NOTE 7 — INDEBTEDNESS AND INTEREST EXPENSE

Successor

Our Credit Facility provides for senior secured revolving facility loans, swingline loans and letters of credit in an aggregate amount of up to $100,000. As of November 7, 2011, we had no outstanding loan borrowings, $31,463 of outstanding letters of credit and remaining availability of $68,537 on our Credit Facility. The Credit Facility bears interest at a rate equal to, at our option, either: (1) the higher of Morgan Stanley's "prime rate" plus 2.75% or the federal funds rate, as defined in our Credit Facility, plus 3.25%, or (2) the London Interbank Offered Rate ("LIBOR"), plus 3.75%.

The terms of our Credit Facility include financial performance covenants, which include a maximum secured leverage ratio and a specified minimum interest coverage ratio. As of November 7, 2011, our financial performance covenants did not limit our ability to draw on the remaining availability of $68,537 under our Credit Facility.

On July 15, 2011, we redeemed $40,000 of the principal amount of our Notes at a price equal to 103% of the principal amount of the Notes pursuant to the terms of the indenture governing the Notes. On October 4, 2011, we purchased $8,170 of the principal amount of our Notes at a price equal to 100% of the principal amount of the Notes in an open market transaction and paid the associated accrued and unpaid interest on these purchased Notes of $212. During the Successor twelve and forty weeks ended November 7, 2011, we recognized a loss of $286 and $2,927, respectively, on the early extinguishment of the Notes. Subsequent to the redemption and purchase, and as of November 7, 2011, the aggregate principal amount of the Notes outstanding was $551,830. As of November 7, 2011, the carrying value of the Notes was $542,413, which is presented net of the remaining unamortized portion of the original issue discount of $9,417 in our accompanying unaudited Condensed Consolidated Balance Sheet. The Notes bear interest at a rate of 11.375% per annum, payable semi-annually in arrears on January 15 and July 15.

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

In accordance with the indenture governing the Notes, we are required to make an offer to repurchase our Notes at 103% of the principal amount of the Notes with a portion of the net proceeds received from sale-leaseback transactions. Pursuant to these requirements, on December 1, 2011, we commenced a tender offer to purchase up to $27,871 of the principal amount of our Notes ("Tender Offer") at a redemption price of 103%, which expires on December 29, 2011. In addition to the Tender Offer, on December 1, 2011, the holders of the Notes were notified that CKE will redeem on January 4, 2012, conditioned in part on the results of the Tender Offer, up to $20,000 aggregate principal amount of the Notes outstanding on January 4, 2012 ("Redemption") at a redemption price of 103% pursuant to the terms of the indenture governing the Notes. Pursuant to the Redemption, the Notes to be redeemed will be reduced so that the total principal amount of Notes purchased in both the Tender Offer and Redemption will not exceed $30,000.

Predecessor

In connection with the Merger, we repaid at closing the total principal outstanding balance of the term loan portion of our senior credit facility ("Predecessor Facility") of $236,487 and the total outstanding borrowings on the revolving portion of our Predecessor Facility of $34,000, as well as all incurred and unpaid interest on our Predecessor Facility.

Additionally, in connection with the Merger, we settled and paid in full all obligations related to our fixed rate interest rate swap agreements, which totaled $14,844. During the Predecessor twenty-four weeks ended July 12, 2010, we recorded interest expense of $3,113 under these interest rate swap agreements to adjust their carrying value to fair value and paid $3,750 for net settlements under our interest rate swap agreements, excluding the settlement at closing of the Merger.

Interest Expense

Interest expense consisted of the following:


	Successor								Predecessor
	Twelve Weeks Ended November 7, 2011		Forty Weeks Ended November 7, 2011		Twelve Weeks Ended November 1, 2010		Sixteen Weeks Ended November 1, 2010		Twenty-Four Weeks Ended July 12, 2010
Senior secured revolving credit facility	$	—	$	—	$	—	$	—	$	—
Senior secured second lien notes		14,462		50,936		15,584		20,779		—
Predecessor senior credit facility		—		—		—		—		2,338
Amortization of debt issuance costs and discount on notes		896		3,065		837		1,115		488
Interest rate swap agreements		—		—		—		—		3,113
Capital lease obligations		1,084		3,663		1,294		1,728		2,318
Financing method sale-leaseback transactions⁽¹⁾		642		743		—		—		—
Letter of credit fees and other		331		1,219		340		413		360

	$	17,415	$	59,626	$	18,055	$	24,035	$	8,617

(1)	See Note 8.

As of November 7, 2011 and January 31, 2011, accrued interest was $19,809 and $3,147, respectively, which is included in other current liabilities in our accompanying unaudited Condensed Consolidated Balance Sheets.

CKE Holdings, Inc. Senior Unsecured PIK Toggle Notes

On March 14, 2011, CKE Holdings, Inc. issued $200,000 aggregate principal amount of senior unsecured PIK toggle notes due March 14, 2016 (the "Parent Notes"). The Parent Notes were issued with an original issue discount of 1.885%, or $3,770. The interest on the Parent Notes can be paid (1) entirely in cash, at a rate of 10.50% ("Cash Interest"), (2) entirely by increasing the principal amount of the note or by issuing new notes for the entire amount of the interest payment, at a rate per annum equal to the cash interest rate of 10.50% plus 0.75% ("PIK Interest") or (3) with a 25%/75%, 50%/50% or 75%/25% combination of Cash Interest and PIK Interest. Pursuant to the indenture governing the Parent Notes, Parent paid the September 15, 2011 interest payment entirely in PIK Interest. Parent will also pay the March 15, 2012 interest payment entirely in PIK Interest. We have not guaranteed the Parent Notes, nor have we pledged any of our assets or stock as collateral for the Parent Notes. As a result, we have not reflected Parent's obligations under the Parent Notes in our unaudited Condensed Consolidated Financial Statements.

During the twelve weeks ended November 7, 2011, CKE purchased $9,948 principal amount of Parent Notes ("Purchased Parent Notes") for $8,362, which represents a weighted average price of 84.06% of the principal amount of the Purchased Parent Notes. For accounting purposes, we have recorded our investment in Parent Notes, which remain outstanding, as a reduction of stockholder's equity in the accompanying unaudited Condensed Consolidated Balance Sheet as of November 7, 2011. As a result of this accounting presentation, we do not expect to recognize interest or investment income associated with our investment in Parent Notes in our Consolidated Statements of Operations during the holding period.

As of November 7, 2011, the principal amount of Parent's total long-term debt on a stand-alone basis was $211,313, which includes the September 15, 2011 interest payment of $11,313 that was added to the principal amount of the Parent Notes on September 15, 2011. The principal amount of Parent's long-term debt on a stand-alone basis has not been reduced by the $9,948 principal amount of the Purchased Parent Notes since the Purchased Parent Notes remain outstanding. As of November 7, 2011, the carrying amount of Parent's total long-term debt on a stand-alone basis, including the current portion and the Purchased Parent Notes, was $207,789, which is presented net of the unamortized portion of the original issue discount of $3,524.