		65,740			165,901			39,002
Carl’s Jr.
Store closure reserves provided, net		656			1,884			—
Impairment on stores closed, to be closed or sold		6,378			5,955			—
Impairment on stores that will continue to be operated		8,145			3,035			—
Gains on sales of restaurants, net		(14,237	)		(40,833	)		(12,200	)
		942			(29,959	)		(12,200	)
Rally’s and Taco Bueno
Losses on sales of restaurants		4,707			8,700			—
Total
Store closure reserves provided, net		14,701			19,137			16,274
Impairment on stores closed, to be closed or sold		45,548			59,408			25,331
Impairment on stores that will continue to be operated		15,238			19,740			383
Losses (gains) on sales of restaurants, net		(4,098	)		46,357			(15,186	)
	$	71,389		$	144,642		$	26,802

Included in the impairment on restaurants closed, to be closed or sold for fiscal 2002 is $7,860 related to additional asset impairment charges made on restaurants recognized as being impaired in previous reporting periods.

Impairment charges were recorded against the following asset categories:

	2002		2001		2000
Fixed assets
Hardee’s	$	33,820	$	46,138	15,265
Carl’s Jr.		14,523		8,990	383
		48,343		55,128	15,648
Costs in excess of net assets acquired, net
Hardee’s		12,443		24,020	10,066
Carl’s Jr.		—		—	—
		12,443		24,020	10,066
Total
Hardee’s		46,263		70,158	25,331
Carl’s Jr.		14,523		8,990	383
	$	60,786	$	79,148	25,714

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55

CKE RESTAURANTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

The following table summarizes the activity in our store closure reserves. We believe that the remaining carrying amounts are adequate to complete our disposal actions. The remaining unamortized discount to present value of the lease subsidies associated with these restaurants at January 31, 2002 was $5,729 and is to be recorded as a component of interest expense over the remaining sublease terms, which range up to 17 years, utilizing a method approximating the effective interest method.

Balance at January 31, 1999	$	24,135
New decisions		16,274
Usage		(4,179	)
Discount amortization and other		585
Balance at January 31, 2000		36,815
New decisions		19,137
Usage		(6,367	)
Discount amortization and other		2,110
Balance at January 31, 2001		51,695
New decisions		28,911
Usage		(19,424	)
Reversal of reserves for stores that will not be closed		(6,440	)
Favorable disposition of surplus properties		(7,770	)
Discount amortization and other		2,286
Balance at January 31, 2002		49,258
Less: Current portion		(11,097	)
Long-term portion	$	38,161

The following table summarizes average annual sales per restaurant and operating losses related to the restaurants the Company decided to close.

	2002			2001			2000
Sales per restaurant
Carl’s Jr.	$	420		$	467		$	562
Hardee’s		527			507			557
Operating loss
Carl’s Jr.	$	(956	)	$	(3,748	)	$	(1,937	)
Hardee’s	$	(9,301	)	$	(14,842	)	$	(19,158	)

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

Note 4  –  Accounts Receivable, Net

Accounts receivable, net consists of the following:

	2002			2001
Trade receivables	$	37,665		$	42,682
Income tax receivable		5,048			36,586
Notes receivable, current portion		2,677			2,651
Other		254			278
Allowance for doubtful accounts		(6,702	)		(8,241	)
	$	38,942		$	73,956

The long-term portion of notes receivable consists of the following:

	2002			2001
Franchisee	$	15,951		$	20,500
Employees		499			100
Others		1,980			1,980
Allowance for doubtful accounts		(11,078	)		(8,482	)
	$	7,352		$	14,098

Note 5 — Net Assets of Subsidiary Held for Sale

In November 2000, the Company entered into a stock purchase agreement to sell Taco Bueno. Accordingly, for financial reporting purposes, the assets and liabilities attributable to this transaction were classified on the consolidated balance sheet as net assets of subsidiary held for sale and a loss of $8,700 was recorded for the difference between the sales price and the carrying value of the net assets. In June 2001, the sale of Taco Bueno to Jacobson Partners was completed for $62,412, a price lower than originally estimated and an additional $4,500 loss was recorded. The carrying value of the net assets exceeded the net proceeds from the sale by $13,200. Net assets of subsidiary held for sale consisted of the following at January 31, 2001:

Current assets	$	6,540
Property and equipment, net		69,347
Property under capital leases, net		1,357
Costs in excess of net assets acquired, net		8,959
Other assets		975
Total assets		87,178
Current liabilities		9,469
Capital lease obligations		970
Other long-term liabilities		1,127
Total liabilities		11,566
Gross property held for sale		75,612
Reduction to net sales contract value		(8,700	)
Net assets of subsidiary held for sale	$	66,912

Taco Bueno’s results included in the Company’s accompanying statements of operations are as follows:

	2002		2001			2000
Revenue	$	37,538	$	97,316		$	91,950
Operating income (loss)		3,693		(3,545	)		8,136

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

Note 6 – Property and Equipment

Property and equipment consists of the following:

	Estimated Useful Life	2002		2001
Land		$	146,880	$	168,902
Leasehold improvements	4-25 years		165,644		233,250
Buildings and improvements	7-40 years		244,129		257,935
Equipment, furniture and fixtures	3-10 years		287,797		289,585
			844,450		949,672
Less: Accumulated depreciation and amortization			302,257		293,458
		$	542,193	$	656,214

Note 7 – Leases

The Company occupies land and buildings under lease agreements expiring on dates through 2062. 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 leases obligate the Company to pay costs of maintenance, insurance and property taxes.

Property under capital leases consists of the following:

	2002		2001
Buildings	$	107,016	$	110,314
Equipment		15,156		15,260
Less: Accumulated amortization		57,338		51,957
	$	64,834	$	73,617

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, including those in the store closure reserve, and the present value of net minimum lease payments for capital leases as of January 31, 2002 are as follows:

	Capital		Operating
Fiscal Year:
2003	$	18,851	$	86,722
2004		17,262		80,360
2005		13,696		71,696
2006		10,990		63,259
2007		10,237		55,334
Thereafter		64,055		347,594
Total minimum lease payments		135,091	$	704,965
Less: amount representing interest		54,718
Present value of minimum lease payments (interest rates ranging from 8% to 16%)		80,373
Less: current portion		10,266
Capital lease obligations, excluding current portion	$	70,107

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

Total minimum lease payments have not been reduced for future minimum sublease rentals of $175,893 expected to be received 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:

	2002		2001
Net minimum lease payments receivable	$	1,261	$	1,681
Less: unearned income		264		407
Net investment	$	997	$	1,274

The carrying value of assets leased to others is as follows:

	2002		2001
Land	$	15,878	$	16,557
Leasehold improvements		2,866		5,835
Buildings and improvements		14,925		16,089
Equipment, furniture and fixtures		2,177		3,261
		35,846		41,742
Less: accumulated depreciation		7,644		7,507
	$	28,202	$	34,235

Minimum future rentals expected to be received as of January 28, 2002, including amounts reducing the our restaurant closure reserve, are as follows:

	Capital Leases or Subleases		Operating Lessor Leases
Fiscal Year:
2003	$	363	$	23,257
2004		302		21,219
2005		277		18,129
2006		251		15,733
2007		68		13,299
Thereafter		—		84,256
Total minimum future rentals	$	1,261	$	175,893

Total minimum future rentals do not include contingent rentals, which may be received under certain leases. Included in the operating lease minimum rentals is $84,131 that is also included in the store closure reserve.

Aggregate rents under noncancelable operating leases are as follows:

	2002		2001		2000
Minimum rentals	$	92,658	$	82,478	$	92,107
Contingent rentals		4,550		4,923		5,275
Less: sublease rentals		24,065		19,115		10,064
	$	73,143	$	68,286	$	87,318

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

During fiscal 2002 and 2001, the Company entered into certain sales leaseback transactions relating to restaurant properties it currently operates in order to generate cash to repay its bank indebtedness. The Company generated proceeds of $16,494 and $5,237 during fiscal 2002 and 2001, respectively. The resulting net gains of $4,269 and $884 at fiscal year end 2002 and 2001, respectively, were deferred and are being amortized as a reduction to occupancy and other operating expenses over the term of the lease.

Note 8 — Long-Term Investments

The Company has invested in other restaurant concepts, as follows:

Santa Barbara Restaurant Group, Inc.

Prior to its acquisition of SBRG (see Note 2), the Company held stock in SBRG through various transactions. The Company accounted for its investment in SBRG under the equity method of accounting due to shared management and directors. During the fourth quarter of fiscal 2000, the Company wrote down its investment in SBRG by $8,958 to $2,382 upon its conclusion that the investment had experienced an other than temporary decline in value. During fiscal 2001, the Company sold its shares of SBRG to a American National Financial, Inc., a subsidiary of Fidelity National Financial, Inc., (see Note 15) for cash proceeds of $1,900 and recorded a loss of $400, which is included in other expense, net (see Note 18).

Checkers Drive-In Restaurants, Inc.

Through a series of transactions, the Company has various investments in Checkers Drive-In Restaurants, Inc. (“Checkers”) which as of January 31, 2002, consisted of common stock and warrants to purchase common stock. Checkers operates and franchises approximately 427 Checkers and 427 Rally’s double drive-thru quick-service hamburger restaurants, primarily in the Southeastern and Midwestern United States. During fiscal 2002, 2001 and 2000, the Company accounted for its investments under the equity method of accounting as its Chairman of the Board was the Chairman of Checkers as well. As of September 28, 2002, the Company’s Chairman of the Board is no longer the Chairman of Checkers, but remains a member of the Board of Directors. During the fourth quarter of fiscal 2000, the Company wrote-down its investment in Checkers by $16,620 to its fair market value upon its conclusion that the investment had experienced an other than temporary decline in value. Further, as a result of the Company recognizing its share of the net losses of Checkers, the Company’s investment in Checkers was zero as of January 31, 2000. During fiscal 2002 and 2001, the Company sold 358,000 and 657,000 shares, respectively, of Checkers common stock, and reflected gains of $1,876 and $2,235, respectively in Other Expense, Net (see Note 18). As of January 31, 2002, the Company holds 546,000 shares of Checkers common stock and 613,000 warrants to purchase Checkers common stock for $3.00 per share. These warrants expire in November 2002. As of January 31, 2002, the Company has a 4.9% ownership interest in Checkers and the right to acquire common shares representing an additional 5.6% of Checkers.

During fiscal 2001, a $3,236 note receivable from Checkers, which was entered into during fiscal 1997, was repaid in full.

Boston Market

The Company, through its wholly owned subsidiary, Boston Pacific, Inc. (“BPI”), owned an 11% interest in Boston West, LLC (“Boston West”), which operates Boston Market restaurants in designated markets in Southern California as a franchised area developer of Boston Chicken, Inc. (“BCI”), the franchisor of the Boston Market restaurant concept. BCI and its Boston Market subsidiaries filed for protection under Chapter 11 of the Federal Bankruptcy Code on October 5, 1998. In a separate action, on November 9, 1998, Boston West filed a voluntary petition under Chapter 11 of the Federal Bankruptcy Code to restructure its overall operations. Pursuant to Boston West’s plan of organization, as filed with the bankruptcy court, it was anticipated

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

that the Company would own approximately 25% of Boston West after emergence from bankruptcy. In addition, during fiscal 1999, the Company signed an agreement with Boston West to provide administrative and management services to the Boston Market franchises operated by Boston West and Boston West closed or sold 42 Boston Market restaurants.

Under the original reorganization plan, BCI acquired certain rights, claims and interests relating to Boston West. In April 2000, Boston Market Corporation (“BMC”), a wholly-owned subsidiary of McDonald’s Corp., acquired BCI’s rights, claims and interests relating to Boston West. As a result, Boston West negotiated an agreement on a new plan of reorganization with BMC. Under this agreement the Company no longer provides administrative or management services to Boston Market franchises operated by Boston West and the Company no longer has an ownership interest in Boston West. In anticipation of this agreement, in the fourth quarter of fiscal 2000 the Company wrote down its investment in Boston West to zero by recording a $8,377 charge which is included in Other Expense, Net (see note 18). Additionally, under the plan, Boston West was dissolved.

Note 9 — Other Assets

Other assets consist of the following:

	2002		2001
Deferred financing costs	$	6,297	$	11,705
Deferred lease costs		6,174		10,545
Rentals due under leases		743		963
Surplus property		16,350		37,993
Other		3,218		4,368
	$	32,782	$	65,574

Note 10 — Other Current Liabilities

Other current liabilities consist of the following:

	2002		2001
Salaries, wages and other benefits	$	27,313	$	28,444
State sales taxes		16,968		14,016
Store closure reserves		11,097		6,874
Accrued interest		7,624		7,805
Other accrued liabilities		28,165		29,350
	$	91,167	$	86,489

Note 11 — Long-Term Debt

Long-term debt consists of the following:

	2002		2001
Senior Credit Facility, interest based on LIBOR plus applicable margin, averaging 9.7% in fiscal 2002	$	—	$	168,500
Senior subordinated notes due 2009, interest at 9.125%		200,000		200,000
Convertible subordinated notes due 2004, interest at 4.25%		159,205		159,225
		359,205		527,725
Less: current portion		—		67,000
	$	359,205	$	460,725

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

On March 13, 1998, the Company completed a private placement of $197,200 aggregate principal amount of convertible subordinated notes (the “Convertible Notes”), in which the Company received net proceeds of approximately $192,300, of which $24,100 was used to repay indebtedness under our then $300,000 credit facility (“the Senior Credit Facility”). The Convertible Notes, which represent unsecured general obligations subordinate in right of payment to certain other obligations, including the Senior Credit Facility and the senior subordinated notes, described below, are due in 2004, are convertible into the Company’s common stock at a conversion price of $43.82 (adjusted for the 10% stock dividend paid on January 11, 1999) and carry a 4.25% coupon. The remaining net proceeds from the Convertible Notes, together with borrowings under the Senior Credit Facility, were used to fund the acquisition of Flagstar Enterprises, Inc. on April 1, 1998. In fiscal 2000, the Company repurchased $3,000, aggregate principal amount of Convertible Notes for $2,500 in cash, including accrued interest thereon. The Company recognized an extraordinary gain on the early retirement of debt of $290, net of applicable taxes of $186 during fiscal 2000.

On March 4, 1999, the Company completed a private placement of $200,000 aggregate principal amount of 9.125% senior subordinated notes (the “Senior Subordinated Notes”) due 2009. The Company received net proceeds of $194,800, of which $190,000 was used to repay outstanding term loan balances under its Senior Credit Facility. The indenture relating to the Senior Subordinated Notes imposes certain restrictions on the Company’s ability (and the ability of its subsidiaries) to incur indebtedness, to an amount not greater than the senior debt outstanding when the Company issued the senior Notes, less any contractually required permanent reductions, pay dividends on, redeem or repurchase capital stock, make restricted payments (as defined in the agreement) in excess of $75,000 (as of January 31, 2002, the Company has made approximately $25,000 in restricted payments),make investments, incur liens on assets, sell assets other than in the ordinary course of business, or enter into certain transactions with affiliates. The Senior Subordinated Notes represent unsecured general obligations subordinate in right of payment to the Company’s senior indebtedness, including its Senior Credit Facility.

The Company concluded amending and restating its Senior Credit Facility on January 31, 2002 and secured a $100,000 lenders’ commitment under a revolving credit facility. The amended credit facility includes a letter of credit sub-facility, and changed the maturity date of the Senior Credit Facility to December 14, 2003, extendable to November 15, 2006, provided certain convenants are met by the Company. The amended Senior Credit Facility is collateralized by certain restaurant property deeds of trust, with a carrying value of $218,200 as of January 31, 2002. The Senior Credit Facility was amended and structured to provide specific targets and objectives as established by the Company’s strategic plan, and to provide flexibility as the Company’s targets are exceeded.

The amended and restated Senior Credit Facility contains the following covenants, among others:

• Capital expenditures – the Company is permitted to spend on targeted restaurant development as specified in the Company’s strategic plan.

• Sale of assets – the credit agreement permits the Company to divest restaurants, outside of the collateral pool, as it deems appropriate in order to balance its restaurant portfolio as well as to achieve strategic direction in any given market. The Senior Credit Facility permits the Company to invest proceeds from these sales back into the business within specified timelines.

• Additional indebtedness – the amended credit agreement, consistent with previous amendments and restatements, restricts the Company from incurring new indebtedness.

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

• Interest rate – the amended credit agreement will charge interest on the lower of LIBOR, or Prime Rate, plus applicable margins based on the Company’s leverage ratio.

• Repurchases of Debt and Common Stock – the amended and restated Senior Credit Facility contains provisions that allow the Company to purchase up to $10,000 of convertible subordinated notes but it restricts the Company from repurchasing the Company’s common stock.

The Company’s Senior Credit Facility, consistent with previous amendments and restatements, contains restrictive convenants, which include a minimum EBITDA requirement, minimum fixed charge coverage ratio, minimum consolidated tangible net worth requirements and maximum leverage ratios and capital expenditures.

Long-term debt matures in fiscal years ending after January 31, 2001 as follows:

Fiscal Year:
2003	$	—
2004		—
2005		159,205
2006		—
2007		—
Thereafter		200,000
	$	359,205

Note 12 — Other Long-Term Liabilities

Other long-term liabilities consist of the following:

	2002		2001
Store closure reserves	$	38,161	$	44,821
Self-insurance reserves		30,459		30,828
Other		23,144		23,340
	$	91,764	$	98,989

The Company presently self-insures for its primary workers’ compensation and general liability insurance exposures not covered by its stop-loss policy. A total of $35,454 and $36,080 was accrued as of January 31, 2002 and 2001, respectively, representing the current and long-term portions of the net present value of an independent actuarial valuation of both Company’s workers’ compensation and general liability claims. These amounts are net of a present value discount of $5,800 and $4,700 in fiscal 2002 and 2001, respectively.

Note 13 — Stockholders’ Equity

During the third quarter of fiscal 1999, the Company’s Board of Directors authorized the purchase of up to five million shares of the Company’s common stock. As of January 31, 2002, the Company had repurchased 1,585,000 shares of common stock for $10,406, at an average price of $6.53 per share.

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

Note 14 — Fair Value of Financial Instruments

The following table presents information on the Company’s financial instruments:

	2002				2001
		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	24,642	$	24,642	$	16,860	$	16,860
Notes receivable		21,107		9,713		25,231		14,247
Long-term investments		—		5,424		—		6,758
Financial liabilities:
Long-term debt, including current portion	$	359,205	$	340,390	$	527,725	$	352,425

The fair value of cash and cash equivalents approximates their carrying amount due to their short maturity. The estimated fair value 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 investments was determined based on the closing stock price times the number of shares held or, for the warrants, the closing stock price minus the exercise price times the number of warrants. 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 and using market quotes for the Company’s Senior Subordinated Notes and Convertible Notes.

Note 15 — Related Party Transactions

Certain members of management, the Board of Directors, and the Karcher family are franchisees of the Company. Additionally, these franchisees regularly purchase food and other products from the Company on the same terms and conditions as other franchisees.

In fiscal 1994, the Chairman Emeritus was granted future retirement benefits for past services consisting principally of payments of $200 per year for life and supplemental health benefits, which had a net present value of $1,700 as of that date. This amount was computed using certain actuarial assumptions, including a discount rate of 7%. A total of $827 and $882 remained accrued in other long-term liabilities as of January 31, 2002, and 2001, respectively. The Company anticipates funding these obligations as they become due.

The Company leases various properties, including its previous corporate headquarters, a distribution facility and three restaurants from the Chairman Emeritus. Included in capital lease obligations were $911 and $1,785, representing the present value of lease obligations related to these various properties at January 31, 2002 and 2001, respectively. Lease payments under these leases for fiscal 2002, 2001 and 2000 amounted to $1,661, $1,500, and $1,500, respectively. This was net of sublease rentals of $142, $161 and $161 in fiscal 2002, 2001 and 2000, respectively.

The Company has several leases with wholly owned subsidiaries of Fidelity National Financial, Inc. (“FNF”), of which the chairman of the board of the Company is also chairman of the board, for point-of-sale equipment, corporate office facility, and expenses associated with the Company’s leased aircraft. The Company paid $6,064 and $6,421 and $2,841 in fiscal 2002, 2001 and 2000 respectively to FNF under these lease agreements. Additionally, the Company paid an entity formerly invested in by FNF commissions of $60 and $6,959 in fiscal 2002 and 2001 relating to the sale of certain restaurant properties during the year.

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

In fiscal 2001 the Company entered into an agreement with an a wholly-owned subsidiary of FNF to assist in the disposition of surplus real estate properties and negotiate the termination of leases for closed restaurants. The affiliate is paid a fee for each property sold or each lease terminated. The Company paid this affiliate $329 and $58 during fiscal 2002 and 2001, respectively. The company also paid $1,216 in the current year for escrow and title fees on the sale of restaurant properties and the establishment of mortgages on properties for collateral on the Senior Credit Facility.

In July 2001, the Company’s Board of Directors approved the adoption of CKE Restaurants, Inc. Employee Stock Purchase Loan Plan and the Non-Employee Director Stock Purchase Loan Program (collectively the “Programs”). The purpose of the Programs is to provide key employees and directors with further incentive to maximize stockholder value. The Programs’ funds must be used to make private or open market purchase of Company common stock through a broker-dealer designated by the Company. All loans are full recourse and unsecured and have a 5 year term. However, they can be forgiven at the discretion of the Compensation Committee of the Board of Directors, of the Company. Interest accrues on the loans at a rate of 6.0% per annum, due at maturity. However, in the event that the stock is sold, transferred or pledged, the interest rate is adjusted to the prime rate plus 4%. These loans may be prepaid anytime without penalty. As of January 31, 2002, loans had been made in the amount of $4,239 to purchase 739,900 shares of the Company common stock at an average purchase price of $5.73 per share (which included 189,900 shares for $1,086 from SBRG (see Note 2). Through the third quarter fiscal 2002, these loans were classified as notes receivable. In January 2002 the Emerging Issues Task Force (“EITF”) issued EITF 02-1, “Classification of Assets Received In Exchange For Equity Instruments Granted to Other Than Employees”. This EITIF states that non-employee stock loans should be classified as contra equity. As such, the Company adopted EITF 02-1 and reclassified these loans to stockholders equity.

During fiscal years 2002, 2001 and 2000 the Company paid royalties to SBRG of $443, $621 and $810 respectively. With the acquisition of SBRG, the Company will no longer be required to pay these amounts.

The following restaurant sales transactions with affiliates occurred:

	2002				2001				2000
	Proceeds		Gain		Proceeds		Gain		Proceeds		Gain
Affiliate
Former CEO and member of the board of directors of the Company	$	12,080	$	6,300	$	4,192	$	1,600		—		—
Relative of member of the board of directors of the Company	$	4,100	$	2,500		—		—	$	14,059	$	12,208

Finally, during fiscal years 2002, 2001, and 2000 the Company reported food service revenue from Rally’s of $1,652, $3,634, and $3,781, respectively. Rally’s restaurants are owned by Checkers (see Note 8).

Note 16 — Franchise and License Operations

Franchise arrangements generally provide for initial fees and continuing royalty payments to the Company based upon a percentage 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 services required of the Company are complete and the restaurants covered by these agreements commence operations.

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

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 generally required to pay related occupancy costs which include maintenance, insurance and property taxes.

Revenue from franchised and licensed restaurants consist of the following:

	2002		2001		2000
Foodservice	$	145,733	$	100,717	$	80,094
Royalties		64,644		59,632		52,692
Equipment sales		13,231		23,461		27,876
Rental income		36,001		20,645		10,916
Initial fees and other		4,134		10,825		3,800
	$	263,743	$	215,280	$	175,378

Operating costs and expenses for franchised and licensed restaurants consist of the following:

	2002		2001		2000
Foodservice	$	142,353	$	98,439	$	78,881
Occupancy and other operating expenses		49,602		33,971		28,241
Equipment purchases		11,409		27,074		21,006
	$	203,364	$	159,484	$	128,128

Note 17 — Interest Expense

Interest expense consists of the following:

	2002			2001			2000
Notes payable and Senior Credit Facility	$	(16,601	)	$	(30,848	)	$	(26,674	)
Senior Subordinated Notes		(18,952	)		(18,909	)		(16,880	)
Capital lease obligations		(9,575	)		(10,204	)		(11,570	)
Convertible Notes		(7,697	)		(7,537	)		(7,509	)
Closed Store Reserve and Other		(4,834	)		(3,043	)		(650	)
	$	(57,659	)	$	(70,541	)	$	(63,283	)

Note 18 — Other Expense, Net

Other income (expense), net consists of the following:

	2002			2001			2000
Interest income	$	1,986		$	1,452		$	2,615
Bad debt expense on notes receivable		(4,095	)		(988	)		(1,218	)
Gain (loss) from long-term investments		2,054			510			(39,302	)
Other		(533	)		(3,703	)		(9,327	)
	$	(588	)	$	(2,729	)	$	(47,232	)

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

Note 19 — Income Taxes

Income tax expense (benefit) consists of the following:

	2002			2001			2000
Current:
Federal	$	(3,100	)	$	(26,154	)	$	10,883
State		1,862			—			1,285
Foreign		654			—			—
		(584	)		(26,154	)		12,168
Deferred:
Federal		—			11,445			(26,353	)
State		—			3,561			(3,682	)
		—			15,006			(30,035	)
	$	(584	)	$	(11,148	)	$	(17,867	)

Total income tax benefit for the years ended January 31, 2002, 2001 and 2000 was allocated as follows:

	2002			2001			2000
Income (loss) from continuing operations	$	(584	)	$	(11,148	)	$	(18,053	)
Extraordinary gain		—			—			186
	$	(584	)	$	(11,148	)	$	(17,867	)

A reconciliation of income tax expense (benefit) at the federal statutory rate of 35% to the Company’s provision for taxes on income is as follows:

	2002			2001			2000
Income taxes at statutory rate	$	(29,589	)	$	(71,841	)	$	(16,444	)
State income taxes, net of federal income tax benefit		(168	)		(6,467	)		(3,637	)
Work opportunity tax credits		(1,605	)		(1,500	)		(1,119	)
Alternative minimum tax		(3,100	)		5,800			—
Increase in valuation allowance		34,828			61,014			3,378
Other, net		(950	)		1,846			(45	)
	$	(584	)	$	(11,148	)	$	(17,867	)

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

Temporary differences and carryforwards gave rise to a significant amount of deferred tax assets and liabilities as follows:

	2002		2001
Deferred tax assets:
Impairment and closure reserves	$	49,523	$	32,573
Workers’ compensation reserve		10,961		10,928
Federal net operating losses		15,496		10,463
State net operating losses		7,621		9,674
Capitalized leases		8,416		9,135
Long-term investments		1,576		4,834
Goodwill amortization		15,083		4,494
Bad debt reserves		7,009		4,279
Insurance reserves		3,100		3,354
Other reserves		1,442		1,902
Accrued payroll		2,485		837
Other		1,513		4,552
		124,225		97,025
Alternative minimum tax credits		3,397		8,323
General business tax credits		6,458		3,955
Foreign tax credits		1,394		—
Less: valuation allowance		101,240		66,412
Total deferred tax assets		34,234		42,891
Deferred tax liabilities – depreciation		34,234		42,891
Net deferred tax asset (liability)	$	—	$	—

As a result of net operating losses in fiscal 2002 and 2001, the Company has recorded a valuation allowance of approximately $101,000 for its entire net deferred tax asset. The Company was able to carryback approximately $93,000 of these losses to previously filed income tax returns.

At January 31, 2002, the Company had federal net operating loss carryforwards (“NOL”) of approximately $44,000, expiring in varying amounts in the years 2021 through 2022. and state NOL carryforwards in the amount of approximately $109,000 expiring in varying amounts in the years 2006 through 2022. The Company has no net operating Loss carryforwards for alternative minimum tax purposes. Additionally, the Company has an alternative minimum tax credit carryforward (“AMT”) of approximately $3,400. The Company also has generated general business credit carryforwards in the amount of $6,458 expiring in varying amounts in the years 2019 through 2022 and foreign tax credits in the amount of $1,394 which expire in varying amounts in the years 2004 through 2006.

Note 20  –  Segment Information

The Company is engaged principally in developing, operating and franchising its Carl’s Jr. and Hardee’s quick-service restaurants, each of which is considered an operating segment that is managed and evaluated separately. Additionally, during the first quarter of fiscal 2002, the Company operated one chain that was held for sale, Taco Bueno, which was sold during the second quarter. The activity of the Taco Bueno chain, as well as certain parent company expenditures, is included in the “Other” segment. The Company considers its Carl’s Jr. and Hardee’s chains each to be a reportable segment. Management evaluates the performance of its segments and allocates resources to them based on several factors, of which

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

the primary measure is segment operating income or loss. General and administrative expenses are attributed to each segment based on Management’s analysis of the resources applied to each segment. Interest expense is allocated based on debt, if any, assumed during acquisitions, operating cash flows and capital expenditures. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 1.

	Carl’s Jr.		Hardee’s			Other			Total
2002
Revenue	$	704,561	$	690,471		$	43,095		$	1,438,127
Segment operating income (loss)		58,358		(70,258	)		(14,393	)		(26,293	)
Interest expense		6,338		41,276			10,045			57,659
Total assets		285,134		638,193			8,262			931,589
Capital expenditures		8,323		11,797			5,382			25,502
Depreciation and amortization		20,631		42,804			13,204			76,639
2001
Revenue	$	733,485	$	941,783		$	109,516		$	1,784,784
Segment operating income (loss)		73,869		(185,489	)		(20,374	)		(131,994	)
Interest expense		5,934		56,431			8,176			70,541
Total assets		356,266		766,611			84,660			1,207,537
Capital expenditures		28,892		33,514			12,274			74,680
Depreciation and amortization		28,317		63,495			15,169			106,981
2000
Revenue	$	714,495	$	1,170,834		$	104,744		$	1,990,073
Segment operating income (loss)		61,157		10,266			(8,368	)		63,055
Interest expense		6,642		49,311			7,330			63,283
Total assets		383,124		1,089,867			95,523			1,568,514
Capital expenditures		72,804		146,677			44,108			263,589
Depreciation and amortization		26,873		63,398			14,179			104,450

Note 21  –  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.

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 by management in 2003. Such benefits provided by the Company are immaterial.

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 907,500 shares of the Company’s common stock through payroll deductions.

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

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 2002, 2001 and 2000, 289,239, 524,660 and 338,417 shares, respectively, were purchased and allocated to employees, based upon their contributions, at an average price of $4.64, $3.49 and $10.15 per share, respectively. The Company contributed $495 or an equivalent of 94,362 shares for the year ended January 31, 2002, $1,103 or an equivalent of 333,092 shares for the year ended January 31, 2001 and $1,176 or an equivalent of 137,568 shares for the year ended January 31, 2000.

Stock Incentive Plans

The Company’s 2001 stock incentive plan was approved by the Company’s Board of Directors in September 2001. The 2001 plan has been established as a “broad based plan”, as defined by the New York Stock Exchange, whereby at least a majority of the options awarded under the 2001 plan must be awarded to employees of the Company who are not executive officers or directors, within the first three years of the plan’s existence. Awards granted to eligible employees under the 2001 plan are not restricted as to any specified form or structure, with such form, vesting and pricing provision determined by the compensation committee of Board of Directors. Options generally have a term of 10 years from the date of grant. Options are generally granted at a price equal to or greater than the fair market value of the underlying common stock on the date of grant. A total of 800,000 shares are available for grants of options or other awards under the 2001 plan. As of January 31, 2000, 240,800 options were outstanding under this plan with an exercise price of $8.39 per share.

The Company’s 1999 stock incentive plan was approved by stockholders in June 1999 and amended and again approved in June 2000. Awards granted to eligible employees under the 1999 plan are not restricted as to any specified form or structure, with such form, vesting and pricing provision determined by the compensation committee of Board of Directors. Options generally have a term of 10 years from the date of grant, except for five years from the date of grant in the case of incentive stock options granted 10% or greater shareholders of the Company. Operations are generally at a price equal to or greater than the fair market value of the underlying common stock on the date of grant, except that incentive stock options granted to 10% or greater shareholders of the Company may not be granted at less that 110% of the fair market value of the common stock on the date of grant. A total of 4,200,000 shares are available for grants of options or other awards under the amended 1999 plan, with such amount of available shares increased by 350,000 shares on the date of each annual meeting of shareholders. As of January 31, 2002, 3,898,777 million options were outstanding under this plan with exercise prices ranging from $2.14 per share to $18.13 per share.

Under the 1999 plan on January 3, 2001, the Company’s Chief Executive Officer and Chairman were each granted 375,000 stock options to purchase shares. These options vest as follows: the earlier of 7 years from date of grant or (i) 100,000 options vest upon the reduction below $100,000 of the aggregate outstanding balance or the Company’s Senior Credit Facility; (ii) 50,000 options vest upon consummation of any restructuring or refinancing of the Senior Credit Facility; (iii) 75,000 options vest upon the date which the closing price of the Company’s common stock has been $4.00 per share on any 10 of 20 consecutive trading days; (iv) 75,000 options vest upon the date which the Company’s common stock has been $6.00 per share on any 10 of 20 consecutive trading days; (v) 75,000 shares vest upon the date which the closing price of the Company’s common stock has been $8.00 per share on any 10 of 20 consecutive trading days. As of January 31, 2002, each of the vesting criteria had been met and all of these options were fully vested.

The Company’s 1994 stock incentive plan expired in April 1999. Options generally had a term of five years from the date of grant for the nonemployee directors and 10 years from the date of grant for employees, became exercisable at a rate of 33 1/3% per year following the grant date and were priced at the fair market value of the shares on the date of grant. A total of 6,352,500 shares were available for grants of options or other awards under this plan, of which stock 3,444,232 options were outstanding as of January 31, 2002, with exercise prices ranging from $3.72 per share to $36.65 per share.

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

The Company’s 1993 stock incentive plan was superseded by the 1994 plan, as discussed above. As of January 31, 2002, 82,700 stock options, with exercise prices ranging from $3.99 per share to $6.27 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 5,445,000 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 price of the 29,300 stock options outstanding as of January 31, 2002 under this plan is $4.27 per share.

In general, the Company’s stock incentive plans have a term of 10 years and vest over a period of 3 years.

Transactions under all plans are as follows:

	Shares		Weighted Average Exercise Price		Exercisable
Balance, January 31, 1999	5,367,186		$	19.47	3,064,429
Granted	1,830,300			16.66
Canceled	(798,006	)		33.38
Exercised	(181,671	)		8.28
Balance, January 31, 2000	6,217,809		$	17.19	3,986,469
Granted	2,420,850			2.99
Canceled	(530,060	)		18.92
Exercised	—			—
Balance, January 31, 2001	8,108,599		$	12.83	5,550,408
Granted	1,006,300			4.23
Canceled	(1,344,894	)		15.23
Exercised	(75,778	)		3.85
Balance, January 31, 2002	7,694,227		$	11.36	5,403,892

The following table summarizes information related to stock options outstanding and exercisable at January 31, 2002:

Options Outstanding								Options Exercisable
Range of Exercise Prices				(000’s) Shares Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	(000’s) Shares Exercisable	Weighted Average Exercise Price
$  2.14	to	$	2.63	1,293	$	2.61	8.87	828	$	2.63
2.92			3.31	1,618		3.14	8.72	299		3.31
3.38			8.39	1,289		6.84	4.69	1,028		6.53
9.30			16.25	1,316		15.07	5.25	1,309		15.08
16.63			23.68	1,633		20.42	5.53	1,393		20.81
24.38			36.65	547		31.07	5.78	547		31.07
$  2.14		$	36.65	7,696	$	11.36	6.59	5,404	$	13.99

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

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

estimated on the date of grant using the Black-Scholes option-pricing model, with the following assumptions used for grants in fiscal 2002, 2001 and 2000: annual dividends consistent with the Company’s current dividend policy, which resulted in payments of $0.00 per share in fiscal 2002, $0.04 per share in fiscal 2001 and $0.08 per share in fiscal 2000; expected volatility of 60% in fiscal 2002, 52% in fiscal 2001 and 50% in fiscal 2000; risk-free interest rates of 4.48% in fiscal 2002, 4.97% in fiscal 2001 and 6.69% in fiscal 2000; and an expected life of 5.38 years in fiscal 2002, 5.00 years in fiscal 2001 and 5.40 years in fiscal 2000. The weighted average fair value of each option granted during fiscal 2002, 2001 and 2000 was $2.41, $1.58 and $8.07, respectively. Had compensation expense been recognized for fiscal 2002, 2001 and 2000 grants for stock-based compensation plans in accordance with provisions of SFAS 123, the Company would have recorded net income (loss) and earnings (loss) per share of $(88,432), or $(1.55) per basic and diluted share in fiscal 2002; $203,000, or $(4.02) per basic and diluted share in fiscal 2001; and $35,200, or $(0.68) per basic share and diluted share in fiscal 2000.

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 22 — Supplemental Cash Flow Information

	2002			2001		2000
Cash paid for interest and income taxes are as follows:
Interest	$	48,224		$	68,251	$	50,009
Income tax paid and (refund received)		(32,313	)		130		15,193
Non-cash operating charges are as follows:
Provision for impairment of long-term investments	$	—		$	—	$	34,431
Write-off of Hardee’s acquisition-related assets		—			—		10,989
Write-off of capitalized software development cost		—			—		6,553
Write-off of deferred financing costs		4,146			1,807		3,565
Restructuring charges		—			—		2,058
Other, net		—			15,811		6,925
	$	4,146		$	17,618	$	64,521
Non-cash investing and financing charges are as follows:
Deferred gain on sales leaseback	$	4,269		$	884	$	—
Transfer of vacant restaurants to surplus property	$	1,175		$	41,644	$	—

Note 23 — Selected Quarterly Financial Data (Unaudited)

The following table presents summarized quarterly results:

	Quarter
	1st			2nd			3rd			4th
Fiscal 2002
Total revenue	$	470,556		$	340,969		$	325,457		$	301,145
Operating income (loss)		(15,480	)		(21,644	)		9,818			1,013
Net loss		(37,145	)		(36,769	)		(1,731	)		(8,311	)
Net loss per share — basic and diluted	$	(0.74	)	$	(0.73	)	$	(0.03	)	$	(0.16	)
Fiscal 2001
Total revenue	$	584,474		$	439,459		$	408,820		$	352,031
Operating income (loss)		22,811			(6,590	)		(31,827	)		(116,388	)
Net loss		(2,451	)		(13,930	)		(29,429	)		(148,306	)
Net loss per share — basic and diluted	$	(0.04	)	$	(0.28	)	$	(0.58	)	$	(2.94	)

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

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 2002 and 2001, which have 16-week accounting periods.

Fourth Quarter Adjustments

During the fourth quarter of fiscal 2002, the Company recorded facility action charges of $10,600. These charges, which were primarily non-cash in nature, consisted of (i) an impairment charge of $5,800, (ii) store closure expense and goodwill impairment, principally for Hardee’s restaurants that were formerly operated by a franchisee and for which the Company is the primary obligor on the leases, in the amount of $6,200, and (iii) net gains on the sale of restaurants to franchisees and surplus properties of $1,400.

During the fourth quarter of fiscal 2001, we recorded a repositioning charge of $93,300. This charge, which was primarily non-cash in nature, consisted of (a) a $19,100 restaurant closure reserve for approximately 80 Hardee’s and approximately 20 Carl’s Jr. restaurants that we have closed or plan to close, (b) an impairment charge of $76,800 for certain restaurants that we will close or for restaurants that we plan to continue to operate but for which the net book value is not supported by future estimated cash flows, (c) a credit for a net $11,300 gain on the sale of restaurants sold to franchisees and (d) a loss of $8,700 on the sale of Taco Bueno.

Note 24 — Commitments and Contingent Liabilities

In conjunction with the Senior Credit Facility, a letter of credit sub-facility in the amount of $75,000 was established (see Note 11). Several letters of credit are outstanding under this facility, which secure the Company’s potential workers’ compensation claims and general and health liability claims. The Company is required to provide a letter of credit each year based on its existing claims experience, or set aside a comparable amount of cash or investment securities in a trust account.

The Company’s standby letter of credit agreements with various banks expire as follows:

March 2002	$  6,651
April 2002	4,300
July 2002	4,821
November 2002	12,788
December 2002	5,744
February 2003	20,816
	$55,120

In fiscal 1996, the Company sold certain of its Carl’s Jr. franchise notes receivable, with recourse, to an independent third party. In addition, the Company entered into a limited term guarantee with certain independent third parties during fiscal 1997 on behalf of a Carl’s Jr. franchisee 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 $4,719 under these guarantees as of January 31, 2002.

In fiscal 2000, fiscal 2001 and fiscal 2002, in connection with the sale of restaurants to qualified franchisees, the Company subleased restaurants to these franchisees and it remains as the primary lessee. The Company accounts for the sublease payments received as franchising rental revenue and the payments on the leases as rental expense in franchise expense. The present value of the lease obligations under the master leases’ primary term remaining is $40,200. Franchisees may, from time to time, experience financial hardship and may cease payment on the sublease obligation to the Company. The present value of the exposure to the Company from franchisees characterized under financial hardship is $13,900.

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Notes to Consolidated Financial Statements (Continued)

(Dollars in thousands, except per share amounts)

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 is also the subject of complaints or allegations from employees, former employees and franchisees from time to time. On October 3, 2001, an action was filed by Adam Huizar and Michael Bolden, individually and on behalf of all others similarly situated, in the Superior Court of the State of California, Los Angeles County, seeking class action status and alleging violations of California wage and hour laws. On April 5, 2002, a similar action was filed by Mary Jane Amberson, individually and on behalf of others similarly situated, in the Superior Court of the State of California, Alameda County. The complaints allege that salaried restaurant management personnel at the Company’s Carl’s Jr. restaurants in California were improperly classified as exempt from California overtime laws, thereby depriving them of overtime pay. The complaints seek damages in an unspecified amount, injunctive relief, prejudgment interest, costs and attorneys’ fees. The Company’s management believes its employee classifications are appropriate, that it complies with state and federal wage and hour laws and plans to vigorously defend these actions. The Company believes that, based in part on advice of legal counsel, 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.

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Schedule II — Valuation and Qualifying Accounts

For the fiscal years ended January 31, 2002, 2001 and 2000

(Dollars in thousands)	Allowance for Doubtful Accounts
Balance at January 31, 1999		15,554
Charges to operations		1,485
Deductions		(6,643	)
Balance at January 31, 2000	$	10,396
Charges to operations		8,602
Deductions		(2,876	)
Balance at January 31, 2001	$	16,122
Charges to operations		10,641
Deductions	$	(8,983	)
Balance at January 31, 2002	$	17,780	(1)
(1)Reflected on the balance sheet as:
Allowance on notes receivable	$	11,078
Allowance on accounts receivable	$	6,702
Total	$	17,780

See accompanying independent auditors’ report.

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Exhibit Index

Exhibits	Description
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, filed as exhibit 3-2 to the Company’s Form 10-K Annual Report for the fiscal year ending January 26, 1998, and is hereby incorporated by reference.
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 14, 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, filed as exhibit 4.1 to the Company’s Form 10-K Annual Report for fiscal year ended January 26, 1998, and is hereby incorporated by reference.
4-2	Form of Note (included in exhibit 4.1).
4-4	Indenture, dated as of March 4, 1999, by and among the Company, its subsidiary guarantors and Chase Manhattan Bank and Trust Company, N.A., as Trustee, filed as exhibit 4.1 to the Company’s Current Report on Form 8-K dated February 25, 1999, and is hereby incorporated by reference.
4-5	Form of Note (included in exhibit 4.4).
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. 1999 Stock Incentive Plan, incorporated herein by reference to exhibit 4-1 to the Registrant’s Form S-8 Registration Statement Number 333-83601.(2)
10-6	CKE Restaurants, Inc. 1994 Employee Stock Purchase Plan, as amended, filed as exhibit 10-22 to the Company’s Form 10-K Annual Report for fiscal year ended January 27, 1997, and is hereby incorporated by reference.(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., filed as exhibit 10-8 to the Company’s Form 10-K Annual Report for fiscal year ended January 26, 1998, and is hereby incorporated by reference.(2)
10-9	Employment Agreement dated as of April 9, 1999, by and between the Company and William P. Foley, II, filed as exhibit 10-1 to the Company’s Form 10-Q Quarterly Report for the quarterly period ended May 17, 1999, and is hereby incorporated by reference.(2)

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Exhibits	Description
10-12	Employment Agreement dated as of April 9, 1999, by and between the Company and Robert W. Wisely, filed as exhibit 10-4 to the Company’s Form 10-Q Quarterly Report for the quarterly period ended May 17, 1999, and is hereby incorporated by reference.(2)
10-14	Employment Agreement dated as of April 9, 1999, by and between the Company and Andrew F. Puzder, filed as exhibit 10-6 to the Company’s Form 10-Q Quarterly Report for the quarterly period ended May 17, 1999, and is hereby incorporated by reference.(2)
10-15	Employment Agreement dated as of April 9, 1999, by and between the Company and John J. Dunion, filed as exhibit 10-7 to the Company’s Form 10-Q Quarterly Report for the quarterly period ended May 17, 1999, and is hereby incorporated by reference.(2)
10-16	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.
10-17	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.*
10-18	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.
10-19	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, filed as exhibit 10-31 to the Company’s Form 10-K Annual Report for the fiscal year ended January 27, 1997, and is hereby incorporated by reference.
10-25	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.*
10-26	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.*
10-27	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.*
10-28	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.*
10-29	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, filed as exhibit 10-35 to the Company’s Form 10-K Annual Report for the fiscal year ended January 26, 1998, and is hereby incorporated by reference.*
10-30	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.*
10-31	Third Amended and Restated Credit Agreement, dated as of November 24,1999, by and between the Company and Paribas, as agent, and the Lenders party thereto, filed as exhibit 10-8 to the Company’s form 10-Q Quarterly Report for the quarterly period ended November 1, 1999, and is hereby incorporated by reference.*
10-32	Amendment No. 1 to Third Amended and Restated Credit Agreement, dated as of April 26, 2000, by and between the Company and Paribas, as agent, and the Lenders party thereto, filed as exhibit 10-32 to the Company’s form 10-K Annual Report for the annual period ended January 31, 2000, and is hereby incorporated by reference.

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Exhibits	Description
10-33	Green Burrito Master Franchise Agreement dated June 5, 2000 by and among the Company and Green Burrito Grill Franchise Corporation and Santa Barbara Restaurant Group, Inc. and is hereby incorporated by reference.*
10-34	Amendment to Employment Agreement dated as of September 6, 2000 by and Between the Company and C. Thomas Thompson, and is hereby incorporated by reference.*(2)
10-35	Amendment No. 2 to Third Amended and Restated Credit Agreement and Limited Waiver dated September 28, 2000 by and between the Company and BNP Paribas, as Agent for the Lenders, and is hereby incorporated by reference.*
10-38	First Amendment to Master Franchise Agreement dated December 29, 2000 by and among the Company and Green Burrito Grill Franchise Corporation and Santa Barbara Restaurant Group, Inc. filed as exhibit 10-38 to the Company’s Form 10-K Annual Report for the annual period ended January 29, 2001, and is hereby incorporated by reference.
10-39	Amendment to Employment Agreement as of January 3, 2001 by and between the Company and Andrew F. Puzder filed as exhibit 10-39 to the Company’s Form 10-K Annual Report for the annual period ended January 29, 2001, and is hereby incorporated by reference.
10-40	Amendment No. 3 to Third Amended and Restated Credit Agreement and Limited Waiver dated January 29, 2001 by and between the Company and BNP Paribas, a bank organized under the laws of France acting through its Chicago branch (as successor in interest to Paribas), as Agent, filed as exhibit 10-40 to the Company’s Form 10-K Annual Report for the annual period ended January 29, 2001, and is hereby incorporated by reference.
10-41	Stock Purchase Agreement dated March 13, 2001 by and among the Company and JP Acquisition Fund III, filed as exhibit 10-41 to the Company’s Form 10-K Annual Report for the annual period ended January 29, 2001, and is hereby incorporated by reference.
10-42	Amendment No. 4 to Third Amended and Restated Credit Agreement and Limited Waiver dated April 13, 2001 by and between the Company and BNP Paribas, a bank organized under the laws of France acting through its Chicago branch (as successor in interest to Paribas), as Agent, filed as exhibit 10-42 to the Company’s Form 10-K Annual Report for the annual period ended January 29, 2001, and is hereby incorporated by reference.
10-43	CKE Restaurants, Inc. July 23, 2001 Employee Loan and Stock Purchase Agreement, filed as exhibit 10-43 to the Company’s Form 10-Q Quarterly Report for the quarterly period ended August 13, 2001, and is hereby incorporated by reference.*
10-44	CKE Restaurants, Inc. July 23, 2001 Non-employee Director Loan and Stock Purchase Agreement, filed as exhibit 10-44 to the Company’s Form 10-Q Quarterly Report for the quarterly period ended August 13, 2001, and is hereby incorporated by reference.*

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Notes to Consolidated Financial Statements

(Dollars in thousands, except per share amounts)

Exhibits	Description
10-45	Stock Purchase Agreement by and between the Purchasers Set Forth on Exhibit A, Santa Barbara Restaurant Group, Inc., and CKE Restaurants, Inc. for the Purchase of 189,900 Shares of Common Stock of CKE Restaurants, Inc. dated August 20, 2001, filed as exhibit 10-45 to the Company’s Form 10-Q Quarterly Report for the quarterly period ended August 13, 2001, and is hereby incorporated by reference.*
10-46	Employment Agreement dated as of December 20, 2001, by and between the Company and Theodore Abajian.(1)(2)
10-47	Fourth Amended and Restated Credit Agreement and Limited Waiver, dated as of January 31, 2002, by and between the Company and BNP Paribas, a bank organized under the laws of France acting through its Chicago branch (as successor in interest to Paribas, as Agent, and the Lenders party hereto.(1)
10-48	CKE Restaurants, Inc. 2001 Stock Incentive Plan, Incorporated herein by reference to exhibit 4.1 to the Registrant’s Form S-8 Registration Statement Number 333-76884.
12-1	Computation of Ratios.(1)
21-1	Subsidiaries of Registrant.(1)
23-1	Consent of KPMG LLP independent auditors.(1)

* 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.

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79

EX-10.46

                              EMPLOYMENT AGREEMENT

              THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into this
20th day of December, 2001 by and between CKE RESTAURANTS, INC., a Delaware
corporation (the "Company"), and THEODORE ABAJIAN (the "Employee"). In
consideration of the mutual covenants and agreements set forth herein, the
parties agree as follows:

     1. Effective Date. This Employment Agreement is expressly conditioned upon
        --------------
and shall become effective only upon the termination of Employee's Employment
Agreement with Santa Barbara Restaurant Group, Inc. ("SBRG") dated September 1,
2001 ("the Effective Date") at the closing of the merger agreement between SBRG
and the Company. Employee acknowledges and agrees that his SBRG Employment
Agreement shall be terminated as of the closing of the merger agreement between
the Company and SBRG and that such termination will not result in any payment
becoming due and owing to Employee under the SBRG Employment Agreement
including, without limitation, paragraphs 7 and 8 thereof. Notwithstanding this
provision, Employee shall be entitled to continue his participation in the
Employee Stock Purchase Plan and receive his bonus as provided in Paragraph 4
(e) of said agreement for the year ending December 31, 2001.

     2. Employment and Duties. Subject to the terms and conditions of this
        ---------------------
Agreement, the Company employs the Employee to serve in an executive and
managerial capacity as Chief Administrative Officer (or such other title as the
Company may designate), and the Employee accepts such employment and agrees to
perform such reasonable responsibilities and duties commensurate with the
aforesaid positions as directed by the Company's Board of Directors, or as set
forth in the Articles of Incorporation and the Bylaws of the Company.

     3. Term. The term of this Agreement shall commence on the Effective Date
        ----
and shall continue until September 1, 2004, subject to prior termination as set
forth in Section 7, below (the "Term"). The Term may be extended at any time
upon mutual written agreement of the parties.

     4. Salary. During the Term, the Company shall pay the Employee a minimum
        ------                                                        -------
base annual salary, before deducting all applicable withholdings, of $250,000
- ------------------
per year, payable at the times and in the manner dictated by the Company's
standard payroll policies. Such minimum base annual salary may be periodically
reviewed and increased at the discretion of the Compensation Committee of the
Board of Directors to reflect, among other matters, cost of living increases and
performance results.

     5. Other Compensation and Fringe Benefits. In addition to any executive
        --------------------------------------
bonus, pension, deferred compensation and stock option plans which the Company
may from time to time make available to the employee upon mutual agreement, the
Employee shall be entitled to the following:




              (a)  The standard Company benefits enjoyed by the Company's other
top executives.

              (b)  Payment by the Company of the Employee's initiation and
membership dues in all social and/or recreational clubs as deemed necessary and
appropriate by the Employee to maintain various business relationships on behalf
of the Company; provided, however, that the Company shall not be obligated to
pay for any of the Employee's personal purchases and expenses at such club.

              (c)  Provision by the Company during the Term and any extensions
thereof to the Employee and his dependents of medical and other insurance
coverage including reimbursement of out-of-pocket medical, dental and vision
care expenses subject to an annual maximum reimbursement of $25,000.

              (d)  Provision by the Company of supplemental disability insurance
sufficient to provide two-thirds of the Employee's pre-disability minimum base
annual salary for a period of two years.

              (e)  Payment of an annual bonus for the fiscal year ended 2003 and
subsequent years ("Annual Bonus") in accordance with the bonus plan offered to
other executive level management employees.

              (f)  Payment of necessary and reasonable relocation expenses to
move to Santa Barbara, California including payment of the reasonable expenses
to sell Employee's present home such as real estate commissions and closing
cost; and moving expenses.

     The Company shall deduct from all compensation payable under this Agreement
to the Employee any taxes or withholdings the Company is required to deduct
pursuant to state and federal laws or by mutual agreement between the parties.

     6. Vacation. For and during each year of the Term and any extensions
        --------
thereof, the Employee shall be entitled to reasonable paid vacation periods
consistent with his positions with the Company. In addition, the Employee shall
be entitled to such holidays consistent with the Company's standard policies or
as the Company's Board of Directors may approve.

     7. Expense Reimbursement. In addition to the compensation and benefits
        ---------------------
provided herein, the Company shall, upon receipt of appropriate documentation,
reimburse the Employee each month for his reasonable travel, lodging,
entertainment, promotion and other ordinary and necessary business expenses.




     8. Termination.
        -----------

              (a) For Cause. The Company may terminate this Agreement
                  ---------
immediately for cause upon written notice to the Employee, in which event the
Company shall be obligated only to pay the Employee that portion of the minimum
base annual salary due him through the date of termination. Cause shall be
limited to (i) the failure to perform duties consistent with a commercially
reasonable standard of care; (ii) the willful neglect of duties; (iii) criminal
or other illegal activities; or, (iv) a material breach of this agreement.

              (b) Without Cause. Either party may terminate this Agreement
                  -------------
immediately without cause by giving written notice to the other. If the company
terminates under this Section 8(b), then it shall be obligated to pay to the
Employee an amount equal to the sum of the Employee's minimum base salary in
effect as of the date of termination multiplied by the number two. Such payment
to be made in a lump sum on or before the fifth day following the date of
termination, or as otherwise directed by the Employee. In addition, if the
Company terminated under this Section 8(b), the Company shall maintain in full
force and effect for the continued benefit of the Employee for one year, all
employee benefit plans (except for the Company's stock option plans) and
programs in which the Employee was entitled to participate immediately prior to
the date of termination, provided that the Employee's continued participation is
possible under the general terms and provisions of such plans and programs. In
the event that the Employee's participation in any such plan or program is
prohibited, the Company shall, at its expense, arrange to provide the Employee
with benefits substantially similar to those which the Employee would otherwise
have been entitled to receive under such plans and programs from which his
continued participation is prohibited. If the Employee terminates under this
Section 8(b), then the Company shall only be obligated to pay the Employee the
minimum annual base salary due him through the date of termination.

              (c) Disability. If the employee fails to perform his duties
                  ----------
hereunder on account of illness or other incapacity for a period of six
consecutive months, then the Company shall have the right upon written notice to
the Employee to terminate this Agreement without further obligation by paying
the Employee the minimum base annual salary, without offset, for the remainder
of the Term in a lump sum or as otherwise directed by the Employee.

              (d) Death. If the Employee dies during the Term, then this
                  -----
Agreement shall terminate immediately and the Employee's legal representatives
shall be entitled to receive the minimum annual base salary for the remainder of
the Term in a lump sum or as otherwise directed by the Employee's legal
representative. Executive's outstanding CKE options will immediately vest in
full and be exercisable for a period of 90 days from Executive's death.





              (e) Mitigation. The Employee shall not be required to mitigate the
                  ----------
amount of any payment provided for in this Section 8 by seeking other employment
or otherwise, nor shall any compensation or other payments received by the
Employee after the date of termination reduce any payments due under this
Section 8.

              (f) Effect of Termination. Termination for any reason or for no
                  ---------------------
reason shall not constitute a waiver of the Company's rights under this
Agreement nor a release of the Employee from any obligation hereunder except his
obligation to perform his day-to-day duties as an employee.

     9  Severance Payment.
        -----------------

              (a) The Employee may terminate his employment hereunder for "Good
Reason," which for purposes of this Agreement shall mean a "change in control of
the Company." A "change in control of the Company" shall, for purposes of this
Agreement, be deemed to have occurred if (i) there shall be consummated, except
as hereinafter provided (x) any consolidation or merger of the Company in which
the Company is not the continuing or surviving corporation, or pursuant to which
shares of the Company's Common Stock would be converted into cash, securities or
other property, other than a merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock of the surviving corporation immediately
after the merger, or (y) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company, or (ii) the stockholders of the Company approve
any plan or proposal for the liquidation or dissolution of the Company, or (iii)
any "person" (as that term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934 (the "Exchange Act")), other than the Company or any
"person" who, on the date hereof, is a director or officer of the Company, is or
becomes the "beneficial owner"(as defined in Rule 13d-3 under the Exchange Act),
of securities of the Company representing 30% or more of the combined voting
power of the Company's then outstanding securities, or (iv) during any period of
two (2) consecutive years during the Term or any extensions thereof,
individuals, who, at the beginning of such period, constitute the Board of
Directors, cease for any reason to constitute at least a majority thereof,
unless the election of each director who was not a director at the beginning of
such period has been approved in advance by directors representing at least
two-thirds of the directors then in office who were directors at the beginning
of the period. Notwithstanding anything in this Agreement to the contrary, a
"change in control of the Company" shall not have occurred if officers and/or
directors (or affiliated entities thereof) of the Company at the time of a
transaction described under item (i), (ii) or (iii) above own, immediately after
such transaction, 15% or more of the entity acquiring the stock or assets of the
Company as provided above.

              (b) If the Employee terminates his employment for Good Reason, or,
if after a change in control of the Company, the Company shall terminate the
Employee's




employment in breach of this Agreement or pursuant to Section 8(b), then, in
lieu of and notwithstanding Section 8 above:

                  (i)   the Company shall pay the Employee his minimum base
annual salary due him through the date of termination;

                  (ii)  in lieu of any further salary and bonus payments or
other payments due to the Employee for periods subsequent to the date of
termination, the Company shall pay, as severance to the Employee, an amount
equal to the sum of (i) the Employee's minimum base salary in effect as of the
date of termination multiplied by the number of years (including partial years)
remaining in the Term or the number two (2), whichever is greater, plus (ii), an
annual bonus equal to 100% of Employee's minimum annual base salary multiplied
by the number of years remaining in the contract for which Employee has not, as
yet, received an annual bonus or the number (2), whichever is greater, such
payment to be made in a lump sum on or before the fifth day following the date
of termination;

                  (iii) all options granted to the Employee which had not vested
as of the date of termination hereunder shall vest immediately; and

                  (iv)  the Company shall maintain in full force and effect, for
the continued benefit of the Employee for the number of years (including partial
years) remaining in the Term, all employee benefit plans (except for the
Company's stock option plans) and programs in which the Employee was entitled to
participate immediately prior to the date of termination, provided that the
Employee's continued participation is possible under the general terms and
provisions of such plans and programs. In the event that the Employee's
participation in any such plan or program is prohibited, the Company shell, at
its expense, arrange to provide the Employee with benefits substantially similar
to those which the Employee would otherwise have been entitled to receive under
such plans and programs form which his continued participation is prohibited.

              (c) The Employee shall not be required to mitigate the amount of
any payment provided for in this Section 9 or Section 8(b), above, by seeking
other employment or otherwise, nor shall any compensation or other payments
received by the Employee after the date of termination reduce any payments due
under this Section 9 or Section 8(b), above.

     10. Non-Delegation of Employee's Rights. The obligations, rights and
         -----------------------------------
benefits of the Employee hereunder are personal and may not be delegated,
assigned or transferred in any manner whatsoever, nor are such obligations,
rights or benefits subject to involuntary alienation, assignment or transfer.

     11. Confidential Information. The Employee acknowledges that in his
         ------------------------
capacity as an employee of the Company he will occupy a position of trust and
confidence and he further acknowledges that he will have access to and learn
substantial information about




the Company and its operations that is confidential or not generally known in
the industry including, without limitation, information that relates to
purchasing, sales, customers, marketing, and the Company's financial position
and financing arrangements. The Employee agrees that all such information is
proprietary or confidential, or constitutes trade secrets and is the sole
property of the Company. The Employee will keep confidential, and will not
reproduce, copy or disclose to any other person or firm, any such information or
any documents or information relating to the Company's methods, processes,
customers, accounts, analyses, systems, charts, programs, procedures,
correspondence or records, or any other documents used or owned by the Company,
nor will the Employee advise, discuss with or in any way assist any other
person, firm or entity in obtaining or learning about any of the items described
in this Section 11. Accordingly, the Employee agrees that during the Term and at
all times thereafter he will not disclose, or permit or encourage anyone else to
disclose, any such information, nor will he utilize any such information, either
along or with others, outside the scope of his duties and responsibilities with
the Company.

     12. Non-Competition During Employment Term. The Employee agrees that,
         --------------------------------------
during the term and any extensions thereof, he will devote substantially all his
business time and effort, and give undivided loyalty, to the Company. He will
not engage in any way whatsoever, directly or indirectly, in any business that
is competitive with the Company or its affiliates, nor solicit, or in any other
manner work for or assist any business which is competitive with the Company or
its affiliates. In addition, during the Term and any extensions thereof, the
Employee will undertake no planning for or organization of any business activity
competitive with the work he performs as an employee of the Company, and the
Employee will not combine or conspire with any other employee of the Company or
any other person for the purpose of organizing any such competitive business
activity.

     13. Non-Competition After Employment Term. The parties acknowledge that as
         -------------------------------------
an executive officer of the Company the Employee will acquire substantial
knowledge and information concerning the business of the Company as a result of
his employment. The parties further acknowledge that the scope of business in
which the Company is engaged as of the Effective Date is national and very
competitive and one in which few companies can successfully compete. Competition
by an executive officer such as the Employee in that business after this
Agreement is terminated would severely injure the Company. Accordingly, for a
period of one year after this Agreement is terminated or the Employee leaves
the employment of the Company for any reason whatsoever, except as otherwise
stated herein below, the Employee agrees (i) not to become an employee,
consultant, advisor, principal, partner or substantial shareholder of any firm
or business that in any way competes with the Company in any of its
presently-existing or then-existing products and markets; and (ii) not to
solicit any person or business that was at the time of such termination and
remains a customer or prospective customer, or an employee of the Company.
Notwithstanding any of the foregoing provisions to the contrary, the Employee
shall not be subject to the restrictions set forth in this Section 13 under the
following circumstances:





              (a) If the Employee's employment with the Company is terminated by
the Company without cause;

              (b) If the Employee's employment with the Company is terminated as
a result of the Company's unwillingness to extend the Term of this Agreement;
or,

              (c) If the Employee leaves the employment of the Company for Good
Reason pursuant to Section 8, above.

     14. Return of Company Documents. Upon termination of this Agreement,
         ---------------------------
Employee shall return immediately to the Company all records and documents of or
pertaining to the Company and shall not make or retain any copy or extract of
any such record or document.

     15. Improvements and Inventions. Any and all improvements or inventions,
         ---------------------------
which the Employee may make or participate in during the period of his
employment, shall be the sole and exclusive property of the Company. The
Employee will, whenever requested by the Company, execute and deliver any and
all documents which the Company shall deem appropriate in order to apply for and
obtain patents for improvements or inventions or in order to assign and convey
to the Company the sole and exclusive right, title and interest in and to such
improvements, inventions, patents or applications.

     16. Actions. The parties agree and acknowledge that the rights conveyed by
         -------
this Agreement are of a unique and special nature and that the Company will not
have an adequate remedy at law in the event of a failure by the Employee to
abide by its terms and conditions nor will money damages adequately compensate
for such injury. It is, therefore, agreed between the parties that, in the event
of a breach by the Employee of any of his obligations contained in this
Agreement, the Company shall have the right, among other rights, to damages
sustained thereby and to obtain an injunction or decree of specific performance
from any court of competent jurisdiction to restrain or compel the Employee to
perform as agreed herein. The Employee agrees that this Section 17 shall survive
the termination of his employment and he shall be bound by its terms at all
times subsequent to the termination of his employment for so long a period as
Company continues to conduct the same business or businesses as conducted during
the Term or any extensions thereof. Nothing herein contained shall in any way
limit or exclude any other right granted by law or equity to the Company.

     17. Amendment. This Agreement contains, and its terms constitute, the
         ---------
entire agreement of the parties, and it may be amended only by a written
document signed by both parties to this Agreement.

     18. Governing Law. California law shall govern the construction and
         -------------
enforcement of this Agreement and the parties agree that any litigation
pertaining to this Agreement shall be adjudicated in courts located in
California. This Agreement supercedes and replaces





any prior agreements or understandings between the parties with respect to the
subject matter hereof.

     19. Attorneys' Fees. If any party finds it necessary to employ legal
         ---------------
counsel or to bring an action at law or other proceedings against the other
party to enforce any of the terms hereof, the party prevailing in any such
action or other proceeding shall be paid by the other party its reasonable
attorneys' fees as well as court costs, all as determined by the court and not
a jury.

     20. Severability. If any section, subsection or provision hereof is found
         ------------
for any reason whatsoever, to be invalid or inoperative, that section,
subsection or provision shall be deemed severable and shall not affect the force
and validity of any other provision of this Agreement. If any covenant herein is
determined by a court to be overly broad thereby making the covenant
unenforceable, the parties agree and it is their desire that such court shall
substitute a reasonable judicially enforceable limitation in place of the
offensive part of the covenant and that as so modified the covenant shall be as
fully enforceable as if set forth herein by the parties themselves in the
modified form. The covenants of the Employee in this Agreement shall each be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of the Employee against the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by the Company of the covenants in this Agreement.

     21. Notices. Any notice, request, or instruction to be given hereunder
         -------
shall be in writing and shall be deemed given when personally delivered or three
(3) days after being sent by United States Certified Mail, postage prepaid, with
Return Receipt Requested, to the parties at their respective addresses set forth
below:

                           To the Company:  CKE RESTAURANTS, INC.
                                            3916 State Street, Suite 300
                                            Santa Barbara, CA 93105


                           To the Employee: Theodore Abajian
                                            7448 Pierce Street
                                            Ventura, California 93003

     23. Waiver of Breach. The Waiver by any party of any provisions of this
         ----------------
Agreement shall not operate or be construed as a waiver of any prior or
subsequent breach by the other party.






IN WITNESS WHEREOF the parties have executed this Agreement to be effective as
of the date first set forth above.

                                            CKE RESTAURANTS, INC.

                                            By: /s/ E. Michael Murphy
                                                --------------------------------
                                            Its:  EVP, CKE Restaurants, Inc.
                                                --------------------------------



                                            EMPLOYEE

                                            /s/ Theodore Abajian
                                            ------------------------------------
                                            Theodore Abajian

EX-10.47

                           FOURTH AMENDED AND RESTATED
                                CREDIT AGREEMENT

                                      among

                             CKE RESTAURANTS, INC.,

                            THE LENDERS NAMED HEREIN

                                       and

                                  BNP PARIBAS,

                                    As Agent

                          Dated as of January 31, 2002



                                TABLE OF CONTENTS



                                                                                              Page
                                                                                              ----
                                                                                             
SECTION 1.     DEFINITIONS.....................................................................  1
                                                                                                 -
     Section 1.1  Definitions..................................................................  1
                  -----------                                                                    -

SECTION 2.     AMOUNT AND TERMS OF CREDIT FACILITIES........................................... 28
               -------------------------------------                                            --
     Section 2.1  [Intentionally Omitted]...................................................... 28
                   ---------------------                                                        --
     Section 2.2  Revolving Loans.............................................................. 28
                  ---------------                                                               --
     Section 2.3  Notice of Borrowing.......................................................... 29
                  -------------------                                                           --
     Section 2.4  Disbursement of Funds........................................................ 29
                  ---------------------                                                         --
     Section 2.5  Notes........................................................................ 30
                  -----                                                                         --
     Section 2.6  Interest..................................................................... 30
                  --------                                                                      --
     Section 2.7  Interest Periods............................................................. 31
                  ----------------                                                              --
     Section 2.8  Minimum Amount of Eurodollar Loans........................................... 32
                  ----------------------------------                                            --
     Section 2.9  Conversion or Continuation................................................... 32
                  --------------------------                                                    --
     Section 2.10  Voluntary Reduction of Commitments.......................................... 33
                   ----------------------------------                                           --
     Section 2.11  Voluntary Prepayments....................................................... 33
                   ---------------------                                                        --
     Section 2.12  Mandatory Prepayments....................................................... 33
                   ---------------------                                                        --
     Section 2.13  Application of Prepayments.................................................. 35
                   --------------------------                                                   --
     Section 2.14  Method and Place of Payment................................................. 36
                   ---------------------------                                                  --
     Section 2.15  Fees........................................................................ 36
                   ----                                                                         --
     Section 2.16  Interest Rate Unascertainable, Increased Costs, Illegality.................. 37
                   ----------------------------------------------------------                   --
     Section 2.17  Funding Losses.............................................................. 38
                   --------------                                                               --
     Section 2.18  Increased Capital........................................................... 39
                   -----------------                                                            --
     Section 2.19  Taxes....................................................................... 39
                   -----                                                                        --
     Section 2.20  Use of Proceeds............................................................. 41
                   ---------------                                                              --
     Section 2.21  Collateral Security......................................................... 41
                   -------------------                                                          --
     Section 2.22  Replacement of Certain Lenders.............................................. 44
                   ------------------------------                                               --

SECTION 3.     LETTERS OF CREDIT............................................................... 44
                                                                                                --
     Section 3.1  Issuance of Letters of Credit, etc........................................... 44
                  -----------------------------------                                           --
     Section 3.2  Letter of Credit Fees........................................................ 46
                  ---------------------                                                         --
     Section 3.3  Obligation of Borrower Absolute, etc......................................... 47
                  -------------------------------------                                         --

SECTION 4.     CONDITIONS PRECEDENT............................................................ 49
                                                                                                --
     Section 4.1  [Intentionally Omitted]...................................................... 49
                   ---------------------                                                        --
     Section 4.2  Conditions Precedent to the Effectiveness of this Agreement.................. 49
                  -----------------------------------------------------------                   --
     Section 4.3  Conditions Precedent to All Loans............................................ 57
                  ---------------------------------                                             --

SECTION 5.     REPRESENTATIONS AND WARRANTIES.................................................. 58
                                                                                                --


                                       ii



                                                                                             
     Section 5.1  Corporate Status............................................................. 58
                  ----------------                                                              --
     Section 5.2  Corporate Power and Authority................................................ 58
                  -----------------------------                                                 --
     Section 5.3  No Violation................................................................. 58
                  ------------                                                                  --
     Section 5.4  Litigation. ................................................................. 59
                  ----------                                                                    --
     Section 5.5  Financial Statements; Financial Condition; etc............................... 59
                  ----------------------------------------------                                --
     Section 5.6  Solvency..................................................................... 59
                  --------                                                                      --
     Section 5.7  Projections.................................................................. 59
                  -----------                                                                   --
     Section 5.8  Material Adverse Change...................................................... 59
                  -----------------------                                                       --
     Section 5.9  Use of Proceeds; Margin Regulations.......................................... 59
                  -----------------------------------                                           --
     Section 5.10  Governmental and Other Approvals............................................ 60
                   --------------------------------                                             --
     Section 5.11  Security Interests and Liens................................................ 60
                   ----------------------------                                                 --
     Section 5.12  Tax Returns and Payments.................................................... 60
                   ------------------------                                                     --
     Section 5.13  ERISA....................................................................... 61
                   -----                                                                        --
     Section 5.14  Investment Company Act; Public Utility Holding Company Act.................. 61
                   ----------------------------------------------------------                   --
     Section 5.15  Dissolved Subsidiaries; Previously Material Subsidiaries, etc............... 61
                   --------------------------------------------------------------               --
     Section 5.16  Representations and Warranties in Transaction Documents..................... 62
                   -------------------------------------------------------                      --
     Section 5.17  True and Complete Disclosure................................................ 62
                   ----------------------------                                                 --
     Section 5.18  Corporate Structure; Capitalization......................................... 62
                   -----------------------------------                                          --
     Section 5.19  Environmental Matters....................................................... 63
                   ---------------------                                                        --
     Section 5.20  Intellectual Property....................................................... 64
                   ---------------------                                                        --
     Section 5.21  Ownership of Property; Restaurants.......................................... 64
                   ----------------------------------                                           --
     Section 5.22  No Default.................................................................. 64
                   ----------                                                                   --
     Section 5.23  Licenses, etc............................................................... 65
                   -------------                                                                --
     Section 5.24  Compliance with Law......................................................... 65
                   -------------------                                                          --
     Section 5.25  No Burdensome Restrictions.................................................. 65
                   --------------------------                                                   --
     Section 5.26  Brokers' Fees............................................................... 65
                   -------------                                                                --
     Section 5.27  Labor Matters............................................................... 65
                   -------------                                                                --
     Section 5.28  Indebtedness of the Borrower and Its Subsidiaries........................... 65
                   -------------------------------------------------                            --
     Section 5.29  Other Agreements............................................................ 65
                   ----------------                                                             --
     Section 5.30  Immaterial Subsidiaries..................................................... 65
                   -----------------------                                                      --
     Section 5.31  Franchise Agreements and Franchisees........................................ 66
                   ------------------------------------                                         --

SECTION 6.     AFFIRMATIVE COVENANTS........................................................... 66
                                                                                                --
     Section 6.1  Information Covenants........................................................ 66
                  ---------------------                                                         --
     Section 6.2  Books, Records and Inspections............................................... 71
                  ------------------------------                                                --
     Section 6.3  Maintenance of Insurance..................................................... 72
                  ------------------------                                                      --
     Section 6.4  Taxes........................................................................ 72
                  -----                                                                         --
     Section 6.5  Corporate Franchises......................................................... 72
                  --------------------                                                          --
     Section 6.6  Compliance with Law.......................................................... 72
                  -------------------                                                           --
     Section 6.7  Performance of Obligations................................................... 72
                  --------------------------                                                    --
     Section 6.8  Maintenance of Properties.................................................... 73
                  -------------------------                                                     --
     Section 6.9  Compliance with Terms of Leaseholds.......................................... 73
                  -----------------------------------                                           --



                                      iii



                                                                                            
     Section 6.10  Compliance with Environmental Laws.......................................... 73
                   ----------------------------------                                           --
     Section 6.11  Subsidiary Guarantors....................................................... 73
                   ---------------------                                                        --
     Section 6.12  Immaterial Subsidiaries..................................................... 74
                   -----------------------                                                      --
     Section 6.13  Additional Mortgages........................................................ 74
                   --------------------                                                         --
     Section 6.14  Title Policies.............................................................. 74
                   --------------                                                               --
     Section 6.15  Aeroways Aircraft Mortgage.................................................. 75
                   --------------------------                                                   --

SECTION 7.     NEGATIVE COVENANTS.............................................................. 75
                                                                                                --
     Section 7.1  Financial Covenants.......................................................... 75
                  -------------------                                                           --
     Section 7.2  Indebtedness................................................................. 79
                  ------------                                                                  --
     Section 7.3  Liens........................................................................ 81
                  -----                                                                         --
     Section 7.4  Restriction on Fundamental Changes........................................... 83
                  ----------------------------------                                            --
     Section 7.5  Sale of Assets............................................................... 84
                  --------------                                                                --
     Section 7.6  Contingent Obligations....................................................... 85
                  ----------------------                                                        --
     Section 7.7  Dividends.................................................................... 86
                  ---------                                                                     --
     Section 7.8  Advances, Investments and Loans.............................................. 86
                  -------------------------------                                               --
     Section 7.9  Transactions with Affiliates................................................. 90
                  ----------------------------                                                  --
     Section 7.10 Limitation on Voluntary Payments and Modifications of Certain
                  -------------------------------------------------------------
                  Documents.................................................................... 91
                  ---------                                                                     --
     Section 7.11  Changes in Business......................................................... 92
                   -------------------                                                          --
     Section 7.12  Certain Restrictions........................................................ 92
                   --------------------                                                         --
     Section 7.13  Lease Obligations........................................................... 93
                   -----------------                                                            --
     Section 7.14  Hedging Agreements.......................................................... 95
                   ------------------                                                           --
     Section 7.15  Plans....................................................................... 95
                   -----                                                                        --
     Section 7.16  Fiscal Year; Fiscal Quarter................................................. 95
                   ---------------------------                                                  --
     Section 7.17  Partnerships................................................................ 95
                   ------------                                                                 --
     Section 7.18  Excluded Resales............................................................ 95
                   ----------------                                                             --
     Section 7.19  Designated Senior Indebtedness.............................................. 95
                   ------------------------------                                               --
     Section 7.20  Instruments................................................................. 95
                   -----------                                                                  --

SECTION 8.     EVENTS OF DEFAULT............................................................... 96
                                                                                                --
     Section 8.1  Events of Default............................................................ 96
                  -----------------                                                             --
     Section 8.2  Rights and Remedies.......................................................... 99
                  -------------------                                                           --

SECTION 9.     THE AGENT.......................................................................100
                                                                                               ---
     Section 9.1  Appointment..................................................................100
                  -----------                                                                  ---
     Section 9.2  Delegation of Duties.........................................................101
                  --------------------                                                         ---
     Section 9.3  Exculpatory Provisions.......................................................101
                  ----------------------                                                       ---
     Section 9.4  Reliance by Agent............................................................101
                  -----------------                                                            ---
     Section 9.5  Notice of Default............................................................102
                  -----------------                                                            ---
     Section 9.6  Non-Reliance on Agent and Other Lenders......................................102
                  ---------------------------------------                                      ---
     Section 9.7  Indemnification..............................................................102
                  ---------------                                                              ---
     Section 9.8  Agent in its Individual Capacity.............................................103
                  --------------------------------                                             ---
     Section 9.9  Successor Agent..............................................................103
                  ---------------                                                              ---

SECTION 10.    MISCELLANEOUS...................................................................103
                                                                                               ---
     Section 10.1   Payment of Expenses, Indemnity, etc........................................103
                    ------------------------------------                                       ---
     Section 10.2   Right of Setoff............................................................105
                    ---------------                                                            ---
     Section 10.3   Notices....................................................................105
                    -------                                                                    ---



                                       iv



                                                                                            
     Section 10.4   Successors and Assigns; Participation; Assignments.........................105
                    --------------------------------------------------                         ---
     Section 10.5   Amendments and Waivers.. ..................................................108
                    ----------------------                                                     ---
     Section 10.6   No Waiver; Remedies Cumulative.............................................110
                    ------------------------------                                             ---
     Section 10.7   Sharing of Payments........................................................110
                    -------------------                                                        ---
     Section 10.8   Application of Collateral Proceeds.........................................110
                    ----------------------------------                                         ---
     Section 10.9   Governing Law; Submission to Jurisdiction..................................111
                    -----------------------------------------                                  ---
     Section 10.10  Counterparts...............................................................112
                    ------------                                                               ---
     Section 10.11  Financial Advisor..........................................................112
                    -----------------                                                          ---
     Section 10.12  Amendment and Restatement..................................................112
                    -------------------------                                                  ---
     Section 10.13  [Intentionally Omitted]....................................................113
                    -----------------------                                                    ---
     Section 10.14  Headings Descriptive.......................................................113
                    --------------------                                                       ---
     Section 10.15  Marshalling; Recapture.....................................................113
                    ----------------------                                                     ---
     Section 10.16  Severability...............................................................113
                    ------------                                                               ---
     Section 10.17  Independence of Covenants..................................................113
                    -------------------------                                                  ---
     Section 10.18  Survival...................................................................114
                    --------                                                                   ---
     Section 10.19  Domicile of Loans..........................................................114
                    -----------------                                                          ---
     Section 10.20  Limitation of Liability....................................................114
                    -----------------------                                                    ---
     Section 10.21  Calculations; Computations.................................................114
                    --------------------------                                                 ---
     Section 10.22  WAIVER OF TRIAL BY JURY....................................................114
                    -----------------------                                                    ---
     Section 10.23  Reference..................................................................114
                    ---------                                                                  ---



                                       v



                         Exhibits, Schedules and Annexes


Exhibit A           -     Intentionally Omitted
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 and Rauth
Exhibit I           -     Form of Assignment Agreement
Exhibit J           -     Form of Notice of Borrowing

Schedule 1.1        -     Commitments
Schedule 1.2        -     Consolidated EBITDA
Schedule 4.1(l)     -     Closing Title Policies
Schedule 4.2(b)     -     Local Counsel
Schedule 5.10       -     Governmental Approvals
Schedule 5.11       -     Prior Liens
Schedule 5.13       -     ERISA
Schedule 5.15       -     Dissolved Entities
Schedule 5.18       -     Capital Structure
Schedule 5.19       -     Phase I Environmental Reports
Schedule 5.21       -     Real Property
Schedule 5.27       -     Labor Matters
Schedule 5.29       -     Joint Ventures; Non-Competition Agreements
Schedule 5.30       -     Immaterial Subsidiaries
Schedule 5.31       -     Franchisees/Licensees
Schedule 7.2        -     Existing Indebtedness
Schedule 7.3        -     Existing Liens
Schedule 7.5        -     Proposed Restaurant Closures and Sales
Schedule 7.6        -     Existing Contingent Obligations
Schedule 7.8        -     Existing Investments
Schedule 7.17       -     Existing Partnerships

Annex I             -     Lending Offices

                                       vi



                  FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
                  --------------------------------------------

          FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, dated as of January 31,
2002, among CKE Restaurants, Inc., a Delaware corporation (the "Borrower"), the
Lenders (as hereinafter defined) and BNP Paribas, a bank organized under the
laws of France acting through its Chicago branch (as successor in interest to
Paribas) ("BNP Paribas"), as 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.

     "Acquiring Subsidiary" shall have the meaning provided in Section 2.21(b).
                                                               ---------------

     "Acquisition" shall mean any transaction, or any series of related
transactions, consummated after the Closing Date, 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 or other corporate entity.

     "Adjusted Leverage Ratio" shall mean with respect to the Borrower on a
consolidated basis with its Subsidiaries, at any date, the ratio of (a)(i)
Consolidated Total Debt plus (ii) the product of (A) seven multiplied by (B) an
                        ----
amount equal to Consolidated Rentals for the period of four (4) consecutive
fiscal quarters of the Borrower (taken as one accounting period) most recently
ended on or prior to such date to (b) Consolidated EBITDAR for the period of
four (4) consecutive fiscal quarters most recently ended on or prior to such
date.

     "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 BNP Paribas (and its successors) 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 Fourth Amended and Restated Credit Agreement,
as the same may from time to time hereafter be modified, restated, supplemented
or amended.

     "Aircraft Mortgage" shall mean a mortgage and security agreement, in form
and substance satisfactory to the Agent, pursuant to which the Borrower or any
of its Subsidiaries pledges aircraft as Collateral.

     "Applicable Margin" shall mean, with respect to the Commitment Fee and each
Eurodollar Loan or Base Rate Loan, the rate of interest per annum shown below
for the range of Leverage Ratio specified below:



======================================================================================

Leverage Ratio                     Eurodollar Loans   Base Rate Loans   Commitment Fee
- --------------                     ----------------   ---------------   --------------
- --------------------------------------------------------------------------------------
                                                                   
less than or equal to 3.5 to 1.0        3.50%              2.00%            0.500%
- --------------------------------------------------------------------------------------

greater than 3.5 to 1.0, but
less than or equal to 4.0 to 1.0        3.75%              2.25%            0.500%
- --------------------------------------------------------------------------------------

greater than 4.0 to 1.0                 4.00%              2.50%            0.500%
======================================================================================


The Leverage Ratio shall be calculated as of the end of each fiscal quarter of
the Borrower, commencing with the fiscal quarter ending January 28, 2002 and
shall be reported to the Agent pursuant to a Compliance Certificate delivered by
the Borrower in accordance with Section 6.1(e). Not later than two (2) Business
                                --------------
Days after receipt by the Agent of each

                                       2



Compliance Certificate delivered by the Borrower in accordance with Section
                                                                    -------
6.1(e) for each fiscal quarter or fiscal year of the Borrower, 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; provided, however, that for the period commencing on the
Closing Date and ending on the date of the delivery of a Compliance Certificate
in accordance with Section 6.1(e) for the first fiscal quarter of the Borrower
                   -------------
ending after the Closing Date, the Leverage Ratio shall be deemed to be greater
than 4.0 to 1.0. The adjustment, if any, to the Applicable Margin shall be
effective 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 4.0 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 Closing Date 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 or other equity interest of any Subsidiary of the Borrower 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 of
intellectual property to franchisees in the ordinary course of business, (C)
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, (D) sales, transfers or other
dispositions of any property or assets by the Borrower or any of its
wholly-owned Subsidiaries to the Borrower or any of its wholly-owned Domestic
Subsidiaries, provided, that (i) all documents or opinions required to be
delivered to the Agent pursuant to Section 2.21 have been delivered to the Agent
                                   ------------
and the Borrower has provided the Agent with written notice of such sale,
transfer or other disposition at least ten (10) days prior to the date of any
such sale, transfer or other disposition, (ii) the Agent and Lenders

                                       3



shall not be deemed to have released their security interest in any such
property or assets, and (iii) the aggregate of all Santa Barbara Investments
does not exceed $12,500,000; and (E) sales, transfers and other dispositions of
any property or assets by the Borrower or any of its Subsidiaries in connection
with the Charbroiler Credit Program in an aggregate amount not exceed $2,000,000
for all such dispositions occurring after the Closing Date).

     "Assignee" shall have the meaning provided in Section 10.4(c).
                                                   ---------------

     "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 higher of (i) the rate
of interest publicly announced by BNP Paribas in its office 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 BNP Paribas 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 substantially in
the form of the Second Amended and Restated Borrower Pledge Agreement 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 Second Amended and Restated Borrower Security Agreement set
forth as Exhibit D hereto duly executed and delivered to the Agent by the
         ---------
Borrower, as the same may be amended, restated, modified or supplemented from
time to time.

                                       4



     "Borrowing" shall mean the incurrence of one Type of Loan 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 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

                                       5



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 $200,000,000 with maturities of not more
than 180 days from the date of acquisition, (iii) fully secured repurchase
obligations 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.

     "Charbroiler Credit Program" shall mean the Borrower's existing promotional
program to induce franchisees of the Borrower's Hardee's Restaurants to convert
their Restaurants to the "Star Hardee's" concept (as described in the Borrower's
SEC filings) whereby the Borrower, through Hardee's, purchases charbroilers for
such converted Restaurant, whether directly or through reimbursement to the
franchisee or a credit against the franchisee's royalty payments to the Borrower
or Hardee's.

     "Closing Date" shall mean January 31, 2002.

     "Closing EBITDA" shall mean, with respect to the Borrower and its
Subsidiaries for the 13 Retail Periods ended immediately prior to the Closing
Date and all determined on a consolidated basis and in accordance with GAAP, the
sum of (i) Consolidated Net Income for such period, plus (ii) to the extent
                                                    ----
deducted in the calculation 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, plus (v) to the extent deducted in the
                                      ----
calculation of Consolidated Net Income for such period, all extraordinary losses
for such period, minus (vi) to the extent included in the calculation of
                 -----
Consolidated Net Income for such period, all extraordinary gains for such
period, provided, that such sum shall be adjusted to give effect to such amounts
for such period attributable to any business or Person disposed of or closed by
the Borrower or any

                                       6



Subsidiary during such period as if such business or Person had been so disposed
of on the first day of such period.

     "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 or any Interest Rate Hedge
Provider under any of the Security Documents.

     "Commitment Fee" shall have the meaning provided in Section 2.15(b).
                                                         ---------------

     "Compliance Certificate" shall have the meaning provided in Section 6.1(e).
                                                                 --------------

     "Consents" shall have the meaning provided in Section 4.2(u).
                                                   --------------

     "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 calculation 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, plus (v) to the extent deducted in the calculation of
                 ----
Consolidated Net Income for such period, all extraordinary losses for such
period, minus (vi) to the extent included in the calculation of Consolidated Net
        -----
Income for such period, all extraordinary gains for such period, all determined
on a consolidated basis for such Person and its Subsidiaries in accordance with
GAAP, provided, however, that for purposes of calculating Consolidated EBITDA of
the Borrower and its consolidated Subsidiaries as of the last day of any fiscal
period of the Borrower ending prior to the date that is the first anniversary of
the Closing Date, Consolidated EBITDA shall be an amount equal to (x) the
aggregate amount of actual Consolidated EBITDA calculated in accordance with the
foregoing clause of this definition for each month that has elapsed since the
Closing Date, plus (y) "Consolidated EBITDA" for the remaining months occurring
prior to the Closing Date as determined by reference to Schedule 1.2, provided,
                                                        ------------
further, that upon consummation of the Santa Barbara Acquisition in accordance
with the terms hereof, the foregoing sum for the relevant calculation period
shall be adjusted to give effect to the Consolidated EBITDA for such

                                       7



period attributable to the business of Santa Barbara Restaurant Group, Inc.
during such period as if such business had been acquired on the first day of
such period.

     "Consolidated EBITDAR" shall mean, during any period (i) Consolidated
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, but
excluding any non-cash interest expense attributable to the amortization or
write-off of deferred financing costs) 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) as determined in
accordance with GAAP minus to the extent included in the calculation of
                     -----
Consolidated Net Income for such period, gains for such period (net of any
applicable state or federal expense) resulting from any sale by the Borrower or
any of its Subsidiaries of a Restaurant of the Borrower or such Subsidiary plus
                                                                           ----
to the extent included in the calculation of Consolidated Net Income for such
period, losses for such period (net of any applicable state or federal tax
benefit) resulting from any sale by the Borrower or any of its Subsidiaries of a
Restaurant of the Borrower or such Subsidiary, plus any reserves (net of any
                                               ----
applicable state or federal tax benefit) established in accordance with GAAP for
closures of Restaurants or non-cash reductions in the carrying value of
Restaurant-related assets (including goodwill and other intangible assets).

     "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, minus rental income received from franchisees and third parties
                 -----
pursuant to (i) subleases to such franchisees or third parties, as the case may
be, and (ii) leases that have been assigned to such franchisees or third
parties, as the case may be, in which the Borrower or its Subsidiary, as
applicable, remains liable for the payment of rent under such lease to the
extent that rent payments are actually made, all 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.

                                       8



     "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
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).
                                                     ---------------

     "Convertible 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.

                                       9



     "Convertible Subordinated Notes" shall mean the Convertible Subordinated
Notes issued by the Borrower pursuant to the Convertible Subordinated Note
Indenture, in the original aggregate principal amount of $197,225,000, as the
same may be amended, restated, supplemented or otherwise modified in accordance
with the terms of this Agreement; provided that such Convertible Subordinated
Notes shall at all times be subordinated in respect of the Obligations on
subordination terms contained in the Convertible Subordinated Note Indenture.

     "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.

     "Domestic Subsidiary" shall mean any wholly-owned Subsidiary of the
Borrower that is organized under the laws of a state of the United States of
America, and which is a party to the Subsidiary Security Agreement, the Guaranty
and, if required pursuant to Section 2.21, a Subsidiary Pledge Agreement.
                             ------------

     "EBITDA CapEx Amount" shall mean, for any fiscal year of the Borrower, an
amount, if positive, equal to (i) .80 multiplied by (ii) the difference, if any,
                                      ---------- --
between Consolidated EBITDA for such fiscal year and $110,0000,000.

     "Employee Stock Loan" shall mean a loan made by the Borrower or any of its
Subsidiaries to an employee or director of the Borrower or any of its
Subsidiaries, the purpose of which is to finance the acquisition by such
employee or director of the capital stock of 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.

                                       10



     "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) circumstances 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 Closing Date 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)

                                       11



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, if
necessary, to the nearest whole multiple of one-sixteenth of one percent)
appearing on Telerate Page 3750 (or any successor page) as the London interbank
offered rate for deposits in United States Dollars at approximately 11:00 A.M.
(London time) two Business Days prior to the first day of such Interest Period
for a term comparable to such Interest Period. If for any reason such rate is
not available, the term "Eurodollar Base Rate" shall mean, for any Eurodollar
Loan for any Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest whole multiple of one-sixteenth of one percent)
appearing on Reuters Screen LIBO Page as the London interbank offered rate for
deposits in United States Dollars at approximately 11:00 A.M. (London time) two
Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period; provided, however, if more than one rate is
specified on Reuters Screen LIBO Page, the applicable rate shall be the
arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest
whole multiple of one-sixteenth of one percent). If, for any reason, neither of
such rates is available, then "Eurodollar Base Rate" shall mean the rate per
annum at which deposits in United States Dollars, as determined by the Agent,
are being 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 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 and 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 based upon the Eurodollar Rate.

     "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

                                       12



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 4.2(r)(ii).
                                                        ------------------

     "Existing Property Sale and Leaseback Transaction" shall have the meaning
provided in Section 7.13(a).
            ---------------

     "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 Letters" shall mean, collectively, (i) that certain fee letter entered
into between the Borrower and the Agent for the benefit of the Lenders dated as
of January 31, 2002, as amended, restated or otherwise modified from time to
time, and (ii) that certain fee letter entered into between the Borrower and the
Agent for its account dated as of January 31, 2002, as amended, restated or
otherwise modified from time to time.

     "Fees" shall have the meaning set forth in Section 2.15(c).
                                                ---------------

     "Financial Advisor" has the meaning set forth in Section 10.11.
                                                      -------------

                                       13



     "Fixed Charges" shall mean, without duplication, with respect to the
Borrower 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) all federal and state income taxes paid
                               ----
in cash by the Borrower or any of its Subsidiaries for such period, plus (iii)
                                                                    ----
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, plus (iv) the net usage of the Borrower's store
                              ----
closure reserve for such period, determined in accordance with GAAP.

     "Franchise Agreements" shall mean any and all agreements that create a
franchise or license to which the Borrower or any of its 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 or any of its 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 or any of
its Subsidiaries and shall include all other rights under such agreements
regardless of their nature.

     "Franchisee Construction Debt" shall have the meaning provided in Section
                                                                       -------
7.2(j).
- ------

     "GAAP" shall mean (i) for purposes of determining compliance with the
covenants set forth in Section 7 hereof, United States generally accepted
                       ---------
accounting principles as in effect on the Closing Date 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.

     "Green Burrito" shall mean, collectively, GB Grill Franchise Corporation, a
California corporation, and Green Burrito, Inc., a California corporation.

     "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 Second
Amended and Restated Guaranty set forth as Exhibit E hereto duly executed and
                                           ---------
delivered to the Agent for itself, the Lenders and any Interest Rate Hedge
Providers by each Subsidiary of the Borrower (other than Immaterial Subsidiaries
which are not Subordinated Guarantors), 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 or any successor entity permitted pursuant to the terms of this
Agreement.

                                       14



     "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) and swaps (including, without
limitation, any caps, floors, collars, options, futures and similar agreements)
relating to currencies, commodities or securities, and similar agreements.

     "Immaterial Investments" shall mean, at any time, (a) any Investment owned
by the Borrower or any Subsidiary consisting of Capital Stock of any Person that
is not a Subsidiary of the Borrower and 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 and
(b) any Investment owned by the Borrower or any Subsidiary consisting of an
Instrument payable by any Person that is not a Subsidiary of the Borrower and
which, when added to all other Investments held by the Borrower and/or its
Subsidiaries consisting of Instruments payable by such Person does not exceed
$2,000,000 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 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)

                                       15



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).
                                                     ---------------

     "INS" shall mean the United States Immigration and Naturalization Service
or any governmental body succeeding to its functions.

     "Instrument" shall have the meaning ascribed thereto in the UCC.

     "Intellectual Property" has the meaning set forth in Section 5.20.
                                                          ------------

     "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 BNP Paribas or, with the consent of BNP Paribas,
any other Lender (and their respective successors), in its capacity as issuer of
one or more Letters of Credit hereunder.

                                       16



     "La Salsa" shall mean, collectively, La Salsa, Inc., a California
corporation, La Salsa Franchise, Inc., a California corporation, and La Salsa of
Nevada, Inc., a Nevada corporation.

     "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 $75,000,000, provided, that the L/C
Commitment is part of the Total Revolving Loan Commitment, 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) Consolidated EBITDA of the
Borrower and its Subsidiaries for the period of four (4) consecutive fiscal
quarters most recently ended on or prior to such date, all determined on a
consolidated basis for the Borrower and its Subsidiaries for such period.

                                       17



     "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 (other than a Subsidiary of any Domestic Subsidiary) 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 Letters, 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 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, 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, or (iii) the validity, perfection
or priority of any Lien in favor of the Agent for the benefit of the Lenders on
any material portion of the Collateral.

     "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.

                                       18



     "Mortgages" shall mean collectively, each mortgage, deed of trust,
leasehold mortgage, leasehold deed of trust or other similar instrument executed
and delivered by the Borrower or any of its Subsidiaries to the Agent for the
benefit of the Lenders from time to time (including, without limitation, all
Mortgages delivered prior to the Closing Date) and granting or purporting to
grant a Lien on the real property of the Borrower or such Subsidiary identified
therein, as the same may be amended, restated, supplemented or otherwise
modified.

     "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), (iii) Indebtedness permitted to be incurred pursuant
            --------------
to Section 7.2(i), (iv) Indebtedness permitted to be incurred pursuant to
   --------------
Section 7.2(m) with respect to Sale and Leaseback Transactions), and (v)
- --------------
Indebtedness incurred in connection with the Permitted Refinancing to the extent
the proceeds of such Indebtedness are used to consummate such Permitted
Refinancing; 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), 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 proceeds in the form of cash or cash equivalents 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 proceeds in the form of cash or cash
equivalents 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),

                                       19



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 or cash equivalents, 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.

     "New Property Sale and Leaseback Transaction" shall have the meaning
provided in Section 7.13(a).
            ---------------

     "New Subordinated Note Indenture" shall mean that certain Indenture among
the Borrower, certain Subsidiaries of the Borrower, and Chase Manhattan Bank and
Trust Company, National Association, as trustee, dated as of March 4, 1999, as
the same may be amended, restated, supplemented or otherwise modified in
accordance with the terms of this Agreement.

     "New Subordinated Notes" shall mean the Senior Subordinated Notes issued by
the Borrower pursuant to the New Subordinated Note Indenture, in a maximum
principal amount not to exceed $287,500,000 in the aggregate, of which
$200,000,000 were issued as of the Closing Date at the rate of 9-1/8% and due
2009 (the "Original Notes") and of which up to an additional $87,500,000 may be
issued at the Borrower's option at any time after the Closing Date on terms no
less favorable to the Borrower than the terms of the Original Notes and with a
maturity date of February 28, 2005, or thereafter, as the same may be amended,
restated, supplemented or otherwise modified in accordance with the terms of
this Agreement; provided, that such New Subordinated Notes shall at all times be
subordinated in respect of the Obligations on subordination terms contained in
the New Subordinated Note Indenture; provided, further, that the term "New
Subordinated Notes" shall include any notes or instruments exchanged for then
outstanding New Subordinated Notes pursuant to the New Subordinated Note
Indenture.

     "Note" means a Revolving Note.

     "Notice of Borrowing" shall have the meaning provided in Section 2.3(a).
                                                              --------------

     "Notice of Conversion or Continuation" shall have the meaning provided in
Section 2.9(b).
- --------------

                                       20



     "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 Agreement" shall mean that certain Third Amended and
Restated Credit Agreement dated as of November 24, 1999, among the Borrower, the
lenders party thereto and BNP Paribas (as successor to 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 March, June, September
and December of each year.

     "PBGC" shall mean the Pension Benefit Guaranty Corporation established
under ERISA, or any successor thereto.

     "Permitted Acquisition" shall mean (i) any Acquisition by the Borrower or
any of its Subsidiaries of a Carl's Jr. or a Hardee's (and, if the Santa Barbara
Acquisition is consummated, a Timber Lodge, a Green Burrito or a La Salsa)
Restaurant from a franchisee 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 and (ii) the Santa Barbara Acquisition, provided, that all
applicable waiting periods, including without limitation, those under the
Hart-Scott-Rodino Act, in connection with the Santa Barbara Acquisition shall
have expired.

     "Permitted Redemption" shall mean the redemption or repurchase by the
Borrower of Convertible Subordinated Notes for a purchase price not to exceed
$10,000,000 in the aggregate, provided, that any such Convertible Subordinated
Notes that are redeemed or repurchased by the Borrower shall then be cancelled
in accordance with the terms of the Convertible Subordinated Note Indenture and
shall not be reissued.

     "Permitted Refinancing" shall mean the conversion, redemption, exchange,
repurchase or refinancing by the Borrower of Convertible Subordinated Notes on
or after January 31, 2002 provided, that (i) in the case of a redemption or
repurchase, the purchase price paid shall not exceed the then outstanding
aggregate principal amount of such

                                       21



Convertible Subordinated Notes, plus customary underwriting fees and discounts,
brokerage commissions and other similar reasonable and customary costs and
expenses directly attributable to such redemption or repurchase, and any such
Convertible Subordinated Notes that are redeemed or repurchased by the Borrower
shall then be cancelled in accordance with the terms of the Convertible
Subordinated Note Indenture, and shall not be reissued, and (ii) in the case of
a refinancing or exchange, (w) the aggregate principal amount of the resulting
Indebtedness shall not exceed the then outstanding aggregate principal amount of
such Convertible Subordinated Notes, (x) no principal payment with respect to
the resulting Indebtedness shall be due prior to the date that is one year and
one day after the Revolving Loan Maturity Date, (y) the refinancing shall be
consummated with a third-party, unaffiliated with the Borrower or any of its
Affiliates and (z) the resulting Indebtedness shall be subordinated as to
exercise of remedies and in right of payment to the Obligations under the Loan
Documents on, and is otherwise subject to, terms and conditions reasonably
approved by the Agent and the Required Lenders in writing.

     "Permitted Subordinated Debt" shall mean Indebtedness of the Borrower or
any Subsidiary of the Borrower incurred after the Closing Date, (A) with respect
to which no principal payments are due prior to the date which is one year and
one day after the Revolving Loan Maturity Date and (B) which is subordinated as
to exercise of remedies and in right of payment to the Borrower's Obligations
and such Subsidiary's Obligations, respectively, 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.

     "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 Closing Date,

                    (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,

                                       22



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 the percentage obtained by
dividing (i) 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
(ii) 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).
                      --------------

     "Real Estate Collateral" shall mean Collateral subject to or purported to
be subject to the Lien of the Mortgages.

     "Redeemable Stock" shall mean 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 Revolving Loan
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 Revolving Loan Maturity Date.

     "Reference Banks" shall mean BNP Paribas, First Bank and Trust, Fleet
National Bank, U.S. Bank National Association and Wells Fargo Bank, National
Association and their respective successors.

     "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.

     "Replacement Lender" shall have the meaning provided in Section 2.22.
                                                             ------------

                                       23



     "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 waived under applicable regulations), or is the occurrence of any of
the events described in Section 4068(f) or 4063(a) of ERISA.
                        ---------------

     "Required Lenders" shall mean (i) at any time there are five Lenders or
less party to this Agreement, all Lenders whose Pro Rata Shares, in the
aggregate, are greater than 75% and (ii) at any time there are more than five
Lenders party to this Agreement, all Lenders whose Pro Rata Shares, in the
aggregate, are greater than 66 2/3%.

     "Restaurant" shall mean a Timber Lodge restaurant or any quick service
restaurant.

     "Retail Period" means any of the thirteen consecutive four week or five
week periods used by the Borrower for accounting purposes which begin on or
about the Tuesday after the last Monday in January of each year and ending on
the last Monday in January of the next year.

     "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 December 14, 2003; provided, that
such date shall be extended until November 15, 2006 effective upon consummation
of the Permitted Refinancing, provided, that (i) the Borrower has requested such
extension in writing prior to consummation of the Permitted Refinancing, (ii) no
Default or Event of Default exists immediately before or after consummation of
the Permitted Refinancing and (iii) no Material Adverse Change shall have
occurred in the reasonable opinion of the Lenders at the time of consummation of
the Permitted Refinancing.

     "Revolving Loans" shall have the meaning provided in Section 2.2(a).
                                                          --------------

     "Revolving Note" shall have the meaning provided in Section 2.5(a).
                                                         --------------

     "Sale and Leaseback Transactions"shall mean Existing Property Sale and
Leaseback Transactions and New Property Sale and Leaseback Transactions, in each
case, permitted to be entered into by the Borrower or any of its Subsidiaries
pursuant to Section 7.13(a).
            ---------------

                                       24



     "Santa Barbara Acquisition" shall mean the acquisition by the Borrower of
the business and assets of Santa Barbara Restaurant Group, Inc. pursuant to and
in accordance with the Agreement and Plan of Merger dated as of December 20,
2001, by and among the Borrower and Santa Barbara Restaurant Group, Inc. and
upon terms publicly disclosed in the Borrower's filings related thereto with the
Securities and Exchange Commission prior to the Closing Date.

     "Santa Barbara Group" shall mean, upon consummation of the Santa Barbara
Acquisition, each Person acquired in connection with such acquisition, including
Santa Barbara Restaurant Group, Inc. and each of its Subsidiaries.

     "Santa Barbara Investments" shall mean the sum of (a) all intercompany
loans made on or after the Closing Date to any member of the Santa Barbara Group
from either the Borrower or any Subsidiary of the Borrower (other than any
member of the Santa Barbara Group), (b) all Investments made on or after the
Closing Date in any member of the Santa Barbara Group by either the Borrower or
any Subsidiary of the Borrower (other than any member of the Santa Barbara
Group) and (c) the fair market value of all assets sold, transferred, or
otherwise conveyed to any member of the Santa Barbara Group from either the
Borrower or any Subsidiary of the Borrower (other than any member of the Santa
Barbara Group).

     "Santa Barbara Loan Repayment Amount" shall have the meaning set forth in
Section 7.10(a)(iii).
- --------------------

     "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, the Aircraft Mortgage, the
Mortgages and all other security agreements, pledge agreements, mortgages,
leasehold mortgages, assignments and similar agreements executed in connection
with the Loan Documents.

     "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 of

                                       25



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 Indentures.

     "Subordinated Guarantor" shall mean each Subsidiary of the Borrower that
guarantees any Indebtedness or other obligations of the Borrower or any
Subsidiary of the Borrower under or with respect to any of the New Subordinated
Notes.

     "Subordinated Note Indentures" shall mean the Convertible Subordinated Note
Indenture and the New Subordinated Note Indenture.

     "Subordinated Notes" shall mean the Convertible Subordinated Notes and the
New Subordinated Notes.

     "Subsidiary" of any Person shall mean and include (i) any corporation more
than 50% 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 or controlled by such Person
directly or indirectly through one or more Subsidiaries and (ii) any
partnership, limited liability company, association, joint venture or other
entity in which such Person, directly or indirectly through one or more
Subsidiaries, is either a general partner or has a more than 50% equity interest
at the time. Unless otherwise expressly provided, all references to a
"Subsidiary" shall mean a Subsidiary of the Borrower.

     "Subsidiary Pledge Agreement" shall mean each pledge agreement
substantially in the form of the Second Amended and Restated Subsidiary Pledge
Agreement set forth as Exhibit F hereto duly 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 Second Amended and Restated Subsidiary Security
Agreement set forth as

                                       26



Exhibit G hereto duly 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.

     "Surviving Debt" shall have the meaning provided in Section 4.2(r).
                                                         --------------

     "Taxes" has the meaning set forth in Section 2.19(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.

     "Timber Lodge" shall mean Timber Lodge Steakhouse, Inc., a Minnesota
corporation.

     "Total Revolving Loan Commitment" shall have the meaning set forth in
Section 2.2(a).
- --------------

     "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.

     "Transactions" shall mean 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
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

                                       27



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 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 [Intentionally Omitted].
                      ----------------------

          Section 2.2 Revolving Loans. (a) Subject to and upon the terms and
                      ---------------
conditions 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") as of the date hereof shall be reduced to
$100,000,000. In the event that as of the date hereof, the aggregate outstanding
principal amount of the Revolving Loans exceeds the Total Revolving Loan
Commitment, the Borrower shall immediately prepay the Revolving Loans in the
amount of any such excess. 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, and each

                                       28



Revolving Loan shall mature on, the Revolving Loan Maturity Date, without
further action on the part of the Lenders or the Agent.

               (c) Each Borrowing of Revolving Loans shall be in the aggregate
minimum amount of $500,000 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 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 shall be in the form of Exhibit J hereto (a
                                                         ---------
"Notice of Borrowing") shall be irrevocable and shall specify (i) the aggregate
principal amount of the requested Revolving Loans, (ii) the date of Borrowing
(which shall be a Business Day), and (iii) 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 Loan 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

                                       29



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. 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. Notwithstanding 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 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 date such Note was issued, and (z) mature
on the Revolving Loan Maturity Date.

               (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 Revolving 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 (i) the Applicable Margin plus (ii) 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, subject to the
provisions of clause (c) of this Section 2.6.
                                 -----------

               (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

                                       30



the basis of a 360-day year and paid for the actual number of days elapsed,
subject to the provisions of clause (c) of this Section 2.6.
                                                -----------

               (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 (x)
the sum of two percent (2%) plus (y) the Applicable Margin applicable to Base
Rate Loans plus (z) 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, (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) In the event that the Eurodollar Base Rate is to be
determined by reference to the Reference Banks, 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).
                    --------------

          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

                                       31



          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; and

                    (iv) no Interest Period in respect of any
     Revolving Loan shall extend beyond the Revolving Loan Maturity
     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 any Borrowing comprised of
Eurodollar Loans shall not be less than $3,000,000 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.

                                       32



               (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 Type 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 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 promptly transmit to each of the Lenders and (ii) each
prepayment shall be in an aggregate principal amount of $1,000,000 or any
integral multiple of $500,000 in excess thereof; 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 or upon the receipt by any Loan Party of any Liquidating
Distribution after the Closing Date, in each case within 270 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

                                       33



the Borrower or such Subsidiary shall, within 270 days after receipt thereof,
use to reinvest in the business of the Borrower of 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 270 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 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 6.1(e), as applicable, in each case in accordance with the
- ------- ------    ------
provisions of Section 2.13.
              ------------

               (c) On each date on which the Borrower or any of its Subsidiaries
receives any Net Debt Proceeds or becomes or remains liable with respect to
Indebtedness with respect to Capitalized Leases in excess of $100,000,000 in the
aggregate at any one time outstanding for the Borrower and its Subsidiaries, the
Borrower shall prepay the outstanding Loans in an amount equal to 100% of such
Net Debt Proceeds or 100% of the amount by which the aggregate amount of
Indebtedness of the Borrower and its Subsidiaries with respect to Capitalized
Leases exceeds $100,000,000 on such date, 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

                                       34



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. (a) All prepayments of the
                       --------------------------
Loans required by clauses (a) through (d) of Section 2.12 shall be applied
                                             ------------
first, to prepay the Revolving Loans until such Revolving Loans shall have been
- -----
repaid in full, together with accrued and unpaid interest thereon, and second,
                                                                       ------
to Cash Collateralize the then outstanding Letters of Credit and, third, 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
(other than any prepayment required by Section 2.12(a)) 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 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 (other than any
prepayment required by Section 2.12(a)), 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.

                                       35



               (b) Simultaneously with any prepayment of the principal amount of
Revolving Loans pursuant to Section 2.12(a), each Lender's Revolving Loan
                            ---------------
Commitment shall be permanently reduced by such Lender's Pro Rata Share of such
prepayment.

          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 Letters.

               (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 Closing Date to the Revolving Loan Maturity Date.

               (c) The Commitment Fee shall accrue from and including the
Closing Date 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 March 15, 2002, and on the
Revolving Loan Maturity Date or such earlier date, if any, on which the
Revolving Loan Commitments 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.

                                       36



          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 Closing Date 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 applicable 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 Closing Date 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 Closing Date which materially and
     adversely affects the interbank Eurodollar market;

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

                                       37



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, 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

                                       38



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 jurisdiction under
the laws of which the Agent or such Lender is organized or any political

                                       39



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 W-8BEN or W-8ECI 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-8BEN) 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
W-8BEN or W-8ECI and Form W-8 (or W-8BEN) 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 W-8BEN or W-8ECI and Form W-8 (or W-8BEN) 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 W-8BEN or W-8ECI 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

                                       40



such Lender from duly completing and delivering any such letter or form
with respect to it and such Lender advises the Borrower 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-8BEN) or W-9,
establishing an exemption from United States backup withholding tax.

          Section 2.20 Use of Proceeds. The proceeds of the Loans shall be used
                       ---------------
for the Borrower's working capital and general corporate purposes which shall
include, but not be limited to, Restaurant renovations and Permitted
Acquisitions.

          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 (or other equity interests of each Subsidiary if such
Subsidiary is not a corporation) 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 specifically described in the Borrower Security
Agreement and the Mortgages; 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
and the Mortgages. 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, the Borrower Pledge
Agreement, the Subsidiary Pledge Agreement or the Subsidiary Security Agreement
or which consists of real property of the type described in subsection (c)
below, 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 (whether by purchase, merger,
contribution, license or otherwise) 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

                                       41



than a Subsidiary which, after giving effect to any such acquisition, is an
Immaterial Subsidiary, except as otherwise provided in Section 6.11 or any
                                                       ------------
Security Document) (an "Acquiring Subsidiary") or the formation of any new
Subsidiary (other than a Subsidiary which, after giving effect to any such
acquisition, is an Immaterial Subsidiary, except as otherwise provided in
Section 6.11 or any Security Document) 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 hereinafter referred to as a "Conversion"), the
Borrower shall:

                    (i) in the case of a Permitted Acquisition of
     stock or other equity interest or any other acquisition of stock
     or other equity interest (whether by purchase, merger,
     contribution, license or otherwise) by the Borrower or any such
     Acquiring 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 (or other equity interest if such equity interests
     are represented by a certificate or certificates) of such new
     Subsidiary which is being acquired or formed or converted (or
     Investment if such Investment is not an Immaterial Investment),
     beneficially owned by the Borrower or such Acquiring 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 Acquiring Subsidiary (which is not already a
     party thereto) or 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 Acquiring Subsidiary or such new or converted
     Subsidiary, as the case may be, 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 or other equity interest or if such
     Acquiring Subsidiary is not already a party to a Subsidiary
     Pledge Agreement, a Subsidiary Pledge Agreement duly executed by
     such new or converted Subsidiary or such Acquiring Subsidiary, as
     the case may be, 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, (3)
     such Uniform Commercial Code financing statements as shall be
     required to perfect the security interest of the Agent and the
     Lenders in

                                       42



     the Collateral being pledged by such new Subsidiary pursuant to
     the Subsidiary Security Agreement, and (4) ten (10) days prior
     written notice of any such Permitted Acquisition, other
     acquisition, formation or Conversion.

                    (ii) in the case of a Permitted Acquisition of
     assets or any other acquisition of assets (including equity
     interests of a Person other than a corporation) (whether by
     purchase, merger, contribution, license or otherwise) by the
     Borrower or any such Acquiring Subsidiary which is of the type
     described in the Borrower Security Agreement or the Subsidiary
     Security Agreement or the formation of such a new Subsidiary or a
     Conversion into a Person which in either case is not a
     corporation, deliver or cause to be delivered by the Borrower or
     such Acquiring Subsidiary acquiring such assets or forming such
     new Subsidiary, (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, (C) any additional instruments or
     documents evidencing the security interest of the Agent
     reasonably required by the Agent and (D) ten (10) days prior
     written notice of any such Permitted Acquisition, other
     acquisition, formation or Conversion; and

                    (iii) in any case (A) 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 (or equivalent
     organizational and authorization documents), 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 (whether by purchase, merger,
     contribution or otherwise) or Conversion, (B) cause any newly
     formed or acquired Immaterial Subsidiary which is or is to become
     a Subordinated Guarantor, to execute and deliver a counterpart to
     the Guaranty, and (C) if, as a result of the consummation of any
     transaction or transactions, there is a significant change in the
     information provided by the Borrower on Schedule 5.18, promptly
                                             -------------
     provide the Agent with a new schedule which reflects the then
     current corporate structure of the Borrower and its Subsidiaries
     certified by an Authorized Officer of the Borrower.

               (c) Concurrently with the acquisition of any interest (including
a leasehold interest) in any real property by the Borrower or any Subsidiary of
the Borrower in any state that does not at the time of acquisition assess a
mortgage recording tax, the Borrower shall deliver or cause to be delivered to
the Agent, Mortgages with respect to such

                                       43



real property interest, together with title insurance policies, surveys,
appraisals, opinions of counsels and such other documentation as the Agent may
reasonably request.

          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

                                       44



not exceed the L/C Commitment. Unless all the Lenders and the Issuing Bank
otherwise consent in writing, the Borrower and its Subsidiaries shall not
request any Letter of Credit (i) whose term exceeds 12 months or (ii) which
expires after the Revolving Loan Maturity Date unless such Letter of Credit is
Cash Collateralized at least two (2) Business Days prior to 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, 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 the 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 the 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, the Borrower shall be deemed to have submitted a
Notice of Borrowing 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

                                       45



Credit. Promptly following any Revolving Loans made under this Section 3.1(d),
                                                               --------------
the Agent shall notify the 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, the Borrower agrees to
pay to the Issuing Bank 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 the Borrower at the Default Rate. The principal amount of any such
payment made by the 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 the 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.

          Section 3.2 Letter of Credit Fees. The Borrower shall pay (i) a letter
                      ---------------------
of credit fee to the Agent equal to (x) a per annum rate equal to the then
effective Applicable Margin for Eurodollar Loans minus 0.50% times (y) 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 March 15, 2002, and
(ii) a letter of credit fee to the Agent equal to (x) a per annum rate equal to
the then effective Applicable Margin for Eurodollar Loans minus 0.50% times (y)
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 March 15, 2002. Upon
(A) the issuance of each Letter of Credit, the 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, the 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, the 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.

                                       46



          Section 3.3 Obligation of Borrower Absolute, etc. (a) The obligation
                      -------------------------------------
of the 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 the Borrower
shall not be affected by any of the following 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

                                       47



     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 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;

                                       48



                    (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.
     -----

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 [Intentionally Omitted].
                       ---------------------

          Section 4.2 Conditions Precedent to the Effectiveness of this
                      --------------------------------------------------
Agreement. This Agreement shall become effective as of the Closing Date upon the
- ---------
satisfaction on or before the Closing Date of the following conditions
precedent:

               (a) Loan Documents.
                   --------------

                    (i) Credit Agreement. The Borrower and the Lenders
                        ----------------
     shall have executed and delivered this Agreement to the Agent.

                                       49



                    (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.

                    (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.

                    (v) Borrower Pledge Agreement. The Borrower shall
                        -------------------------
     have executed and delivered to the Agent the Borrower Pledge
     Agreement.

                    (vi) Subsidiary Pledge Agreements. Each Subsidiary
                         ----------------------------
     of the Borrower that owns any Equity Interest in any Person as of
     the Closing Date (other than an equity interest in Boston West,
     L.L.C. and other than in an Immaterial Subsidiary) shall have
     duly executed and delivered to the Agent a Subsidiary Pledge
     Agreement.

                    (vii) Guaranty. Each Subsidiary of the Borrower
                          --------
     (other than any Immaterial Subsidiary that is not a Subordinated
     Guarantor) shall have executed and delivered to the Agent the
     Guaranty.

                    (viii) Fee Letters. The Borrower shall have
                           -----------
     executed and delivered to the Agent the Fee Letters.

                    (ix) Borrower Trademark Security Agreement. The
                         -------------------------------------
     Borrower shall have executed and delivered to the Agent an
     amended and restated Borrower Trademark Security Agreement,
     amending and restating that certain Borrower Trademark Security
     Agreement, dated as of July 15, 1997, by the Borrower in favor of
     the Agent.

                    (x) Subsidiary Trademark, Patent and Copyright
                        -------------------------------------------
     Security Agreements. Each Subsidiary of the Borrower party to the
     -------------------
     Subsidiary Trademark Security Agreement, Subsidiary Patent
     Security Agreement or Subsidiary Copyright Security Agreement (as
     applicable), each dated as of July 15, 1997 in favor of the
     Agent, shall have executed and delivered to the Agent an amended
     and restated version of each such

                                       50



     agreement, and each Subsidiary of the Borrower not party to any
     of such agreements that owns any Intellectual Property shall have
     executed and delivered to the Agent a security agreement
     substantially in the form of each such previously delivered
     agreement (as applicable).

               (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, dated the Closing Date, from each of the local
counsel to the Loan Parties identified on Schedule 4.2(b), in form and substance
                                          --------------
satisfactory to the Agent 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
                   -------------------
certificate of incorporation, certificate of limited partnership, certificate of
formation 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 organization 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 general
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, partnership agreement, limited
liability company agreement or other similar organizational document of such
Person as in effect on the Closing Date, (iii) the resolutions of such Person's
Board of Directors (or other governing body, as applicable) approving and
authorizing the execution, delivery and performance of all Transaction Documents
executed by such Person, and (iv) that there have been no changes in the
certificate of incorporation, certificate of limited partnership, certificate of
formation or other similar organizational document 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.

                                       51



               (e) Existing Indebtedness. 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 Subordinated Debt 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 Subordinated Debt Documents, have performed or complied in all material
respects with all agreements and conditions contained in such Subordinated Debt
Documents, (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
representations and warranties of the Borrower and each other Loan Party
contained in the Subordinated Debt Documents and the Loan Documents are true and
correct, (v) no Default or Event of Default has occurred and is continuing and
no default or event of default has occurred and is continuing under the
Subordinated Debt Documents and (vi) since January 29, 2001, no event or change
has occurred that has caused or evidences a Material Adverse Effect.

               (h) Closing Compliance Certificate. The Agent shall have received
                   ------------------------------
a certificate signed by the chief financial officer of the Borrower (i)
containing conclusions that the Borrower and its Subsidiaries are Solvent before
and after giving effect to the Transactions and that Closing EBITDA equals at
least $100,000,000, (ii) setting forth the calculation of the amounts set forth
on Schedule 1.2 and (iii) setting forth the calculations required to establish
   ------------
the Leverage Ratio calculated as of the end of the Retail Period of the Borrower
ending December 31, 2001.

               (i) Insurance. The Agent shall have received a certificate of
                   ---------
insurance demonstrating insurance coverage in respect of each of the Loan
Parties of types,

                                       52



in amounts, with insurers and with other terms reasonably satisfactory to the
Agent and which name the Agent as an additional insured or loss payee, as
applicable.

               (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) Title Policies. The Agent shall have received mortgagee's
                   --------------
loan policies (or pro-forma title commitments signed by the title insurance
company and obligating such title insurance company to issue mortgagee's loan
policies in a form identical to such pro-forma title commitments), together with
all endorsements required by the Agent with respect to the Real Estate
Collateral identified on Schedule 4.1(l), issued by or on behalf of a title
insurance company acceptable to the Agent, in form and substance satisfactory to
the Agent and insuring the Liens created by the Mortgages on such Real Estate
Collateral.

               (m) UCC Authorizations. The Agent shall have received UCC
                   ------------------
authorizations from each of Aeroways, LLC, Burger Chef Systems, Inc., Carl's Jr.
Region VIII, Inc., Carl Karcher Enterprises, Inc., HED, Inc. and Spardee's
Realty, Inc.

               (n) Pledged Collateral. The Agent shall have received (i) the
                   ------------------
original stock, membership interest or partnership interest certificates
evidencing the Pledged Stock (as defined in the Borrower Pledge Agreement and
each Subsidiary Pledge Agreement) pursuant to the Borrower Pledge Agreement and
each Subsidiary Pledge Agreement (other than certificates representing any
shares of Pledged Stock of any Immaterial Subsidiary and any shares of Pledged
Stock which evidence an Immaterial Investment), together with undated stock
powers or similar instruments of assignment duly executed in blank in connection
therewith and (ii) each original Instrument pursuant to the Borrower Pledge
Agreement and each Subsidiary Pledge Agreement (other than any Instrument
evidencing an Immaterial Investment).

               (o) Corporate Structure. The corporate structure of the Loan
                   -------------------
Parties shall be satisfactory to the Lenders and the Agent shall have received a
corporate

                                       53



structure chart with respect to the Borrower and all of its Subsidiaries
(certified by an Authorized Officer of the Borrower).

               (p) [Intentionally Omitted].
                    ---------------------

               (q) Funded Debt and Capitalization. The Total Revolving Loan
                   ------------------------------
Commitment minus the aggregate principal amount of the Revolving Loans
           -----
outstanding on the Closing Date 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 Leverage Ratio for the four fiscal
quarters ended immediately prior to the Closing Date shall not exceed 4.5 to 1.
The assets and liabilities of the Borrower and its consolidated Subsidiaries
shall be materially consistent with the projections dated October 1, 2001 and
previously delivered by the Borrower to the Agent.

               (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 Capitalized Lease Obligations, other than (A) the Loans outstanding
hereunder as contemplated by Section 4.2(q) and (B) Indebtedness permitted under
                             -----------
Section 7.2 (but excluding Indebtedness described in Section 7.2(a))
- -----------                                          -----------
(collectively, the "Surviving Debt"), and (ii) the Borrower and each of its
Subsidiaries shall have paid in full all other Indebtedness of the Borrower and
each of its 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 and its 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. 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 and its 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, 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 have received, if the
                   ---------------------
Agent deems it necessary, a written report of an investigation, conducted to the
Agent's

                                       54



satisfaction, from an environmental consultant acceptable to the Agent, as to
any environmental, health or safety violations, hazards or liabilities which it
deems material. The Agent shall (i) be satisfied that neither the Borrower nor
any of its 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 or any of its 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 nor any of its
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 and each of its 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
and each of its Subsidiaries, the other Loan Parties (if applicable) and each of
their Environmental Affiliates of which the Borrower or any of its Subsidiaries
have knowledge.

               (t) 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 date hereof, including, without limitation, the reasonable fees
and expenses accrued through the date hereof, of Skadden, Arps, Slate, Meagher &
Flom (Illinois) and any other counsel retained by the Agent.

               (u) 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 the Borrower or any of its
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 Borrower shall have delivered to the Agent such
evidence as the Agent shall have requested, evidencing compliance by the
Borrower, its Subsidiaries and the other

                                       55



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).

               (v) Management Contracts. The Borrower shall have delivered to
                   --------------------
the Agent and each Lender copies of each written agreement that it or any of its
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.

               (w) 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 or any of its
Subsidiaries as of the Closing Date is the franchisor or licensor in each case
certified by the general counsel of the Borrower.

               (x) No Material Adverse Change; No Default. No event, act or
                   ---------------------------------------
condition shall have occurred after January 29, 2001, that has had a Material
Adverse Effect. No Default or Event of Default shall have occurred and be
continuing or shall result from the consummation of the Transactions on the
Closing Date.

               (y) Reduction in Outstanding Balance. The aggregate balance of
                   --------------------------------
all outstanding Loans shall not exceed $75,000,000.

               (z) Appraisals. The Agent shall have received fair market
                   ----------
appraisals of the Real Estate Collateral in existence on the Closing Date from a
firm acceptable to the Agent.

               (aa) Management/Ownership. The composition of the management of
                    --------------------
the Borrower and its strategic plans shall be satisfactory to the Agent.

               (bb) No Litigation. There shall not be any material action, suit,
                    -------------
investigation, arbitration, litigation or proceeding pending or threatened
against the Borrower or any of its Subsidiaries, before any court, arbitrator or
governmental or administrative body, agency or official.

               (cc) Termination of Commitments of Terminating Lenders. The Agent
                    -------------------------------------------------
shall have received an acknowledgment from each "Lender" party to the Original
Credit Agreement that such Lender's "Commitment" thereunder is terminated and
that such Lender has no further obligations thereunder or hereunder.

                                       56



               (dd) 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 4.3 Conditions Precedent to All Loans. The obligation of
                           ---------------------------------
each Lender to make any Loan at any time on or after the date hereof 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 January 29, 2001 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
                                    -------

                                       57



4 in connection with the making of such Loan or the Issuance of such Letter of
- -
Credit have been satisfied.

          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 duly organized
                      ----------------
and validly existing and in good standing under the laws of the jurisdiction of
its organization, (ii) has the corporate or other requisite 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 entity 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 or other requisite 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 or other requisite 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

                                       58



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
its certificate of incorporation, by-laws, partnership agreement or limited
liability company agreement (or other relevant organizational 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 (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 and financial certificates delivered pursuant to
Sections 4.2(l) and 4.2(h) 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 to the Lenders
                      -----------
dated October 1, 2001, were 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 January 29, 2001, 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

                                       59



violate or be inconsistent with the provisions of Regulations 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.

          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 (ii) the legality, validity, binding effect or enforceability of
any Transaction 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 4.2(k) and 4.2(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.

                                       60



          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 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 Dissolved Subsidiaries; Previously Material Subsidiaries,
                       --------------------------------------------------------
etc.. Schedule 5.15 sets forth a list of previous Subsidiaries that have been
- -------------------
dissolved (the "Dissolved Entities"). All of the assets and property (including,
without limitation, all real

                                       61



property for which title was previously vested in Leased Restaurant Partners) of
each Dissolved Entity have been transferred to the Borrower or a Subsidiary of
the Borrower party to the Subsidiary Security Agreement and Guaranty. In
addition, substantially all of the assets and property of Fast Food Restaurants,
Inc., HFS Georgia, Inc., Central Iowa Foods Systems, Inc. and Boston Pacific,
Inc. have been transferred to the Borrower or a Subsidiary of the Borrower party
to the Subsidiary Security Agreement and Guaranty. None of Boston Pacific, Inc.,
HFS Georgia, Inc., Central Iowa Food Systems, Inc. or Fast Food Restaurants,
Inc. has any obligation as a "Subsidiary Guarantor" under and as defined in the
New Subordinated Note Indenture.

          Section 5.16 Representations and Warranties in Transaction Documents.
                       -------------------------------------------------------
All representations and warranties made by any Loan Party in the Subordinated
Debt Documents, and, to the best of the Borrower's knowledge, all
representations made by each other Person in such Subordinated Debt Documents,
are true and correct in all material respects. None of such representations and
warranties is inconsistent in any material respect 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 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, the jurisdiction of incorporation or
organization of the Borrower, 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 or other outstanding equity interests of the Borrower
and each of its Subsidiaries and of each other Loan Party and each Subsidiary of
such Loan Party, the par value thereof and (other than with respect to the
Borrower) the registered owner(s) thereof. All of such stock has been duly and
validly issued and is fully paid and non-assessable and (except for the stock of
the Borrower) is, together with all such other equity interests, owned by such
Loan Party free and clear of all Liens. Except for the Convertible 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 or other outstanding equity interest nor does any Loan Party
or any such Subsidiary have outstanding any rights to subscribe for or to

                                       62



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 or other
outstanding equity interest.

          Section 5.19 Environmental Matters. (a) (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 Environmental 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, individually or in the aggregate, could not have a Material
Adverse Effect.

               (b) 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) 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 and each of its 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, each of its
Subsidiaries, the other Loan Parties (if applicable) and each of their
Environmental Affiliates of which the Borrower or any of its Subsidiaries have
knowledge.

               (e) The Borrower has caused to be completed Phase I audit reports
with respect to each property owned, operated or leased by the Borrower or any
of its

                                       63



Subsidiaries, upon which a business or operation other than a Restaurant has
been conducted at any time during the six (6) years immediately preceding the
Closing Date and with respect to which a Phase I audit report had not been
completed in the eleven (11) year period immediately preceding the Closing Date.
The Borrower has delivered all such Phase I audit reports to the Agent which
were obtained pursuant to the preceding sentence which identified, or which
recommended 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 5.20 Intellectual Property. Each of the Loan Parties owns or
                       ---------------------
has the valid right to use all patents, trademarks, service marks, domain names,
trade names, copyrights, trade secrets and other intangible rights (the
"Intellectual Property"), which are used in or necessary for the operation of
its business, free and clear of all Liens. 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, of all applications and registrations for Intellectual Property
owned by such Loan Party and all license agreements to or from third parties to
which such Loan Party is a party or is otherwise bound. Each Loan Party is the
record owner of all registrations and applications which it owns and all such
registrations for Intellectual Property are valid and enforceable. To the best
of each Loan Party's knowledge, no service, product, process, component or other
material presently offered, sold or employed by any Loan Party infringes upon or
dilutes any Intellectual Property 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 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.

                                       64



          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 applicable 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. 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 Borrower, 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 7.2 hereto is a complete and accurate list of all Indebtedness
         ------------
of the Borrower and each of its Subsidiaries existing as of the Closing Date,
showing the principal amount outstanding thereunder as of the Closing Date.

          Section 5.29 Other Agreements. Schedule 5.29 sets forth a complete and
                       ----------------  -------------
accurate list as of the Closing Date of (i) all joint venture and partnership
agreements to which the Borrower or any of its Subsidiaries is a party, and (ii)
all covenants not to compete restricting the Borrower or any of its Subsidiaries
to which the Borrower or any of its Subsidiaries is a party or by which the
Borrower or any of its 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

                                       65



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 or any of its Subsidiaries as of the
Closing Date.

SECTION 6. AFFIRMATIVE COVENANTS.

          The Borrower covenants and agrees that until all of the Revolving Loan
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
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.
In addition, the Borrower agrees to furnish the foregoing information within the
time period specified above with respect to its fiscal year ended January 28,
2002.

                                       66



               (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 (including the fiscal year 2003 commencing on January 29,
2002), 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 such officer's knowledge, assumptions,
are reasonable and were prepared in good faith. 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 Borrower specifying the nature and period of existence
thereof and the Borrower's proposed response thereto, (ii) that any holder of
Indebtedness of the Borrower or any Subsidiary of

                                       67



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 and (iii) of the occurrence of any default
or event of default under any Subordinated Debt Document specifying (A) the
nature and period of existence of any such default, condition or event, (B) any
notice given or action taken by any holder or trustee thereunder 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

                                       68



          "prohibited transaction," as defined in Section 4975 of the
                                                  ------------
          Code or as described in Section 406 of ERISA, that is not
                                  -----------
          exempt under Section 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
          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

                                       69



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 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 proposes 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 where 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

                                       70



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) Officer's Certificates and Financial Statements relating to
                   -----------------------------------------------------------
Retail Periods. Within 45 days after the close of each Retail Period of the
- --------------
Borrower, a certificate of the chief financial officer of the Borrower setting
forth the calculations required to establish whether the Borrower was in
compliance with the provisions of Section 7.1(d) during and as at the end of
                                  --------------
such Retail Period (including, without limitation, calculations of Consolidated
EBITDA, consolidated depreciation and consolidated amortization of the Borrower
and its Subsidiaries for such Retail Period), which certificate shall be
accompanied by (i) consolidated and consolidating (by business units) statements
of income for the Borrower and its Subsidiaries for such Retail Period and for
the elapsed portion of the fiscal year ended with the last day of such Retail
Period, (ii) consolidated balance sheets of the Borrower and its Subsidiaries as
at the end of such Retail Period and the related consolidated statements of cash
flow for such Retail Period and for the elapsed portion of the fiscal year ended
with the last day of such Retail Period, (iii) comparative figures for the
related periods in the prior fiscal year for the statement of income required to
be delivered pursuant to this subsection (l) for such Retail Period and (iv)
comparative figures for the corresponding financial results contained in the
budget required to be delivered pursuant to Section 6.1(d) and prior year for
the statement of income. In addition, the Borrower agrees to furnish the
foregoing information within the time period specified above with respect to its
Retail Periods ended December 31, 2001 and January 28, 2002.

               (m) 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 the officers and designated representatives of any
Lender or the Financial Advisor 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 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 or, in
the case of the Financial Advisor, the Agent may desire; provided that no such
prior notice shall be required if an Event of Default has occurred and is
continuing.

                                       71



          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 (including
all real properties leased or owned by them)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 shall name the Agent for the benefit
of the Lenders as an additional insured or loss payee, as applicable, 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

                                       72



which it or any of its properties is bound or to which it is a party, except
where the failure to perform such 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 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. The Borrower shall cause
each of its Immaterial Subsidiaries which is a Subordinated Guarantor to at all
times be and remain a party to the Guaranty so long as each

                                       73



such Immaterial Subsidiary is a Subordinated Guarantor. The Borrower shall cause
to be delivered to the Agent a legal opinion in form and substance reasonably
satisfactory to the Agent with respect to any Subsidiary entering into the
Guaranty after the Closing Date.

          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 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 with respect to such Subsidiary 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 and Section
                                                   ------------     -------
2.21.
- ----

          Section 6.13 Additional Mortgages. As security for the payment of the
                       --------------------
Obligations, the Borrower shall and shall cause each of its Subsidiaries to,
concurrently with the acquisition thereof, grant to the Agent a first priority
Lien (free and clear of all Liens other than Liens permitted to be incurred
pursuant to Section 7.3) on and security interest in, all real property
            ------------
(including any leasehold interest) acquired by the Borrower or any such
Subsidiary after the Closing Date in any jurisdiction that does not as of the
date of acquisition assess a mortgage recording tax, together with title
insurance policies, surveys, appraisals, opinions of counsels and such other
documentation as the Agent may reasonably request.

          Section 6.14 Title Policies. Within 45 days after the Closing Date
                       --------------
(or, in the case of Real Estate Collateral located in the State of South
Carolina, 60 days), the Borrower shall, and shall cause each of its Subsidiaries
to, deliver to the Agent, mortgagee's loan policies (or pro-forma title
commitments signed by the title insurance company and obligating such title
insurance company to issue mortgagee's loan policies in a form identical to such
pro-forma title commitments), together with all endorsements required by the
Agent, with respect to all of the Real Estate Collateral subject to Mortgages on
the Closing Date and not previously delivered pursuant to Section 4.2(l) (other
                                                          -------------
than the Real

                                       74



Estate Collateral listed on Schedule 7.5 if such property is sold on or before
                            ------------
such 45th day), issued by or on behalf of a title insurance company acceptable
to the Agent, in form and substance satisfactory to the Agent and insuring the
Liens created by the Mortgages on such Real Estate Collateral. Without limiting
the foregoing, to the extent any such Mortgages require amendments or other
modifications, or new mortgages identifying the correct owner of the Real Estate
Collateral are required, or any other affidavits or other documentation are
required by the title insurance company, in each case, prior to the issuance of
loan policies in form and substance satisfactory to the Agent, within such
45-day period, the Borrower shall, and shall cause each of its Subsidiaries to,
execute and deliver all such amendments, modifications, new mortgages,
affidavits and other documentation each in form and substance satisfactory to
the Agent.

          Section 6.15 Aeroways Aircraft Mortgage. Within 45 days after the
                       --------------------------
Closing Date, the Borrower shall cause Aeroways, LLC to execute and deliver an
Aircraft Mortgage to the Agent, together with warranty assignments, insurance
certificates, opinions of counsel and such other documents as the Agent may
reasonably request to create, perfect, establish the first priority nature of or
otherwise protect any Lien purported to be created in favor of the Agent
pursuant to the Aircraft Mortgage.

SECTION 7. NEGATIVE COVENANTS.

          The Borrower covenants and agrees that until all of the Revolving Loan
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 on
the date set forth below to exceed the ratio set forth opposite such date:

                     Quarter Ending                    Ratio
                     --------------                    -----

              January 28, 2002                          4.60

              May 20, 2002                              4.60

              August 12, 2002                           4.50

              November 4, 2002                          4.50

              January 27, 2003                          4.30

              May 19, 2003                              4.20

                                       75



                     Quarter Ending                    Ratio
                     --------------                    -----

              August 11, 2003                           4.10

              November 3, 2003                          4.10

              January 26, 2004                          3.90

              May 17, 2004                              3.90

              August 9, 2004                            3.75

              November 1, 2004                          3.75

              January 31, 2005                          3.75

              May 23, 2005                              3.75

              August 15, 2005 and each                  3.50
              fiscal quarter thereafter

               (b) [Intentionally Omitted].
                    ---------------------

               (c) Fixed Charge Coverage Ratio. The Borrower shall not permit
                   ---------------------------
the ratio of (i) Consolidated EBITDA of the Borrower, to (ii) 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 of the
fiscal quarters of the Borrower ending on the dates set forth below to be less
than the ratio set forth opposite such dates:

                     Quarter Ending                    Ratio
                     --------------                    -----

              May 20, 2002                              1.25

              August 12, 2002                           1.30

              November 4, 2002                          1.40

              January 27, 2003                          1.40

              May 19, 2003                              1.50

              August 11, 2003                           1.60

              November 3, 2003                          1.60

              January 26, 2004 and each                 1.75
              fiscal quarter thereafter

                                       76



               (d) Minimum Consolidated EBITDA. The Borrower shall not permit
                   ---------------------------
Consolidated EBITDA of the Borrower for the period of thirteen consecutive
Retail Periods of the Borrower (taken as one accounting period) as determined on
the last day of each Retail Period of the Borrower ending during each period set
forth below, to be less than the amount set forth opposite such period:

                     Retail Periods                Amount
                     --------------                ------
                     Ending
                     ------

              December 31, 2001                 $100,000,000
              through December 30,
              2002

              January 27, 2003 through          $105,000,000
              April 29, 2003

              May 19, 2003 through              $ 107,000,00
              July 14, 2003

              August 11, 2003 through           $110,000,000
              October 6, 2003

              November 3, 2003                  $114,000,000
              through December 29,
              2003

              January 26, 2004 through          $117,000,000
              July 12, 2004

              August 9, 2004 through            $125,000,000
              July 18, 2005

              August 15, 2005 and               $140,000,000
              thereafter

provided, however that the amount set forth opposite the period in which the
Santa Barbara Acquisition is consummated in accordance with the terms hereof and
each subsequent period shall be increased by $5,000,000.

               (e) Adjusted Leverage Ratio. The Borrower shall not permit the
                   -----------------------
Adjusted Leverage Ratio to exceed at any time during each fiscal quarter of the
Borrower ending on the date set forth below, the ratio set forth opposite such
date:

                                       77



                     Quarter Ending                    Ratio
                     --------------                    -----

              January 28, 2002                          5.70

              May 20, 2002                              5.70

              August 12, 2002                           5.60

              November 4, 2002                          5.60

              January 27, 2003                          5.50

              May 19, 2003                              5.40

              August 11, 2003                           5.30

              November 3, 2003                          5.20

              January 26, 2004                          5.20

              May 17, 2004                              5.20

              August 9, 2004                            5.10

              November 1, 2004                          5.10

              January 31, 2005                          5.10

              May 23, 2005                              5.10

              August 15, 2005 and each                  5.00
              fiscalquarter thereafter

               (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 an aggregate amount, for each fiscal year of the Borrower, not in excess of
(A), for the Borrower and all Subsidiaries other than any member of the Santa
Barbara Group, the sum of (i) $50,000,000, plus (ii) the EBITDA CapEx Amount for
such fiscal year, plus (iii) the amount of Net Sale Proceeds for Asset
Dispositions occurring during such fiscal year not required to be applied to
reduce the Loans pursuant to Section 2.12; provided, that for fiscal year 2003
                             ------------
of the Borrower, the foregoing amount shall be increased by the excess, if any,
of $41,000,000 over the actual amount of Capital Expenditures incurred during
the fiscal year 2002 of the Borrower; and (B) for the Santa Barbara Group on a
consolidated basis, the amount of Consolidated EBITDA for the Santa Barbara
Group on a consolidated basis for such fiscal year. If the aggregate amount of
Capital Expenditures made or incurred during any fiscal year of the Borrower is
less than the amount (as reduced, if applicable) permitted to be made or
incurred pursuant to the immediately preceding sentence, then the maximum

                                       78



amount for the following fiscal year of the Borrower and its Subsidiaries (but
not any subsequent fiscal year of the Borrower) shall be increased by the amount
of such difference. Notwithstanding any other provision of this Section 7.1(f),
                                                                        ------
(a) if at any time the Unused Portion of the Revolving Loans shall be less than
$15,000,000, and until such time as such Unused Portion has been restored to at
least $15,000,000, the Borrower shall not make or incur and shall not permit any
of its Subsidiaries to make or incur any Capital Expenditures (other than
Capital Expenditures otherwise permitted by this Section 7.1(f) and made or
                                                 --------------
incurred pursuant to contractual commitments to make or incur such Capital
Expenditures entered into by the Borrower or any of its Subsidiaries at a time
when such Unused Portion was at least $15,000,000).

               (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) $50,000,000 (or, upon consummation of the Santa Barbara Acquisition in
accordance with the terms hereof, $65,000,000); (ii) 50% of cumulative
Consolidated Net Income of the Borrower and its Subsidiaries for all fiscal
quarters of the Borrower ended after January 29, 2002 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 the following provided that none of the creation, incurrence,
assumption or existence of any of the following result in or cause a violation
or breach of, or default under, any Subordinated Debt Document:

               (a) Indebtedness hereunder and under the other Loan Documents;

               (b) Indebtedness outstanding on the Closing Date and set forth on
Schedule 7.2 hereto (without duplication of any other Indebtedness permitted by
- ------------
the other provisions of this Section 7.2);
                             ------------

               (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

                                       79



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 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 Domestic Subsidiary of the Borrower owed
to the Borrower or to any Domestic Subsidiary of the Borrower, provided, that
the aggregate of all Santa Barbara Investments does not exceed $12,500,000;

               (h) 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 (i) the
Convertible Subordinated Notes in an aggregate principal amount not to exceed
$159,225,000 and (ii) the New Subordinated Notes in an aggregate original
principal amount not to exceed $287,500,000 at any time outstanding; in each
case less all repayments, redemptions, prepayments, purchases, defeasances or
acquisitions for value with respect thereto after the Closing Date;

               (j) unsecured Indebtedness of the Borrower or any of its
Subsidiaries consisting of guarantees 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 ("Franchisee Construction
Debt"); provided, that (i) the

                                       80



amount of the obligations of the Borrower and its Subsidiaries under or with
respect to guarantees of more than 20% of the principal amount of the Franchisee
Construction Debt of a franchisee shall not exceed $5,000,000 in the aggregate
outstanding at any time; and (iii) except for the guarantees described in the
foregoing clause (ii), the amount of the obligations of the Borrower and its
Subsidiaries under or with respect to guarantees of Franchisee Construction Debt
of any franchisee shall not exceed 20% of the Franchisee Construction Debt of
such franchisee;

               (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;

               (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 $5,000,000
at any time outstanding; and

               (m) Indebtedness with respect to Sale and Leaseback Transactions
permitted under Section 7.13(a).
                ---------------

          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 the following provided, that none of the creation, incurrence,
assumption or existence of any of the following result in the creation or
imposition of a Lien under any Subordinated Debt Document:

               (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;

                                       81



               (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, licenses, rights-of-way, covenants, conditions and
restrictions, 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 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) 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;

                                       82



               (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;

               (k) Liens of a lessor covering only specific property leased by
the Borrower or any of its Subsidiaries subject to operating leases entered into
by the Borrower or any of its Subsidiaries as a lessee in the ordinary course of
business;

               (l) Liens of a lessor covering only specific property leased by
the Borrower or any of its Subsidiaries subject to a Sale and Leaseback
Transaction permitted by Section 7.13(a) entered into by the Borrower or any of
                         ---------------
its Subsidiaries as a lessee; and

               (m) Liens set forth as exceptions to the title policies delivered
 pursuant to Section 4.2(l) and Section 6.14.
             --------------     ------------

          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 may merge into or
- -----------
convey, sell, lease or transfer all or substantially all of its assets to, the
Borrower or any other Domestic 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 or any such
Domestic Subsidiary 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, provided, that in any such merger, the Borrower or such wholly-owned
Subsidiary shall be the surviving corporation, provided, further, 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 if required by Section 2.21, a Subsidiary Pledge Agreement, (B)
                             ------------
the Borrower shall give the Agent at least ten (10) days prior written notice of
any such sale, merger or other transfer, (C) the Agent and Lenders shall not be
deemed to have released their security interest in any assets so transferred or
in any Subsidiary or the assets of any Subsidiary so merged and (D) no Default
or Event of Default shall have occurred or be continuing or would occur after
giving effect thereto or as a result thereof.

                                       83



               (b) Borrower shall not and shall not permit any of its
Subsidiaries to, amend its certificate of incorporation or by-laws (or other
relevant organizational and governing documents) 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 (excluding (i) a bulk sale of inventory and a sale of receivables
(other than delinquent accounts for collection purposes only) and (ii) a sale of
any capital stock of Carl Karcher Enterprises, Inc. or Hardee's) 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, Cash Equivalents or non-cash
     consideration in the form of promissory notes, provided, that in the case
     of non-cash consideration received in the form of promissory notes, (A)
     such consideration shall not exceed 25% of the aggregate purchase price for
     such asset, (B) such promissory notes shall mature no later than 3 years
     after the date of issuance, (C) such promissory notes shall be pledged to
     the Agent, for the benefit of the Lenders, pursuant to a pledge agreement
     in form and substance satisfactory to the Agent, (D) all payments of
     principal, interest and other amounts payable under such promissory notes
     and that are received by the Borrower or such Subsidiary shall be applied
     to prepay the outstanding Loans in accordance with Section 2.12(a) hereof
                                                        ---------------
     and (E) the aggregate principal amount of all promissory notes received as
     consideration for all asset sales permitted under this Section 7.5(a) shall
                                                            -------------
     not exceed $50,000,000 at any one time outstanding,

               (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 10% 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 outstanding 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,

                                       84



               (V) no Default or Event of Default has occurred and is continuing
     or would result from such asset sale, and

               (VI) with respect to any Asset Disposition involving Real Estate
     Collateral, concurrently with such sale (or, with respect to the
     disposition of any Real Estate Collateral listed on Schedule 7.5, up to 60
     days after such sale), the Borrower or such Subsidiary shall, in
     substitution for the Real Estate Collateral sold, pledge to the Agent for
     the benefit of the Lenders and the Interest Rate Hedge Providers additional
     real property of the Borrower or such Subsidiary with a fair market value,
     as determined by an appraisal satisfactory to the Agent and prepared by a
     firm satisfactory to the Agent at or before the time of such sale, at least
     equal to the gross proceeds received from the Real Estate Collateral sold,
     and deliver to the Agent such agreements, documents and instruments as the
     Agent shall request to create, perfect, establish the first priority nature
     of or otherwise protect any Lien purported to be created in favor of the
     Agent in the real property so substituted; provided, however, that, in the
     event the appraised fair market value of the real property provided as
     substitute collateral exceeds the gross proceeds received from any such
     Asset Disposition, the amount of the excess may be deemed to be added to
     the appraised fair market value of subsequent real property to be pledged
     in substitution of Real Estate Collateral later disposed of in accordance
     with the foregoing; and provided, further, that, in the event the Santa
     Barbara Acquisition is consummated and the Borrower and its Subsidiaries
     pledge to the Agent their respective interests in the real property
     acquired as part of such acquisition, the Borrower and its Subsidiaries may
     conduct Asset Dispositions involving Real Estate Collateral without so
     substituting other real property to the extent that the aggregate gross
     proceeds of such unsubstituted dispositions do not exceed the fair market
     value, as determined by an appraisal satisfactory to the Agent and prepared
     by a firm satisfactory to the Agent promptly following the consummation of
     the Santa Barbara Acquisition (but in any event prior to any such
     unsubstituted Asset Disposition), of the real property acquired by the
     Borrower in the Santa Barbara Acquisition and pledged to the Agent; 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).

          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;

                                       85



               (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) guarantees by Subsidiaries of the Borrower pursuant to the
New Subordinated Note Indenture of obligations of the Borrower under the New
Subordinated Notes, provided, that such guarantees shall at all times be
subordinated in respect of the Obligations on subordination terms contained in
the New Subordinated Note Indenture.

          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 declare and
deliver dividends and distributions payable only in common stock of the
Borrower; 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 provided, that none of the making, existence or creation of
or becoming or remaining a partner in, any of the following will not result in
or cause a violation or breach of, or default under, any Subordinated Debt
Document:

                                       86



               (a) Investments set forth on Schedule 7.8;
                                            ------------

               (b) Investments by the Borrower and its Subsidiaries in
Subsidiaries of the Borrower outstanding on the Closing Date, additional
Investments (other than loans and advances) by the Borrower or any Subsidiary of
the Borrower in any Domestic 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 Domestic Subsidiaries of the Borrower to the extent
permitted by Section 7.2(g); provided, that in no event shall the aggregate of
             --------------
all Santa Barbara Investments exceed $12,500,000.

               (c) loans and advances by the Borrower and its Subsidiaries to
their employees in the ordinary course of its business (other than Employee
Stock Loans) not exceeding $2,000,000 in the aggregate at any one time
outstanding;

               (d) the Borrower and its Subsidiaries may acquire and hold Cash
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" contained in Section 1;
                               ---------

                    (ii) 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
     Subsidiaries 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

                                       87



                         (2) 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;

                    (iii) 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;

                    (iv) 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;

                    (v) 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 outstanding on the date of such Permitted
     Acquisition shall equal at least $25,000,000;

                    (vi) all Consents and waiting periods described in
     clause (vii)(3)(D) below shall have been obtained or expired; and

                    (vii) 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 (or other governing body) 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 statements and
     projections relating to such Person or assets;

                                       88



                         (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
          governing 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 organization;

                              (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
          consummate such Acquisition and that all applicable waiting
          periods with respect to such Acquisition including, without
          limitation, those under the

                                       89



          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 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

                    (viii) other than the Santa Barbara Acquisition, the total
     consideration, contingent or otherwise, for the Acquisition of the Person
     being acquired, together with the consideration paid for each other
     Acquisition consummated pursuant to this Section 7.8(f) during the same
                                              -------------
     fiscal year does not exceed, in the aggregate, $10,000,000 (including,
     without limitation, securities, instruments, or promissory notes tendered
     or executed in connection with such acquisition), provided, that the
     consideration paid under this clause (viii) shall be included for purposes
     of calculating compliance with Section 7.1(f) and all such Acquisitions
                                    --------------
     shall be permitted only to the extent they are permitted under Section
                                                                    -------
     7.1(f);
     ------

               (g) Investments received as consideration in connection with
Asset Dispositions permitted under paragraph (a) of Section 7.5;
                                                    -----------

               (h) Investments in Capital Stock of Checkers Drive-In
Restaurants, 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;

               (i) Employee Stock Loans not exceeding $10,000,000 in the
aggregate at any one time outstanding;

               (j) the Santa Barbara Acquisition, provided, that at the time of
consummation thereof, no Material Adverse Change shall have occurred in the
reasonable judgement of the Agent; and

               (k) if the Santa Barbara Acquisition is consummated, loans to
franchisees of Green Burrito in an aggregate amount not to exceed $900,000 for
all such loans made after the Closing Date.

          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 obtainable at the
time in a comparable arm's-length transaction with a Person other

                                       90



than an Affiliate; provided, however, that Employee Stock Loans otherwise
permitted by the terms hereof shall not be considered to be transactions with
Affiliates for purposes of this Section 7.9.
                                -----------

          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 (excluding the Indebtedness hereunder
and under the other Loan Documents and Indebtedness permitted to be incurred
pursuant to Section 7.2(i)), provided that the Borrower may, and may permit any
            --------------
of its Subsidiaries to,

               (i) prepay, redeem, defease, purchase or acquire or exchange
     any (collectively, a "Prepayment") Surviving Debt (other than
     Indebtedness permitted to be incurred pursuant to Section 7.2(i)) 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
     $20,000,000; provided, however, that notwithstanding the foregoing,
     the Borrower shall not, and shall not permit any of its Subsidiaries
     to, make any Prepayment of any Indebtedness referred to in Section
                                                                -------
     7.2(h);
     ---

               (ii) make regularly scheduled or required repayments of
     Indebtedness permitted pursuant to Section 7.2; and
                                        -----------

               (iii) concurrently with the closing of the Santa Barbara
     Acquisition, terminate the credit facility governed by that certain
     Credit Agreement, dated as of December 20, 2001, among Santa Barbara
     Restaurant Group, Inc., and its Subsidiaries, as borrowers, the
     financial institutions from time to time party thereto and Fleet
     National Bank, as agent for such financial institutions, and prepay up
     to $9,000,000 of the outstanding obligations under such Credit
     Agreement (the actual amount so repaid, the "Santa Barbara Loan
     Repayment Amount").

                                       91



               (b) amend, modify or waive, or permit the amendment, modification
or waiver of (i) the Surviving Debt (other than Indebtedness permitted to be
incurred pursuant to Section 7.2(h) or Section 7.2(i)) in any way that would be
                     --------------    ---------------
materially adverse to the Lenders or (ii) 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 (i) regularly scheduled semi-annual interest payments required to be made
in cash, (ii) conversions of the Convertible Subordinated Notes into common
stock of the Borrower, (iii) consummation of the Permitted Redemption, (iv)
consummation of the Permitted Refinancing and (v) the redemption or repurchase
of Convertible Subordinated Notes (other than in connection with the Permitted
Redemption), provided, that (A) the purchase price paid by the Borrower for such
Convertible Subordinated Notes shall not exceed in the aggregate, for the period
commencing January 29, 2002, and ending the last day of the last fiscal quarter
ending prior to such redemption or repurchase the sum of (1) the aggregate Net
Equity Proceeds of the Borrower for such period, plus (2) 25% of Consolidated
                                                 ----
Net Income for such period (or if Consolidated Net Income for such period is a
deficit, less 100% of such deficit (which deficit for purposes of subtracting
such amount shall be deemed to be a positive number)), (B) 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 that,
both before and after giving effect to such repurchase and redemption, for a
period of four consecutive fiscal quarters then ended, the Leverage Ratio shall
be less than 4.0 and Consolidated EBITDA of the Borrower and its Subsidiaries
for the 13 Retail Period most recently ended shall at least equal 120,000,000,
(C) both before and after giving effect to such redemption or repurchase, no
Default or Event of Default shall have occurred and be continuing and (D) after
giving effect to such redemption or repurchase, no Loans shall be outstanding.

          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 document which directly or indirectly restricts
the ability of the Borrower or any of its

                                       92



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 Closing Date 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:

               (a) for the rental or hire of real or personal property in
connection with any sale and leaseback transaction, except:

               (i) the Borrower and its Subsidiaries may sell real property or
equipment owned by the Borrower or any of its Subsidiaries on the Closing Date
and simultaneously with such sale become liable with respect to any operating
lease involving such property (each, an "Existing Property Sale and Leaseback
Transaction"), and (ii) the Borrower and its Subsidiaries may sell real property
which the Borrower or any of its Subsidiaries acquires after the Closing Date
for the purpose of building a Restaurant which the Borrower or such Subsidiary
intends to own and operate, and simultaneously with such sale become liable with
respect to any operating lease involving such property if such sale and
leaseback occurs on or before the date which is twelve (12) months after the
date of acquisition by the Borrower or one of its Subsidiaries of such real
property (each, a "New Property Sale and Leaseback Transaction") provided, that:

                         (1) an Affiliate of the Borrower or any of
     its Subsidiaries is not a party to any such Sale and Leaseback
     Transaction (except to the extent that the Borrower or any of its
     Subsidiaries is the lessee);

                                       93



                         (2) the Agent is provided with fully executed
     documentation of each Sale and Leaseback Transaction on or prior
     to the closing date of such transaction;

                         (3) no Default or Event of Default exists on
     the closing date of any Sale and Leaseback Transaction or would
     result therefrom and the Borrower shall deliver to the Agent
     prior to the closing date of such transaction an officer's
     certificate of the chief financial officer of the Borrower
     certifying thereto;

                         (4) the term of each such operating lease
     shall not be less than fifteen (15) years, provided, that the
     Borrower and its Subsidiaries may enter into Sale and Leaseback
     Transactions involving equipment in an amount not exceeding
     $5,000,000 in the aggregate where the term of the operating lease
     is less than fifteen (15) but greater than three (3) years;

                         (5) the aggregate amount of all property sold
     after the Closing Date pursuant to a Sale and Leaseback
     Transaction shall not exceed $25,000,000 in the aggregate; and

                         (6) concurrently with any Sale and Leaseback
     Transaction involving Real Estate Collateral, the Borrower or
     such Subsidiary shall, (i) in substitution for the real property
     sold, pledge additional fee owned real property of the Borrower
     or such Subsidiary to the Agent for the benefit of the Lenders
     with a fair market value at least equal to the then fair market
     value of the real property sold, as determined by an appraisal
     performed at the time of such sale which is satisfactory to the
     Agent and prepared by a firm satisfactory to the Agent and (ii)
     deliver to the Agent Mortgages and such title insurance policies,
     surveys and appraisals with respect to such substitution property
     and the leasehold interest created as the Agent may reasonably
     request, together such agreements, documents and instruments as
     the Agent shall request to create, perfect, establish the first
     priority nature of or otherwise protect any Lien purported to be
     created in favor of the Agent in the substitution property and
     the leasehold interest;

               (b) for the rental or hire of other real or personal property of
any kind under leases or agreements to lease including Capitalized Leases except
for leases (including Capitalized Leases) entered into for fair market value in
the ordinary course of business of the Borrower and its Subsidiaries.

                                       94



          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, except that on a one time basis either the Borrower may
change its fiscal year to match that of Hardee's, or any of the Subsidiaries of
the Borrower may change their respective fiscal years as necessary to match that
of the Borrower.

          Section 7.17 Partnerships. The Borrower shall not, and shall not
                       ------------
permit any of 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 (a) Designated Senior Indebtedness (as
defined in the Convertible Subordinated Note Indenture) and (b) Designated
Senior Indebtedness (as defined in the New Subordinated Note Indenture), in each
case other than obligations arising under the Loan Documents.

          Section 7.20 Instruments. The Borrower shall not permit any of its
                       -----------
Subsidiaries to own or hold, directly or beneficially, any Instrument if such
Subsidiary is not a party to a legal, valid and binding Subsidiary Pledge
Agreement.

                                       95



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 continue for thirty (30)
     days.

                    (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

                                       96



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 involuntary 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 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

                                       97



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 Borrower's
Subsidiaries party to any Security Document seeks to repudiate its respective
obligations 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 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 Closing Date, 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

                                       98



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 consummation, 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) a
Change in Control as defined in the New Subordinated Note Indenture shall have
occurred.

               (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 Environmental 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 Assets. The Borrower and/or its
                   ---------------------------
Subsidiaries shall sell, convey or otherwise transfer or dispose of any material
intellectual property or license agreement owned by or licensed to the Borrower
or any of its Subsidiaries or any material license agreement to which the
Borrower or any of its Subsidiaries is a party other than (A) a sale, conveyance
or other transfer (other than a Lien) to a Domestic Subsidiary, (B) licenses
pursuant to Franchise Agreements pledged to the Agent pursuant to the Security
Documents and (C) any Asset Disposition permitted by the terms of any of the
Loan Documents.

          Section 8.2 Rights and Remedies. Upon the occurrence of any Event of
                      -------------------
Default described in Section 8.1(e), the Revolving Loan 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

                                       99



(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 Revolving
Loan Commitments are terminated, whereupon the Revolving Loan 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 BNP Paribas as the Agent of such Lender under this Agreement and each
other Loan Document, and each such Lender irrevocably authorizes BNP 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 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.

                                      100



          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 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.

                                      101



          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
nature whatsoever (including, without limitation, the fees and disbursements of
counsel for the Agent or such Person in connection with any investigative,

                                      102



administrative or judicial proceeding 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 execution, delivery or performance of any
Loan Document or any other Transaction Document (but excluding any such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting 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
consummated, pay all reasonable out-of-pocket costs and expenses of the Agent in

                                      103



connection with the negotiation, preparation, execution and delivery of the Loan
Documents, the commitment letter related thereto and the Fee Letters, the
syndication of the Loans and the closing of the Transactions and the documents
and instruments referred to therein, in connection therewith, 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, including, without limitation, fees and expenses incurred in
connection with the transactions contemplated by Section 2.21), 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, the Financial Advisor 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
disbursements 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 Transactions or the execution, delivery or performance of any Loan
Document or any other Transaction 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 Environmental Concern, (iv) the
breach of any environmental representation or warranty set forth in Section
                                                                    -------
5.19, (v) the grant to
- ----

                                      104



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 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
communications to the Agent shall not be effective until received by the Agent.

          Section 10.4 Successors and Assigns; Participation; Assignments.
                       --------------------------------------------------

                                      105



               (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 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 Revolving Loan 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

                                      106



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, (ii) to an Assignee approved in
writing by the Agent, which approval shall not be unreasonably withheld and
(iii) so long as no Default or Event of Default shall have occurred and be
continuing, to an Assignee approved by the Borrower, 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 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 Revolving Loan
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

                                      107



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
                   ------------------------------
consummation of any transfer to a Purchasing Lender pursuant hereto, the
transferor Lender, the Agent 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 Revolving Note shall be payable
to the Purchasing Lender and shall be substantially in the form of Exhibit A.
                                                                   ---------

          Section 10.5 Amendments and Waivers.
                       ----------------------

               (a) Neither this Agreement, any Note, any other Loan Document to
which the Borrower or any other Loan Party is a party nor any terms hereof or
thereof may be amended, supplemented, modified or waived except in accordance
with the provisions of this Section. The Required Lenders and the Borrower (or
such other Loan Party, as the case may be) 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 or such other Loan
Party is a party, provided, that no such amendment, supplement, modification or
waiver shall (i) extend the Revolving 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
Revolving Loan 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 Carl Karcher
Enterprises, Inc., Hardee's or any Subsidiary of Hardee's (other than any such
Subsidiary which is an Immaterial

                                      108



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 (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; provided, further, 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 any Subsidiary of the
Borrower (other than a Subsidiary of Hardee's) 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 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). 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 Revolving Loan 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

                                      109



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 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
circumstances 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;

                                      110



                              (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
          termination 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
          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 TO THE EXTENT SUCH PRINCIPLES
WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN THE STATE
OF ILLINOIS).

                                      111



               (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 pro perty, 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 one and the same instrument.

          Section 10.11 Financial Advisor. The Borrower and each Lender agrees
                        -----------------
and acknowledges that the Agent may, in its sole discretion, from time to time
retain a financial advisor (the "Financial Advisor") for the purpose of advising
the Agent and the Lenders as to the financial condition of the Borrower and its
Subsidiaries and such other matters related to the facility provided and
contemplated hereunder as the Agent and the Lenders may desire. The Borrower
agrees to pay all reasonable fees, costs and out-of-pocket expenses of the
Financial Advisor in connection with the performance of its duties under this
Section 10.11 and to indemnify the Financial Advisor in accordance with Section
- -------------                                                           -------
10.1(c) hereof.
- ------

          Section 10.12 Amendment and Restatement. This Agreement amends and
                        -------------------------
restates in its entirety the Original Credit Agreement. Upon the effectiveness
of this Agreement, the terms and provisions of the Original Credit Agreement
shall, subject to this Section 10.12, be superseded hereby. Notwithstanding the
                       -------------
amendment and restatement of the Original Credit Agreement by this Agreement,
the Borrower shall continue to be liable to the Lenders party to the Original
Credit Agreement and the Agent with respect to agreements on the part of the
Borrower under the Original Credit Agreement to indemnify any of such Lenders or
the Agent in connection with events or conditions arising or existing

                                      112



prior to the date hereof, 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 Agreement. Upon the effectiveness of this
Agreement, each reference to the Original Credit Agreement 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 Agreement. 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
Agreement. The principal amounts of Loans outstanding under the Original Credit
Agreement 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. Each Letter of Credit issued under the Original Credit Agreement and
outstanding immediately prior to giving effect to this Agreement shall be deemed
to be a Letter of Credit hereunder.

          Section 10.13 [Intentionally Omitted].
                        -----------------------

          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 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

                                      113



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 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 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.

          Section 10.23 References. Unless otherwise expressly specified herein,
                        ----------
all references to "Article," "Section,""Schedule," or "Exhibit" shall mean
articles and sections of, and schedules and exhibits to, this Agreement.

                            (Signature Pages Follow)

                                      114



     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:
                                -----------------------------------------
                             Print Name:
                             Title:

                             Address:    401 W. Carl Karcher Way
                                         Anaheim, CA 92801

                                         Attn: General Counsel

                                         Telephone:(714) 774-5796
                                         Telecopy: (714) 520-4485

                                      S-1



                             BNP PARIBAS (as successor-in-interest to Paribas),
                             as Agent and as a Lender


                             By:
                                 -----------------------------------------------
                             Print Name: Clark C. King III
                             Title:  Managing Director


                             By:
                                 -----------------------------------------------
                             Print Name:
                             Title:

                             Address:    209 S. LaSalle Street
                                         Suite 500
                                         Chicago, IL 60604

                                         Attn: Clark C. King III
                                         Telephone:      (312) 977-2254
                                         Telecopy:       (312) 977-1380

                                         with a copy to:

                                         Maureen B. Keating
                                         BNP Paribas
                                         787 Seventh Avenue
                                         New York, NY 10019-6016
                                         Telephone:      (212) 841-2286
                                         Telecopy:       (212) 841-2275

                                      S-2



                             FIRST BANK & TRUST


                             By:
                                ------------------------------------------------
                             Print Name: Richard Fein
                             Title:      Vice President

                             Address:    4301 MacArthur Blvd.
                                         Newport Beach, CA 92660

                                         Attn:    Richard Fein

                                         Telephone:      (949) 475-6348
                                         Telecopy:       (949) 476-8445

                                      S-3



                             WELLS FARGO BANK, NATIONAL ASSOCIATION


                             By:
                                ------------------------------------------------
                             Print Name: Stephen Amendt
                             Title:      Vice President

                             Address:    2030 Main Street
                                         Suite 900
                                         Irvine, CA  92614

                                         Attn: Stephen Amendt

                                         Telephone:      (949) 251-4195
                                         Telecopy:       (949) 261-1830

                                      S-4



                             FLEET NATIONAL BANK


                             By:
                                ------------------------------------------------
                             Print Name: Alexandra A. Burke
                             Title:      Vice President

                             Address:

                                         Attn: Alexandra A. Burke

                                         Telephone:      (617) 434-5749
                                         Telecopy:       (617) 434-0637

                                      S-5



                             U.S. BANK NATIONAL ASSOCIATION


                             By:
                                ------------------------------------------------
                             Print Name:
                             Title:

                             Address:    555 S. W. Oak Street, PL-4
                                         Portland, OR  97204

                                         Attn:    Janet Jordan

                                         Telephone:      (503) 275-5871
                                         Telecopy:       (503) 275-5428

                                      S-6



                        Schedule 1.1 to Credit Agreement
                        --------------------------------

                             Lenders and Commitments
                             -----------------------

Name of Lender                               Revolving Loan Commitment
- --------------                               -------------------------

First Bank and Trust                         $25,000,000.00

Fleet National Bank                          $15,000,000.00

BNP Paribas                                  $25,000,000.00

U.S. Bank National Association               $15,000,000.00

Wells Fargo Bank, National Association       $20,000,000.00

EX-12.1

CKE RESTAURANTS, INC. AND SUBSIDIARIES

Computation of Ratio of Earnings to Fixed Charges

	Fiscal Year Ended January 31,
(Dollars in thousands)	2002			2001			2000			1999		1998
Earnings before fixed charge:
Income (loss) before taxes and extraordinary items	$	(84,540	)	$	(205,264	)	$	(47,460	)	$	124,097	$	76,640
Fixed Charges		85,097			103,719			92,389			68,843		35,325
	$	557		$	(101,545	)	$	44,929		$	192,940	$	111,965
Fixed Charges:
Interest expense	$	57,659		$	70,541		$	63,283		$	43,453	$	16,914
Interest component of rent expensed (1)		27,438			33,178			29,106			25,390		18,411
	$	85,097		$	103,719		$	92,389		$	68,843	$	35,325
Ratio of earnings to fixed charges (2)		—			—			0.5			2.8		3.2

⁽¹⁾ Calculated as one-third of total rent expense.

⁽²⁾ Earnings were insufficient to cover fixed charges for the years ended January 31, 2002 and 2001 by $84,540 and $205,264, respectively.

CKE RESTAURANTS, INC.

EX-21.1

CKE RESTAURANTS, INC. AND SUBSIDIARIES

LIST OF SUBSIDIARIES

Set forth below is a list of the Registrant’s subsidiaries as of January 28, 2002:

	Jurisdiction of Organization	Control by
Name of Subsidiary		Registrant	Subsidiary
Carl Karcher Enterprises, Inc.	California	100%
Boston Pacific, Inc.	California	100%
Hardee’s Food Systems, Inc.	North Carolina	100%
Flagstar Enterprises, Inc.	Alabama	100%
Spardee’s Realty, Inc.	Alabama		100%
HED Inc.	North Carolina		100%
Burger Chef Systems, Inc.	North Carolina		100%
Hardee’s LTD, Fribourg	Switzerland		98%
Hardee’s REIT I	Delaware		100%
Hardee’s REIT II	Delaware		100%
CKE REIT I, Inc	Delaware	100%
CKE REIT, II, Inc.	Delaware	100%
Carl’s Jr. Region VIII, Inc.	Delaware		100%
Aeroway, LLC	California	100%
Santa Barbara Restaurant Group, Inc.	Delaware	100%
Green Burrito, Inc.	California		100%
La Salsa, Inc.	Delaware		100%
Timber Lodge Steakhouse, Inc.	Minnesota		100%
GB Franchise Corporation	California		100%
La Salsa of Nevada, Inc.	Nevada		100%
La Salsa Franchise, Inc.	California		100%
			100%

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders

CKE Restaurants, Inc.:

We consent to incorporation by reference in the Registration Statements (Nos. 333-83666, 333-76884, 333-41266, 333-83621, 333-83601, 333-76377, 333-51103, 333-52633, 333-62421, 33-56313, 33-55337, 333-12399, 33-53089-01, 2-86142-01, 33-31190-01 and 333-12401) of CKE Restaurants, Inc. and subsidiaries of our report dated March 13, 2002, relating to the consolidated balance sheets of CKE Restaurants, Inc. and subsidiaries as of January 31, 2002 and 2001 and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the three-year period ended January 31, 2002, which report appears in the January 31, 2002 Annual Report on Form 10-K of CKE Restaurants, Inc. and Subsidiaries.

Orange County, California

April 29, 2002