CKE Restaurants, Inc.
Section 16 Compliance Program
Set forth below is a compliance program to assist executive officers, directors and 10% stockholders of CKE Inc. (the “Company”) and subsidiaries in meeting their “Section 16” filing and compliance responsibilities. Article V of this Memorandum concludes with the requirements that must be met when an “affiliate” or holder of “restricted securities” intends to sell shares of Company Common Stock
II. SHORT-SWING PROFITS UNDER SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(b) of the Securities Exchange Act of 1934 (the “Act”) applies to executive officers, directors and beneficial stockholders of 10% or more of the Company’s Common Stock (referred to as “insiders”) to deter these persons from misusing confidential information about their companies for personal trading gain. Generally, any profit realized by an insider on a purchase and sale, or sale and purchase, of Common Stock (or options, warrants or other derivative securities related to Common Stock) within a period of less than six months must be returned to the Company, regardless of actual overall profit and regardless of intent. It is important to note that purchases and sales by an insider may be matched with transactions by other closely related persons. Insiders are also prohibited from selling securities which the insider does not own at the time of sale.
The Securities and Exchange Commission (the “SEC”) has lessened the impact of Section 16(b) in some situations by providing exemptions from liability (most importantly for transactions done within certain employee option and other benefit plans). For example, if certain conditions are met, the grant of a stock option under such a plan would not be a purchase under Section 16(b). In general, the exercise of an option is also exempt. These exemptions are complex and insiders should, before engaging in any transaction involving the Company’s equity securities, consult with the Company or counsel to discuss the potential applicability of Section 16(b).
III. SECTION 16(a) FILING RESPONSIBILITIES
In order to monitor compliance with the liability provisions of Section 16(b), Section 16(a) of the Act imposes reporting requirements on insiders to monitor compliance with Section 16(b). Companies are required to report in their annual proxy statement and Form 10-K annual report the names of any insider who, during the Company’s preceding fiscal year, failed to file (or filed late) a Form 3, Form 4 or Form 5.
IV. COMPLIANCE PROGRAM
A. Designation of Officers. As noted above, directors and 10% stockholders are “insiders” by law. Certain officers are also deemed “insiders.” However, the Board must, from time to time, designate any other officers that are considered “insiders.”
B. Filing Responsibilities. The preparation and filing of Forms 3, 4 and 5 are the sole responsibility of the insider. However, as a practical matter, to avoid embarrassment to an insider and the Company (in light of the proxy/10-K disclosure requirement), the Company has established the procedures set forth in this memorandum to help prevent inadvertent violations.
C. Required Forms. All Section 16 reports must be filed with the SEC electronically via EDGAR, and posted on the Company’s website by the end of the business day following the filing. To accomplish this, all filers must obtain their own individual filing numbers (a/k/a CIK and CCC codes). These reports include:
1. Form 3. A Form 3, which is filed when a person first becomes an insider subject to Section 16, reports all Company stock owned by the insider at such time and must be filed with (and received by) the SEC within ten calendar days of assuming the position (or initially becoming a 10% stockholder). The Section 16 reporting requirements provide that the insider must include all Company securities (including, warrants, options or convertible securities) beneficially owned as of the date of the event requiring the filing of the Form 3, including but not limited to Company securities held by his or her spouse, children and any other relative living in the insider’s household. Even if no securities were owned on the date of becoming an insider, this report must still be filed.
2. Form 4. A Form 4 must be filed whenever there is a subsequent acquisition or disposition of securities. Certain changes in beneficial ownership, such as stock dividends, gifts and inheritances are exempt from reporting on Form 4, but must be reported at year-end on Form 5. With certain limited exceptions (such as transactions through a 10b5-1 plan in some cases), Form 4 must be filed by the close of business on the second business day following the transaction date. In addition, executive officers and directors (but not 10% stockholders) must report any changes which occurred during the six months after they ceased being an insider if the change took place within six months of any transaction (whether or not matching) while an insider.
3. Form 5. A Form 5 will have to be filed each year (within 45 days after the end of the Company’s fiscal year) by every insider to report exempt transactions not previously reported on Form 4, including qualified employee stock plan acquisitions, and to report failures to file previously due reports. A primary purpose of Form 5 is to promote compliance with Section 16(a) by requiring insiders to report any required Forms 3 and 4 which had not been filed during the year. In addition, at year-end insiders who do not file a Form 5 will be required to provide the Company with a written representation that no Form 5 filing is due (i.e., there are no unreported transactions).
D. Consequences of Delinquent Filings. The consequences of a late filing or a failure to file under the current rules are significant:
- Public embarrassment to the individual and the Company from the disclosures in the proxy statement and the 10-K.
- The SEC has the power to seek any equitable relief that may be appropriate or necessary for the benefit of investors.
E. Preventive Procedures. Because of the SEC requirements, and in particular due to the short timeframe applicable to the Form 4 filing requirement, to help our executive officers and directors prevent inadvertent violations of both the Section 16 filing requirements and the short-swing profit rule, we are implementing the following compliance procedures:
1. Designated Filing Coordinator. We have designated Charles A. Seigel III and Justin Chenard as the Filing Coordinators to assist in preparing all Form 3, Form 4 and Form 5 filings. The Filing Coordinators will prepare the Form 3 upon an individual’s assumption of executive officer or director status. In addition, they will assist all executive officers and directors in preparing a Form 3, Form 4 and Form 5 whenever there is an acquisition or disposition of shares that would require a filing. However, they will need your input whenever there is any change.
It should be noted that, even if an individual is unable to personally sign a Form 3, Form 4 or Form 5 (e.g., if you are out of town), the SEC permits the Form to be signed by another without a prior or simultaneous filing of a power of attorney as long as a power is sent “as soon as practicable,” thereafter. The SEC will not excuse a late filing simply because the individual is unavailable. We have designed a standing power of attorney (Exhibit A) giving Charles A. Seigel III, Reese Stewart or Justin Chenard the authority to sign the applicable Form on your behalf in order to facilitate timely filings in your absence. Please sign and return the enclosed Power of Attorney at your convenience.
2. Periodic Transaction Reporting Reminder. To assist you in meeting your filing obligations, we are attaching a Periodic Transaction Reporting Reminder (Exhibit B), which we will also provide to you from time to time during the year. The Periodic Transaction Reporting Sheet attached to Exhibit B, should be returned to us by the end of the day on which you have had a transaction. The Form 4 must be received by the SEC no later than the close of business on the second business day following the transaction, so time is of the essence.
3. The Checklist. Before engaging in any transaction you should review the Short-Swing Profit Section 16(b) Checklist attached hereto (Exhibit C). This should help prevent the most common short-swing profit rule violations. Since this is just a checklist, you should also check with the Filing Coordinator or your counsel.
F. The Ultimate Responsibility Rests On You. While the Company has adopted these procedures to assist its executive officers and directors in complying with Section 16, you should recognize that it will remain your obligation to see that your filings are made timely and correctly, and that you do not engage in unlawful short-swing transactions. The Company cannot assume any legal responsibility in this regard.
V. SALES UNDER RULE 144
In most cases, a person who is an insider of the Company for purposes of Section 16 will also be considered an “affiliate” of the Company for purposes of Rule 144 under the Securities Act of 1933, as amended (“Rule 144”). Rule 144 provides the primary means by which “restricted securities” or “control securities” can be sold by affiliates of the Company. In order to rely upon Rule 144, an affiliate must meet the specific requirements of Rule 144 applicable to transactions by affiliates including: (1) potentially satisfying the minimum holding period for any restricted securities being sold, (2) adhering to maximum volume limitations with respect to the amount of securities being sold, (3) complying with prescribed “manner of sale” requirements, and (4) filing a Form 144 with the SEC to report the sale (subject to limited exceptions). It is the Company’s policy that its executive officers and directors should generally be treated as “affiliates” of the Company for purposes of Rule 144. Accordingly, in addition to complying with the requirements of Section 16 when effecting the sale of Company equity securities, you will need to comply with the requirements of Rule 144. If you have any questions about the applicability of Rule 144 to your contemplated sale transaction (including the specific requirements of Rule 144 that are applicable to your contemplated transaction), the Company is available (and will make its legal counsel available) to assist you. Please note that you should consult your broker for assistance in completing Form 144.
List of Exhibits:
Exhibit A - Power of Attorney
Exhibit B - Periodic Transaction Reporting Reminder
Exhibit C - Short-Swing Profit Section 16(b) Checklist
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints each of Charles A. Seigel III, Reese Stewart and Justin Chenard signing singly, the undersigned's true and lawful attorney-in-fact to:
(1) execute for and on behalf of the undersigned, any Forms 3, 4 and 5 filed on behalf of CKE Inc., a Delaware corporation (the “Company”), in accordance with Section 16(a) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and the rules thereunder;
(2) do and perform any and all acts for and on behalf of the undersigned which may be necessary or desirable to complete and execute any such Form 3, 4 or 5 filed on behalf of the Company and timely file such form with the United States Securities and Exchange Commission and any stock exchange or similar authority; and
(3) take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact, may be of benefit to, in the best interest of, or legally required by, the undersigned, it being understood that the documents executed by such attorney-in-fact on behalf of the undersigned pursuant to this Power of Attorney shall be in such form and shall contain such terms and conditions as such attorney-in-fact may approve in such attorney-in-fact's discretion.
The undersigned hereby grants to each such attorney-in-fact full power and authority to do and perform any and every act and thing whatsoever requisite, necessary or proper to be done in the exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the undersigned might or could do if personally present, with full power of substitution or revocation, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact's substitute or substitutes, shall lawfully do or cause to be done by virtue of this power of attorney and the rights and powers herein granted. The undersigned acknowledges that the foregoing attorneys-in-fact, in serving in such capacity at the request of the undersigned, are not assuming, nor is the applicable issuer assuming, any of the undersigned's responsibilities to comply with Section 16 of the Exchange Act.
This Power of Attorney shall remain in full force and effect until the undersigned is no longer required to file Forms 3, 4 and 5, or is otherwise deemed to no longer have any reporting obligations under Section 16 of the Exchange Act, unless earlier revoked by the undersigned in a signed writing delivered to the foregoing attorneys-in-fact.
IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed as of this ________ day of _________, 201__.
PERIODIC TRANSACTION REPORTING REMINDER
TO: ALL EXECUTIVE OFFICERS AND DIRECTORS
SUBJECT: FORM 4 REPORTING
FROM: Charles A. Seigel III
This is to remind you that, if there is a change in your beneficial ownership of Company stock at any time, you are required to file a Form 4 with the SEC by the close of business on the second business day following the date of the change in ownership. To enable us to prepare your Form 4 in time to meet the filing deadline, we ask that you return the attached Transaction Reporting Sheet to us on the same day on which you have a transaction.
In general, you must include transactions involving Company stock listed in the name of your spouse, children and relatives sharing your household, as well as other entities such as trusts, corporations and partnerships in which you have an interest.
In addition to purchases and sales, any transfers to trusts and other changes in the nature of your ownership (e.g., from direct to indirect) must be reported on the Transaction Reporting Sheet, even if there is no net change. Although certain transactions (e.g., gifts and inheritances) will now generally be reportable on your year-end Form 5, it is important that all changes in your ownership be included in your Transaction Reporting Sheet, so that we can help you determine what transactions are immediately reportable on Form 4 and what may be deferred to Form 5. If you have any questions please do not hesitate to contact me.
If you are contemplating a transaction in Company stock, be sure that you first review your copy of our Short-Swing Profit Section 16(b) Checklist. In addition, you should not sell Company stock until you complete and file SEC Form 144, which you can obtain from your broker.
Your timely response is necessary so that we may prepare any required Form 4 in order to ensure receipt by the SEC by the required deadline.
TRANSACTION REPORTING SHEET
NAME: TRANSACTION DATE:
1. STOCK TRANSACTIONS, AS FOLLOWS:
Price Per Share
Number of Shares:
Number of Options:
2. OWNERSHIP STATUS o Direct o Indirect (Describe)
o Purchase (please note if: o Open Market or o Private Purchase)
o Sale (please note if: o Open Market or o Private Sale)
o Exercise of Stock Option
o Other Acquisition or Disposition of Common Stock or Rights or Options to Purchase or Sell Common Stock (specify, e.g., tender of shares, acquisition or disposition by will, award of restricted stock, etc.)
4. NUMBER OF SHARES OWNED AT CLOSE OF BUSINESS ON TRANSACTION DATE:
NUMBER OF OPTIONS OWNED AT CLOSE OF BUSINESS ON TRANSACTION DATE:
It is IMPERATIVE that this form be returned to Charles A. Seigel III, via e-mail (firstname.lastname@example.org) or fax (714-780-6401), or Justin Chenard via e-mail email@example.com or fax (714-780-6323), on the same day in which you have had a transaction so that a Form 4, if required, may be prepared for your signature and transmitted to the SEC for receipt on or before the close of business on the second day following the transaction.
SHORT-SWING PROFIT SECTION 16(b) CHECKLIST
Note: ANY combination of PURCHASE AND SALE or SALE AND PURCHASE within 6 months of each other results in a violation of Section 16(b) and the “profit” must be recovered by the Company; the highest priced sale will be matched with the lowest priced purchase. It makes no difference how long the shares being sold have been held — or that one of the two matching transactions occurs after you are no longer a Section 16 insider (so long as such matching transaction occurs within 6 months of you ceasing to be an insider).
SALES. If a sale is to be made by an executive officer, director or 10% stockholder (or any member of his or her immediate family):
1. Have there been any purchases by the insider (or family members) within the past six months?
2. Are any purchases anticipated or required within the next six months?
3. Has the person responsible for preparing the Form 4 been advised?
Note: If an affiliate or if the shares are “restricted securities,” has a Form 144 been prepared and has the broker been reminded to sell pursuant to Rule 144?
PURCHASES. If a purchase is to be made:
1. Have there been any sales by the insider (or family members) within the past six months?
2. Are any sales anticipated or required within the next six months (such as tax-related or year-end transactions)? Note that even though an option exercise is not considered a purchase, a sale of option stock is still matchable against other purchases within six months before or after the sale.
3. Has the person responsible for preparing the Form 4 been advised?
INSIDER TRADING REMINDERS. Before engaging in any transaction in Company stock, please bear in mind that both the federal securities laws and Company policy prohibit transactions in Company stock at a time when you may be in possession of material information about the Company which has not been publicly disclosed. This also applies to members of your household as well as all others whose transactions may be attributable to you. Material information, in short, is any information which could affect the stock price. Either positive or negative information may be material. Once a public announcement has been made, you should wait until the following business day thereafter before engaging in any transactions, subject to the specific guidelines in the Company’s Insider Trading and Tipping Policy. DO NOT FORGET: ALL TRANSACTIONS IN COMPANY STOCK, INCLUDING TRANSACTIONS BY FAMILY MEMBERS, MUST BE PRE‑CLEARED BY CONTACTING EITHER CHARLES A. SEIGEL III OR E. MICHAEL MURPHY. Mr. Seigel may be reached at 805-745-7910 and Mr. Murphy may be reached at 805-745-7720.