Exhibit 10.2
CKE Restaurants, Inc.
Amendment No. 2
to
Employment Agreement
     This Amendment No. 2 (the “Amendment”) to Employment Agreement is made
effective as of October 12, 2006, by and between CKE Restaurants, Inc. (the
“Company”) and E. Michael Murphy (the “Employee”).
RECITALS:
     A. The Company and the Employee entered into an Employment Agreement, dated
as of January 12, 2004, and amended on December 6, 2005 (collectively, the
“Agreement”).
     B. The Company and the Employee now desire to further amend the Agreement
as set forth below.
AGREEMENT
     1. Salary. Section 3 is hereby amended to provide that the minimum base
annual salary shall be $525,000, retroactive to August 14, 2006.
     2. Other Compensation and Fringe Benefits. Section 4(e) is hereby amended
to extend the bonus provided for therein to fiscal years 2008, 2009 and 2010.
     3. Other Compensation and Fringe Benefits. Clause (f) is hereby added to
Section 4, which clause reads in its entirety as follows:
     “(f) Restricted Shares.
     (i) Employee shall be granted, subject to items (iii) and (iv) below,
“restricted shares” as provided on Exhibits A and B attached hereto. The
“restricted shares” provided for on Exhibit A are hereinafter referred to as
“Time-Based Shares,” the “restricted shares” provided for on Exhibit B are
hereinafter referred to as “Performance Shares” and, collectively, the
Time-Based Shares and the Performance Shares are hereinafter referred to as the
“Restricted Shares.” The amount of Restricted Shares, the dates of grant
(hereinafter, each date of grant on Exhibits A and B is referred to as “Date of
Grant”), the terms and conditions of vesting and other provisions relating
thereto are set forth on the respective Exhibits. All Restricted Shares shall be
granted under one or more of the Company’s equity-based plans approved by the
Company’s stockholders (a “Company Equity Plan”), as determined by the Company’s
Compensation Committee at the time of grant, except as provided in
Sections 7(b)(vi) and 8(b)(vi) below.
     (ii) The purchase price for all Restricted Shares shall be $0.00.
     (iii) All grants provided for on Exhibits A and B shall be subject to the
availability of “restricted shares” under a Company Equity Plan on the Date of
Grant, except as provided in Sections 7(b)(vi) and 8(b)(vi) below. If there are
not enough “restricted shares” available under a Company Equity Plan on any Date
of Grant, (a) any short-fall shall be allocated first

 

--------------------------------------------------------------------------------

 

to Performance Shares and then to Time-Based Shares, and (b) the Company shall
have no obligation to make any other form of compensation available to the
Employee in lieu of any short-fall. The Company shall use its best efforts to
cause the stockholders of the Company to approve either an amendment to any
current Company Equity Plan or the adoption of a new Company Equity Plan, to
assure that, at any given time, “restricted shares” are available to fulfill the
grants provided for on Exhibits A and B.
     (iv) The Employee must be an eligible participant under a Company Equity
Plan on the Date of Grant in order to be entitled to a grant of Restricted
Shares on that date, except as provided in Sections 7(b)(vi) and 8(b)(vi) below.
     (v) All grants of Restricted Shares shall be on the form of agreement being
used on the respective Date of Grant, containing, however, the specific terms
set forth in this Amendment.
     (vi) All grants of Restricted Shares pursuant to this Amendment shall be
administered pursuant to the terms and provisions of the Company Equity Plan
under which they were granted.
     (vii) The Employee agrees that he may only sell Restricted Shares after
they vest, as follows, subject to compliance with all securities’ laws:
     (a) Restricted Shares necessary to pay any income taxes (including
withholding taxes) on the vesting thereof;
     (b) For Restricted Shares whose Date of Grant is the Date Hereof and
October 12, 2007, any time on or after the later of two years from their date of
vesting or October 12, 2011;
     (c) For Restricted Shares whose Date of Grant is October 12, 2008, any time
on or after October 12, 2011;
     (d) For Restricted Shares whose Date of Grant is October 12, 2009 and
October 12, 2010, any time on or after the vesting thereof;
     (e) With the written approval of the Company’s Compensation Committee;
and/or
     (f) Any time on or after the death, disability or termination without cause
of Employee, or after a Change In Control (as defined in Section 6 on
Exhibit B).”
     4. Termination. Section 7(b) is hereby amended to read in its entirety as
follows:
     “(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 7(b):

2

--------------------------------------------------------------------------------

 

     (i) The Company shall pay the Employee all amounts owed 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, under this
Agreement or otherwise, the Company shall pay, as severance to the Employee,
subject to the Employee executing and delivering to the Company a release of the
Company and its affiliates from all known or unknown claims at the date of such
termination based upon or arising out of this Agreement or the termination, in
form reasonably acceptable to the Employee, the sum of:
     (A) An amount equal to the product of the Employee’s minimum base annual
salary in effect as of the date of termination multiplied by the number three,
plus
     (B) An amount equal to a pro rata portion of the bonus for the year in
which the termination occurs, as provided in Section 4(e) (based on an
annualized calculation as of the date of termination), which sum shall be made
in a single lump sum in accordance with its normal payroll procedures within
five days following the date of termination;
     (iii) All options granted to the Employee which had not vested as of the
date of such termination shall vest concurrently with such termination, and,
notwithstanding the terms of any option agreements, Employee may exercise any
vested options, including by reason of acceleration, for a period after such
termination which is the greater of what is provided in the respective option
agreement, or 30 days;
     (iv) All restricted stock awards, restricted stock unit awards, and other
forms of equity compensation awards granted to the Employee, which had not
vested as of the date of such termination, shall vest concurrently with such
termination;
     (v) All Restricted Shares provided for in Amendment No. 3 to this Agreement
to be granted after the date of such termination shall, if the Company is a
reporting company under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), at the time of termination, be granted on the date of such
termination; provided, however, if, in doing so, such grant shall exceed the
limitations imposed under the Company Equity Plans, such excess shall be spread
back to Dates of Grant within the period from the date of such Amendment No. 3
through the date of such termination in a manner that would result in the
maximum number of Restricted Shares permitted to be granted to Employee under
the Company Equity Plans during such period, and shall vest concurrently with
such termination;
     (vi) All Restricted Shares provided for in Amendment No. 3 to this
Agreement to be granted after the date of such termination shall, if the Company
is not a reporting company under the Exchange Act at the time of termination, be
granted on the date of such termination either under a Company Equity Plan, or,
if for some reason such Restricted Shares cannot be so granted, otherwise
outside a

3

--------------------------------------------------------------------------------

 

Company Equity Plan as necessary to effect the grant, by the Company, and shall
vest concurrently with such termination; and
     (vii) The Company shall maintain in full force and effect for the continued
benefit of the Employee during the period commencing on the date of termination
and ending on the December 31 of the second calendar year following the calendar
year in which the termination occurred, all employee benefit plans (except for
the company’s stock incentive 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 not prohibited under the general
terms and provisions of such plans and programs, but, if prohibited, the Company
shall, at the Company’s expense, arrange for substantially equivalent benefits;
provided, however, that there shall only be included, and Employee shall only be
entitled to, those benefit plans or programs that are exempt from the term
“nonqualified deferred compensation plan” under Section 409A of the Code.
If the Employee voluntarily terminates his employment with the Company under
this Section 7(b), then the Company shall not pay him any separation or
severance pay or other benefit in connection with his termination, but shall
only be obligated to pay the Employee any unpaid portion of his base salary that
he earned for services he performed through his date of termination.
Notwithstanding any other provision in this Agreement, under no circumstances,
will the Employee be permitted to exercise any discretion to modify the vesting
of an award or the amount, timing or form of payment described in this
Section 7.”
     5. Taxes. There is hereby added as new Section 22 to the Agreement, the
following:
     “22. Taxes. Any payroll, withholding or other taxes owed by the Employee to
the Company upon the vesting of Restricted Shares, or other non-cash equity
award granted to the Employee by the Company, may be satisfied, in whole or in
part, by the Employee delivering to the Company Restricted Shares, or other
equity instrument. For purposes hereof, the Restricted Shares, or other equity
instrument, shall be valued at the same value as is used for purposes of
determining the Employee’s taxable income on the vesting of such Restricted
Shares, or other equity instrument.”
     6. Definitions. Terms used but not defined in this Amendment shall have the
respective meanings assigned to them in the Agreement.
     7. Counterparts. This Amendment may be executed in multiple counterparts,
each of which shall be deemed an original, and all of which shall constitute one
Amendment.
     8. Terms and Conditions of Agreement. Except as specifically amended by
this Amendment, all terms and conditions of the Agreement shall remain in full
force and effect.
[See Next Page for Signatures]

4

--------------------------------------------------------------------------------

 

     IN WITNESS WHEREOF, this Amendment is executed by the undersigned as of the
date first above written.

                  /s/ E. Michael Murphy      E. Michael Murphy             

            CKE Restaurants, Inc.
      By:   /s/ Peter Churm        Peter Churm,        Director and Chairman of
the Compensation
Committee of the Board of Directors   

5

--------------------------------------------------------------------------------

 

         

Exhibit A
Time-Based Shares
     1. Time-Based Shares shall be granted at the times and in the amounts, as
follows:

      Date of Grant:   Number of Time-Based Shares:
Date Hereof:
  15,000
October 12, 2007:
  15,000
October 12, 2008:
  15,000
October 12, 2009
  15,000
October 12, 2010:
  15,000
 
   
Total:
  75,000
 
   

     2. Each number of Time-Based Shares referenced above shall vest over
4 years from the Date of Grant, with 25% of such Time-Based Shares vesting on
each of the 4 anniversary dates immediately following the respective Date of
Grant. For example, the grants on the “Date Hereof” shall vest 25% on each of
October 11, 2007, 2008, 2009 and 2010, the grants on October 12, 2007 shall vest
25% on each of October 11, 2008, 2009, 2010 and 2011, and so forth.

A-1

--------------------------------------------------------------------------------

 

CONFIDENTIAL PORTIONS HAVE BEEN OMITTED BASED UPON A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 OF THE SECURITIES
EXCHANGE ACT OF 1934 AND HAVE BEEN SEPARATELY FILED WITH THE
COMMISSION.
Exhibit B
Performance Shares
     1. Performance Shares shall be granted at the times and in the amounts, and
have the respective performance periods (each a “Performance Period”), as
follows:

              Number of Performance     Date of Grant:   Shares:   Performance
Period:
Date Hereof:
  60,000   Fiscal 2007, 2008 and 2009
October 12, 2007:
  60,000   Fiscal 2008, 2009 and 2010
October 12, 2008:
  60,000   Fiscal 2009, 2010 and 2011
October 12, 2009:
  60,000   Fiscal 2010, 2011 and 2012
October 12, 2010:
  60,000   Fiscal 2011, 2012 and 2013
 
       
Total:
  300,000    
 
       

The reference to “Fiscal” under Performance Period, and hereafter, is to the
Company’s fiscal year ending in the referenced calendar year.
     2. Performance Shares can vest in one of three ways:
     (1) One-third of each grant can vest, based upon the performance criteria
set forth below, for each of the three Fiscal years referenced under the column
“Performance Period” for such grant. The measurement for determining whether
Performance Shares vest for each Fiscal year shall be a comparison of the
Company’s “operating income” for the respective Fiscal year to the “operating
income” of the Company for Fiscal 2006, which was $77.9 million (the “Base Year
Operating Income”). Based upon this comparison, Performance Shares shall vest
for the respective Fiscal year indicated for each grant under the “Performance
Period” column if the “operating income” for such Fiscal year equals or exceeds
the target “operating income” set forth opposite such Fiscal year below (the
“Target Operating Income”):
*CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH
COMMISSION.
     For purposes hereof, “operating income” shall be determined in accordance
with generally accepted accounting principles and as reflected in the Company’s
audited financial statements for the respective Fiscal year, excluding,
therefrom (if otherwise included in

B-1

--------------------------------------------------------------------------------

 

“operating income”), however, any expense arising from the Performance Shares,
any gains or losses on the sale of Company owned restaurants to franchisees and
costs and fees associated with the purchase or sale of equity securities of the
Company or the borrowing of, or reduction in, debt financing (“Operating
Income”).
     If the Company’s Operating Income for any Fiscal year does not equal or
exceed the Target Operating Income indicated above, a percentage of the
Performance Shares that would have vested had such Target Operating Income been
equaled or exceeded can, nevertheless, still vest as follows:

      If the Company's Operating Income is   The following percentage of within
the following percentages   Performance Shares subject to full (rounded to the
nearest whole number)   vesting for such Fiscal year shall of the Target
Operating Income:   vest:
80%:
  50%
For every 1% over 80%,
  An additional 2.58%
up to 99%:
   

     Notwithstanding the foregoing, if there is a change (a “Change”) to
generally accepted accounting principles that affects the computation of
“operating income” for Fiscal years within a Performance Period, (i) the Base
Year Operating Income will be recomputed to reflect the impact of any such
Change as if the Change had occurred in Fiscal 2006, and (ii) if such Change
would have affected Base Year Operating Income, Target Operating Income will
also be recomputed using the same methodology that was used to derive the Target
Operating Income listed in the table above, which methodology was provided in
writing to the Compensation Committee of the Board, and its tax and legal
advisors, at the time of approval of this Amendment.
     (2) If not all Performance Shares for any Performance Period vest pursuant
to item (1) above, such Performance Shares that do not so vest may,
nevertheless, vest as follows
     (a) For the three Fiscal years included within such Performance Period, add
the Operating Income for each such year (the “Cumulative Actual Operating
Income”).
     (b) For the same three Fiscal years, add the Target Operating Income for
each such year (the “Cumulative Target Operating Income”).
     (c) If the Cumulative Actual Operating Income equals or exceeds the
Cumulative Target Operating Income, the remaining Performance Shares for such
Performance Period shall vest.

B-2

--------------------------------------------------------------------------------

 

     (3) If not all Performance Shares for any Performance Period vest pursuant
to items (1) and (2) above, such Performance Shares that do not so vest may,
nevertheless, vest as follows:
     (a) For each of the three Fiscal years included within such Performance
Period:
     (i) Determine the Operating Income for each of the 12 companies set forth
on Exhibit C (the “Peer Group Companies”) (for purposes hereof, since the Peer
Group Companies will have different fiscal years, the fiscal years for each
which most closely approximates the Company’s Fiscal years within this
Performance Period should be used);
     (ii) For each Peer Group Company, calculate the percentage of each such
Fiscal year’s Operating Income relative to the Operating Income of such Peer
Group Company for its Fiscal year immediately preceding the first Fiscal year in
such Performance Period;
     (iii) Add the three percentages determined under (ii) above and divide by 3
(the “Peer Company Average Percentage”);
     (iv) Determine the Operating Income for the Company, without any special
exclusions specified, or recomputation of Target Operating Income provided for,
in 2(1) above;
     (v) Calculate the percentage of each such Fiscal year’s Operating Income
relative to the Operating Income of the Company for its Fiscal year immediately
preceding the first Fiscal year in such Performance Period;
     (vi) Add the three percentages determined under (v) above and divide by 3
(the “Company Average Percentage”);
     (vii) If the Company Average Percentage is equal to or greater than eight
of the Peer Company Average Percentages, the remaining Performance Shares for
such Performance Period shall vest (if the Operating Income of any of the Peer
Group Companies is not available for any Fiscal year of this determination, the
Peer Company Average Percentage for such Peer Group Company shall be deemed to
be less than the Company Average Percentage). For purposes hereof, the Company
Average Percentage shall be equal to any Peer Company Average Percentage if it
is within two-tenths of a percentage point of such Peer Company Average
Percentage. For example, if a Peer Group Company’s average annual improvement in
Operating Income over the relevant three-year period is 9.4%, i.e., the Peer
Company Average Percentage, and the Company’s average annual improvement in
Operating Income over the same three-year period is 9.2%, i.e., the Company
Average Percentage, the Company will be deemed to have equaled the Peer Company
Average Percentage for purposes of the foregoing.

B-3

--------------------------------------------------------------------------------

 

     3. Except as otherwise provided herein, the Employee must be employed by
the Company (i) on the last day of any Fiscal year in order for any Performance
Shares to vest for such Fiscal year under Section 2(1) above, and (ii) on the
last day of the third Fiscal year in the Performance Period for any Performance
Shares to vest under Sections 2(2) and (3) above; provided, however, if the
Employee dies or becomes disabled (as provided in Section 7(c) of the Agreement)
during any Fiscal year, any Performance Shares which meet the vesting criteria
in Section 2(1) above for such Fiscal year shall vest in accordance with
Section 2(1), and, if such Fiscal year is the third year of the Performance
Period, any Performance Shares which meet the vesting criteria in Sections 2(2)
or (3) above for such Performance Period shall vest in accordance with such
Section.
     4. After each Fiscal year for which Performance Shares may vest, the
Company’s Compensation Committee shall make a determination as to whether or not
any Performance Shares have vested pursuant to the terms of this Exhibit B and
shall certify as to its determination. This determination shall be made by the
time that the Company files its Form 10-K with the Securities and Exchange
Commission for such Fiscal year.
     5. All vesting of Performance Shares under Section 2(1) above shall be as
of the last day of the Fiscal year for which the performance criteria was met,
and all vesting of Performance Shares under Sections 2(2) and (3) above shall be
as of the last day of the third Fiscal year of the Performance Period.
     6. If there is a “Change In Control,” as defined below, all Performance
Shares (including Performance Shares whose Date of Grant has not yet occurred)
which have not vested as of the date of the Change In Control (the “Unvested
Performance Shares”) shall thereafter not vest pursuant to the vesting criteria
set forth above in this Exhibit B, but rather, shall vest based on time as
follows:
     (1) All Unvested Performance Shares whose Date of Grant precedes a Change
In Control shall vest monthly, in equal amounts, on the last day of each
calendar month, commencing on the last day of the calendar month immediately
following the month in which the Change In Control occurs, and ending on the
last day of their respective three-year Performance Periods; and
     (2) All Unvested Performance Shares whose Date of Grant has not yet
occurred shall vest monthly, in equal amounts, on the last day of each calendar
month, commencing with the month immediately following the month in which the
Date of Grant occurs, and ending on the last day of the respective three-year
Performance Period.
Any Unvested Performance Shares remaining from the determination of an equal
number of shares to vest monthly shall vest on the last day of the respective
Performance Period. The foregoing is subject to any accelerations that may occur
pursuant to this Agreement or otherwise. For purposes hereof, “Change In
Control” shall mean the occurrence of one of the following events:
     (A) A change in the ownership of the Company, which shall occur on the date
that any one person, or multiple persons acting as a group, acquires ownership
of stock of the Company that, together with the stock held by such person, or
group of persons, constitutes more than 50% of the total fair market value or
total voting power of the stock of the Company;

B-4

--------------------------------------------------------------------------------

 

     (B) A change in effective control of the Company, which shall occur on the
date that either:
     (1) Any one person, or multiple persons acting as a group, acquires (or has
acquired during the 12-month period ending on the date of the most recent
acquisition by such persons or group) ownership of the corporation possessing at
least 35% of the total voting power of the stock of such corporation; or
     (2) A majority of members of the Company’s board of directors is replaced
during any 12-month period by directors whose appointment or election is not
endorsed by a majority of the members of the board of directors prior to the
date of such appointment or election; or
     (C) A change in the ownership of a substantial portion of the Company’s
assets, which shall occur on the date that any one person, or multiple persons
acting as a group, acquires (or has acquired during the 12-month period ending
on the date of the most recent acquisition by such persons or group) assets from
the Company that have a total gross fair market value (determined without regard
to any liabilities associated with such assets) equal to or more than 40% of the
total gross fair market value of all of the assets of the Company immediately
prior to such acquisition or acquisitions.

B-5

--------------------------------------------------------------------------------

 

Exhibit C
Peer Group Companies
Applebee’s International, Inc.
Brinker International, Inc.
California Pizza Kitchen, Inc.
Cheesecake Factory Incorporated
Dominos Pizza, Inc.
Jack in the Box Inc.
Krispy Kreme Doughnuts, Inc.
Outback Steakhouse, Inc.
Panera Bread Company
Red Robin Gourmet Burgers, Inc.
Ruby Tuesday, Inc.
Wendy’s International, Inc.

C-1