<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION l3 OR l5(d) OF THE SECURITIES EXCHANGE
ACT OF l934
For quarterly period ended October 1, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-8766
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VOLUNTEER CAPITAL CORPORATION
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(Exact name of registrant as specified in its charter)
TENNESSEE 62-0854056
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3401 West End Avenue, Suite 260, P.O. Box 24300, Nashville, Tennessee 37202
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(Address of principal executive offices)
(Zip Code)
(615) 269-1900
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange Act of
l934 during the preceding l2 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
--- ---
Comon Stock Outstanding - 5,268,881 shares at November 10, 1995.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VOLUNTEER CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
OCTOBER 1 January 1
1995 l995
--------- ---------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 7,925 $14,802
Short-term investments . . . . . . . . . . . . . . . . . . - 1,000
Accounts and notes receivable, including current portion
of direct financing leases . . . . . . . . . . . . . . . 111 155
Inventories . . . . . . . . . . . . . . . . . . . . . . . . 714 577
Deferred income taxes . . . . . . . . . . . . . . . . . . . 699 699
Prepaid expenses and other current assets . . . . . . . . . 461 215
------- -------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . 9,910 17,448
INVESTMENT SECURITIES . . . . . . . . . . . . . . . . . . 506 510
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . 1,106 1,106
PROPERTY AND EQUIPMENT, at cost, less allowances for
depreciation and amortization of $20,264 and $18,115 at
October 1, 1995, and January 1, 1995, respectively . . . . . 40,127 29,776
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . 2,752 2,752
DEFERRED CHARGES, less amortization . . . . . . . . . . . . 1,913 1,714
------- -------
$56,314 $53,306
======= =======
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
OCTOBER 1 January 1
1995 1995
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(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $2,542 $ 3,089
Accrued expenses and other current liabilities . . . . . . . . . . . 4,461 3,310
Current portion of long-term debt and obligations under
capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . 304 350
------- -------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . . . . 7,307 6,749
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL
LEASES, net of portion classified as current . . . . . . . . . . . . 18,593 18,847
DEFERRED INCOME TAXES AND OTHER DEFERRED CREDITS 442 406
STOCKHOLDERS' EQUITY
Common Stock, par value $.05 per share: Authorized l0,000,000
shares; issued and outstanding 5,264,881 and 5,240,481 shares at
October 1, 1995, and January 1, 1995, respectively . . . . . . . . . 263 262
Preferred Stock, no par value: Authorized 1,000,000 shares;
none issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 28,800 28,718
Retained earnings (accumulated deficit). . . . . . . . . . . . . . . . 2,109 (476)
------- -------
31,172 28,504
Note receivable - Employee Stock Ownership Plan . . . . . . . . . . . (1,200) (1,200)
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TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . 29,972 27,304
COMMITMENTS AND CONTINGENCIES
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$56,314 $53,306
======= =======
</TABLE>
See notes to consolidated condensed financial statements.
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<PAGE> 4
VOLUNTEER CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Nine Months Ended Quarter Ended
----------------- -------------
OCTOBER 1 October 2 OCTOBER 1 October 2
1995 l994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . $58,655 $48,814 $20,550 $16,872
Costs and expenses:
Cost of sales. . . . . . . . . . . . . . . . . 20,383 16,957 7,104 5,807
Restaurant labor and related costs . . . . . . 17,145 13,965 5,951 4,821
Depreciation and amortization of restaurant
property and equipment . . . . . . . . . 2,183 1,629 770 573
Royalties. . . . . . . . . . . . . . . . . . . 1,636 1,546 567 522
Other operating expenses . . . . . . . . . . . 10,846 9,054 3,841 3,114
------- ------- ------- -------
Total restaurant operating expenses . . . 52,193 43,151 18,233 14,837
------- ------- ------- -------
Income from restaurant operations. . . . . . . . . 6,462 5,663 2,317 2,035
General and administrative expenses. . . . . . . . 3,207 2,897 1,087 989
------- ------- ------- -------
Operating income . . . . . . . . . . . . . . . . . 3,255 2,766 1,230 1,046
------- ------- ------- -------
Other income (expense):
Interest expense. . . . . . . . . . . . . . . . (1,082) (1,216) (340) (394)
Interest income . . . . . . . . . . . . . . . . 514 628 138 223
Other, net . . . . . . . . . . . . . . . . . . 66 45 (21) 21
------- ------- ------- -------
Total other income (expense) . . . . . . . . (502) (543) (223) (150)
------- ------- ------- -------
Income before income taxes . . . . . . . . . . . . 2,753 2,223 1,007 896
Income tax provision . . . . . . . . . . . . . . . 168 169 23 77
------- ------- ------- -------
Net income . . . . . . . . . . . . . . . . . . . . $ 2,585 $ 2,054 $ 984 $ 819
======= ======= ======= =======
Earnings per share:
Primary. . . . . . . . . . . . . . . . . . . . . $ .48 $ .38 $ .18 $ .15
======= ======= ======= =======
Fully diluted. . . . . . . . . . . . . . . . . . $ .47 $ .38 $ .18 $ .15
======= ======= ======= =======
Weighted average number of shares:
Primary. . . . . . . . . . . . . . . . . . . . . 5,424 5,382 5,470 5,383
======= ======= ======= =======
Fully diluted . . . . . . . . . . . . . . . . . 5,479 5,382 5,509 5,383
======= ======= ======= =======
See notes to consolidated condensed financial statements.
</TABLE>
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<PAGE> 5
VOLUNTEER CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------
OCTOBER 1 October 2
1995 1994
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 5,704 $ 4,300
Net cash provided (used) by investing activities:
Purchase of property and equipment (13,305) (7,223)
Maturities of investments 1,004 506
Other investing activities (51) (38)
-------- -------
(12,352) (6,755)
Net cash provided (used) by financing activities:
Payments on debt and obligations under capital leases (312) (298)
Other financing activities 83 574
-------- -------
(229) 276
Decrease in Cash and Cash Equivalents (6,877) (2,179)
Cash and cash equivalents at beginning of period 14,802 17,755
-------- -------
Cash and Cash Equivalents at End of Period $7,925 $15,576
======== =======
</TABLE>
See notes to consolidated condensed financial statements.
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<PAGE> 6
VOLUNTEER CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. Certain reclassifications have been made in
the prior year's consolidated condensed financial statements to conform to the
1995 presentation. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended October
1, 1995, are not necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 1995. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended January 1, 1995.
NOTE B - LINE OF CREDIT
On August 29, 1995 the Company entered into an unsecured bank
line of credit agreement which provides for up to $30 million of revolving
credit for the purpose of financing future capital expenditures. Interest is
payable monthly with the interest rate, at the Company's option, at the bank's
prime rate or the bank's LIBOR rate plus 1.5% or 2.5%, depending on compliance
with certain ratios set forth in the agreement. In addition, a fee of 1/4% on
any unused portion of the facility is payable on a quarterly basis. All
outstanding principal, interest and expenses under the agreement become due July
1, 1998, unless the Company exercises its option to convert amounts outstanding
under the line of credit to a seven year term loan. The agreeement requires the
Company to meet certain restrictive financial and other covenants, including
limitations on other borrowing, all of which were met as of October 1, 1995. No
borrowings were outstanding under the agreement as of October 1, 1995.
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<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Volunteer Capital Corporation operated 58 franchised Wendy's Old
Fashioned Hamburgers restaurants at October 1, 1995. In addition, the Company
operated seven proprietary J. Alexander's full-service, casual dining
restaurants.
Income before income taxes increased by $530,000 (23.8%) and $111,000
(12.4%) for the first nine months and third quarter of 1995 as compared to the
same periods of the previous year. Restaurant operating income in the J.
Alexander's division increased by $1,164,000 and $362,000 for the nine months
and quarter ended October 1, 1995, as compared to the 1994 periods, more than
offseting decreases of $365,000 and $80,000 in the Wendy's division during the
same periods. Other expense (net interest expense plus other income) decreased
$41,000 for the first nine months of 1995, as compared to the 1994 period,
while the third quarter reflected an increase of $73,000. The combined effect
of the aforementioned items more than offset the planned increases in general
and administrative expenses incurred during the 1995 periods.
WENDY'S RESTAURANT OPERATIONS
Results of the Wendy's restaurant operations before allocation of
other income, corporate overhead and net interest expense for the nine months
and third quarters ended October 1, 1995, and October 2, 1994, were as follows:
<TABLE>
<CAPTION>
Nine Months Ended
OCTOBER 1, 1995 October 2,1994
----------------------- ---------------------
AMOUNT % OF Amount % of
(IN THOUSANDS) SALES (in thousands) Sales
-------------- ----- -------------- -----
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . $40,861 100.0% $38,608 100.0%
Restaurant costs and expenses:
Cost of sales . . . . . . . . . . . . . 14,162 34.7 13,301 34.4
Labor and related costs . . . . . . . . 11,684 28.6 10,785 27.9
Depreciation and amortization of restaurant
property and equipment . . . . . . . 1,469 3.6 1,256 3.3
Royalties . . . . . . . . . . . . . . 1,636 4.0 1,546 4.0
Other operating expenses . . . . . . . 7,453 18.2 6,898 17.9
------- ----- ------- -----
36,404 89.1 33,786 87.5
------- ----- ------- -----
Restaurant operating income . . . . . . . $ 4,457 10.9% $ 4,822 12.5%
======= ===== ======= =====
</TABLE>
-7-
<PAGE> 8
<TABLE>
<CAPTION>
Quarter Ended
OCTOBER 1, 1995 October 2, 1994
--------------------- --------------------------
AMOUNT % OF Amount % of
(IN THOUSANDS) SALES (in thousands) Sales
-------------- ----- -------------- -----
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . $14,142 100.0% $13,022 100.0%
Restaurant costs and expenses:
Cost of sales . . . . . . . . . . . . 4,837 34.2 4,426 34.0
Labor and related costs . . . . . . . 4,024 28.5 3,700 28.4
Depreciation and amortization of
restaurant property and equipment . 511 3.6 428 3.3
Royalties . . . . . . . . . . . . . . 567 4.0 522 4.0
Other operating expenses . . . . . . 2,618 18.5 2,281 17.5
------- ----- ------- -----
12,557 88.8 11,357 87.2
------- ----- ------- -----
Restaurant operating income . . . . . . $ 1,585 11.2% $ 1,665 12.8%
======= ===== ======= =====
</TABLE>
The Company operated 58 Wendy's restaurants at October 1, 1995,
compared with 54 at October 2, 1994, and 55 at January 1, 1995. Three new
restaurants were opened in 1995, in Myrtle Beach, South Carolina (April 7),
Greer, South Carolina (June 12) and Baton Rouge, Louisiana (June 13).
Total sales in the Wendy's division increased 5.8% and 8.6% for the
first nine months and third quarter of 1995 as compared to the same periods in
1994. These increases are due entirely to sales from new units, as the
weighted average per unit sales of restaurants open for all of the first nine
months of both 1995 and 1994 decreased by 1.8% to $724,000 and sales of
restaurants open for the entire third quarter of 1995 and 1994 were flat at
$244,000 per unit. The Company estimates that menu prices, after considering
promotional discounts, decreased by approximately 1% during the first nine
months of 1995 as compared to the same period in 1994. For the third quarter,
menu prices are estimated to have increased by approximately .5% as compared to
the third quarter of 1994.
Management believes that local and national marketing and promotional
efforts, which have generally been very effective for most of the past several
years, competitive menu pricing, continued emphasis on guest service and
improvement in efficiency of operations, and a continuing program of
enhancements of guest service areas in a number of restaurants have
contributed, over the last several years, to increasing and maintaining per
unit sales averages. However, continued competition in the quick-service
restaurant industry in general and, more recently, intense retail price
competition by other major hamburger chains in particular have continued to
adversely impact the Company's weighted average sales per unit, which declined
in both the last half of 1994 and the first half of 1995. The development of
new Wendy's restaurants by other franchisees in certain of the Company's market
areas, and to a lesser degree the opening of new restaurants by the Company
near its existing restaurants, have also negatively affected the Company's
sales in certain locations. Sales declines have been most pronounced in the
Company's North and South Carolina markets, which represent 42 of its 58
Wendy's units. A number of programs and products have been targeted at these
markets by the Company in an attempt to reverse the declining sales trends.
Management continues to believe that aggressive core product discounting is
counterproductive because of its negative impact on margins. The Company
expects the competitive factors noted above will continue to affect the
performance of the Company's Wendy's units for the remainder of 1995. In
addition, during the third quarter of 1995, two restaurants were closed for an
average of almost two weeks each as part of the Company's remodeling program.
The Company anticipates remodeling an additional four units
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<PAGE> 9
during the fourth quarter of 1995 and that these restaurants will also be
closed an average of two weeks each.
Cost of sales, which includes the cost of food and paper supplies,
increased as a percentage of sales in the Wendy's division for the first nine
months and third quarter of 1995 as compared to the same periods in 1994.
For the first nine months of 1995, the impact of decreased menu prices, the
increased cost of lettuce resulting from adverse weather in California during
the early Spring, and the increased cost of paper supplies more than offset
the favorable impact of decreased costs of ground beef. For the third quarter
of 1995, the increased cost of paper supplies more than offset the favorable
impact of decreased costs of ground beef and the slight increase in menu prices.
Restaurant labor and related costs also increased as a percentage of
net sales for the first nine months and third quarter of 1995, compared to the
same periods in 1994. For the first nine months of 1995, the increase
principally reflects the impact of decreased same store sales, wage increases
and the effect of lower menu prices. For the third quarter of 1995, wage
increases slightly offset the favorable impact of increased menu prices.
Depreciation and amortization of restaurant property and equipment
increased as a percentage of net sales for the first nine months and third
quarter of 1995, compared to the same periods in 1994, principally reflecting
the impact of higher depreciation associated with both new and remodeled
restaurants and, with respect to the first nine months of 1995, the impact of
decreased same store sales.
Other operating expenses increased as a percentage of sales for the
first nine months and third quarter of 1995, compared to the same periods in
1994, principally due to additional rent expense and amortization of
pre-opening costs related to new restaurants opened in 1994 and 1995.
J. ALEXANDER'S RESTAURANT OPERATIONS
The Company operated seven J. Alexander's restaurants at October 1,
1995, compared with four at October 2, 1994. The fifth J. Alexander's
restaurant opened on October 17, 1994, in Oak Brook, Illinois; the sixth opened
February 13, 1995 in Ft. Lauderdale, Florida and the seventh opened August 28,
1995, in Hoover, Alabama.
J. Alexander's operating results, before allocation of other income,
corporate overhead and net interest expense, for the nine months and third
quarters ended October 1, 1995, and October 2, 1994, were as follows:
<TABLE>
<CAPTION>
Nine Months Ended
OCTOBER 1, 1995 October 2,1994
--------------------- -----------------------
AMOUNT % OF Amount % of
(IN THOUSANDS) SALES (in thousands) Sales
-------------- ----- -------------- -----
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . $17,794 100.0% $10,206 100.0%
Restaurant costs and expenses:
Cost of sales . . . . . . . . . . . . 6,221 35.0 3,656 35.8
Labor and related costs . . . . . . . 5,461 30.7 3,180 31.2
Depreciation and amortization of
restaurant property and equipment. . 714 4.0 373 3.7
Other operating expenses . . . . . . . 3,393 19.0 2,156 21.1
------- ----- ------- -----
15,789 88.7 9,365 91.8
------- ----- ------- -----
Restaurant operating income. . . . . . . $ 2,005 11.3% $ 841 8.2%
======= ===== ======= =====
</TABLE>
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<PAGE> 10
<TABLE>
<CAPTION>
Quarter Ended
OCTOBER 1, 1995 October 2, 1994
-------------------------------------------------
AMOUNT % OF Amount % of
(IN THOUSANDS) SALES (in thousands) Sales
------------- ----- ------------- -----
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . $6,408 100.0% $3,850 100.0%
Restaurant costs and expenses:
Cost of sales . . . . . . . . . . . . . . . 2,267 35.4 1,381 35.9
Labor and related costs . . . . . . . . . . 1,927 30.1 1,121 29.1
Depreciation and amortization of restaurant
property and equipment. . . . . . . . . . 259 4.0 145 3.8
Other operating expenses. . . . . . . . . . 1,223 19.1 833 21.6
------ ----- ------ -----
5,676 88.6 3,480 90.4
------ ----- ------ ----
Restaurant operating income . . . . . . . $ 732 11.4% $ 370 9.6%
====== ===== ====== ====
</TABLE>
Net sales for the J. Alexander's division increased 74% in the first
nine months of 1995 compared to the same period of 1994, due primarily to the
opening of new units. For the three restaurants open for all three quarters of
1995 and 1994 (Nashville, Tennessee; Franklin, Tennessee; and Dayton, Ohio),
sales averaged $2,994,000 per unit in 1995, a 4.4% increase from $2,869,000 in
the same period of 1994. Sales for the two J. Alexander's prototype units open
during all of the first nine months of both 1995 and 1994 averaged $3,345,000
per unit in 1995, a 3.5% increase from $3,231,000 in 1994. For the third
quarter, net sales for the J. Alexander's division increased 66% in 1995 as
compared to the 1994 quarter. For the four restaurants open for all of the
third quarter in both 1995 and 1994, sales averaged $1,047,000 in 1995, an 8.7%
increase from $963,000 in 1994. Sales for the three J. Alexander's prototype
units open during all of the third quarter in both 1995 and 1994 (Franklin,
Tennessee; Dayton, Ohio; and Columbus, Ohio) averaged $1,140,000 in the 1995
quarter, a 9.1% increase from $1,045,000 in 1994. The Company estimates that
menu prices increased approximately 4% and 5.5% during the first nine months
and third quarter of 1995 as compared to the same periods in 1994.
Cost of sales decreased as a percentage of sales for the first nine
months and third quarter of 1995, compared to the same periods of the prior
year, as the favorable effect of increased menu prices coupled with more
favorable food costs at the Columbus restaurant which opened in April, 1994,
more than offset higher costs associated with the start-up of operations at the
Ft. Lauderdale and Hoover restaurants. The Company expects newly opened
restaurants to experience operating losses in their initial months of operation
prior to becoming profitable.
Restaurant labor and related costs decreased during the first nine
months of 1995, as compared to the same period in 1994, due in large part to
the favorable effect of increased menu prices. This factor, combined with the
effect of sales increases at the Columbus restaurant more than offset higher
benefits expense and higher costs associated with the start-up of operations in
Ft. Lauderdale and Hoover. For the third quarter of 1995, restaurant labor and
related costs increased over the same period in 1994, as higher costs
associated with the restaurants opened during the current year and higher
benefits expense more than offset the favorable effect of increased menu prices
and sales increases at the Columbus restaurant.
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<PAGE> 11
Depreciation and amortization of restaurant property and equipment
increased as a percentage of sales during the first nine months and third
quarter of 1995 compared to the same periods of 1994, principally reflecting
the impact of four new units added since April, 1994.
Other operating expenses decreased as a percentage of sales during the
first nine months and third quarter of 1995 compared to the same periods of
1994, as reduced training costs, the favorable effects of increased menu
prices, and operating efficiences achieved at higher sales levels more than
offset additional rent expense related to the Ft. Lauderdale restaurant (a
ground lease) and other operating expenses associated with the opening of the
Ft. Lauderdale and Hoover restaurants.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses, which include certain costs
related to both the Wendy's and J. Alexander's operations, totaled 5.5% and
5.3% of net sales for the first nine months and third quarter of 1995, as
compared to 5.9% of net sales during the same periods of the prior year,
primarily reflecting higher sales levels. Management anticipates that the
growth rate for general and administrative expenses during 1995 will be less
than that of the Company's revenues.
OTHER INCOME (EXPENSE)
Interest expense decreased during the first nine months and third
quarter of 1995 compared to the corresponding periods in 1994, principally due
to an increase in interest expense which was capitalized in connection with new
restaurant development in 1995. Interest income decreased during the first
nine months and third quarter of 1995 compared to the same periods in 1994, due
to the net effect of decreased investment balances resulting primarily from the
development of new restaurants and increased interest rates.
Expenses associated with the write-off of restaurant facilities and
equipment that have been replaced in connection with various remodeling
projects are reflected in "Other, net".
INCOME TAXES
Under the provisions of Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes," the Company has significant deferred tax
assets relating primarily to net operating loss carryforwards and tax credit
carryforwards available to reduce future federal income taxes. Realization of
the deferred tax assets is dependent principally on future earnings from
existing and new restaurants. Accordingly, a valuation allowance reflecting
the uncertainties associated with future earnings has been established.
Failure to achieve forecasted taxable income could affect the ultimate
realization of the net deferred tax assets. Because of various uncertainties
associated with the restaurant industry, there can be no assurance that there
could not be factors in the future which would result in a decline in taxable
income. The Company will continue to evaluate the realizability of its net
deferred tax assets quarterly and will make adjustments to the valuation
allowance if deemed appropriate.
As a result of utilization of its net operating loss carryforwards,
the Company did not provide for or pay federal or state income taxes that
approximate statutory rates during the first nine months and third quarter of
1995 or the corresponding periods of 1994.
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<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities represents a primary source of
liquidity for the Company and is also expected to be a resource for meeting
future capital needs. The Company's cash flow from operations totaled
$5,704,000 during the first nine months of 1995, up $1,404,000 from the
corresponding period in 1994. In addition, the Company had cash and marketable
securities of $8,431,000 on hand at October 1, 1995. Working capital at
October 1, 1995 totaled $2,603,000 compared to $13,316,000 at October 2, 1994,
the decrease primarily reflecting the Company's capital expenditures for new
restaurants during the last year.
The Company's primary investing activity has historically been capital
expenditures for the development and maintenance of its restaurants. Capital
expenditures totaled $12,685,000 during the first nine months of 1995. In the
Wendy's division, capital expenditures for the first three quarters of 1995
totaled $2,916,000 which related primarily to the three new restaurants opened
during 1995, and also included selected facilities upgrades and miscellaneous
equipment replacments. Capital expenditures for J. Alexander's restaurants
were $9,687,000 and consisted primarily of completion of the restaurant in Ft.
Lauderdale, Florida, acquisition of property and completion of the restaurant
in Hoover, Alabama, acquisition of property and construction costs of
restaurants in Overland Park, Kansas and Lyndhurst, Ohio, and construction
costs of the restaurant in Toledo, Ohio (a ground lease).
Management expects the primary needs for capital resources in the
future will be for the development of new J. Alexander's and Wendy's
restaurants and for the maintenance of existing restaurants. Management may
also consider acquisitions of additional Wendy's restaurants and restaurants
similar to J. Alexander's and use of the Company's capital resources to enhance
shareholder value in other ways.
The Company will open a total of four J. Alexander's restaurants in
1995. The Company's sixth J. Alexander's restaurant opened February 13, 1995,
in Ft. Lauderdale, Florida, its seventh restaurant opened August 28, 1995, in
Hoover, Alabama (a suburb of Birmingham), and its eighth restaurant opened
November 13, 1995, in Toledo, Ohio. J. Alexander's restaurants are also under
construction in Overland Park, Kansas (a suburb of Kansas City) and Lyndhurst,
Ohio (a suburb of Cleveland). The Overland Park restaurant will open in
December, 1995, and the Lyndhurst restaurant is scheduled to open in the spring
of 1996. The initial cost of developing the J. Alexander's prototype
restaurants has ranged from approximately $2,300,000 to $3,900,000, excluding
pre-opening costs. While the cost of land has been a significant variable in
development cost, costs related to site preparation and buildings have also
varied considerably. Management is presently evaluating alternatives to the
current J. Alexander's building design in order to reduce total unit investment
costs. Management estimates that pre-opening costs will be approximately
$250,000 for each restaurant. Additionally, the Company plans to continue
developing new Wendy's restaurants at an estimated cost of $900,000 to
$1,000,000 each. The initial capital investment required for opening a new J.
Alexander's or Wendy's restaurant will be significantly lower than indicated
above, however, when property is leased rather than purchased. Finally, it is
expected that because of their age, $2,000,000 or more of capital expenditures
will be required in both 1995 and 1996 to maintain and improve the Company's
existing Wendy's restaurants.
-12-
<PAGE> 13
The Company does not have significant capital needs for purposes other
than restaurant development. Maturities of long-term debt through 1997 are
relatively small because the Company has previously purchased in the market a
sufficient amount of its convertible subordinated debentures to meet sinking
fund requirements on that issue through that date. Further, since requirements
for funding accounts receivable and inventories are relatively small, the
Company does not have significant working capital needs. For these reasons,
the Company expects that funds on hand combined with cash flow from operations
will be available primarily to fund its development and capital expenditure
plans and should be adequate to do so for the remainder of 1995. The Company
obtained a $30 million line of credit during the third quarter of 1995 which it
expects to use to fund a portion of its restaurant development program
beginning in 1996.
-13-
<PAGE> 14
PART II - OTHER INFORMATION
<TABLE>
<CAPTION>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
<S> <C>
(a) Exhibits:
Exhibit (10.1) $30,000,000 Loan Agreement dated August 29, 1995
by and between Volunteer Capital Corporation, VCE
Restaurants, Inc., Total Quality Management, Inc.
and NationsBank of Tennessee, N.A.
Exhibit (10.2) $30,000,000 Line of Credit note dated August 29,
1995 by and between Volunteer Capital Corporation,
VCE Restaurants, Inc., Total Quality Management,
Inc. and NationsBank of Tennessee, N.A.
Exhibit (11) Computation of Earnings Per Share is filed with
Part I of this Form 10-Q.
Exhibit (27) Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K were filed for the quarter ended October 1,
1995.
</TABLE>
-14-
<PAGE> 15
SIGNATURES
Pursuant to the requirements 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.
VOLUNTEER CAPITAL CORPORATION
/s/Lonnie J. Stout II
-----------------------------------------------
Chairman, President and Chief Executive Officer
/s/R. Gregory Lewis
-----------------------------------------------
R. Gregory Lewis
Vice-President and Chief Financial Officer
Date: November 14, 1995
-15-
<PAGE> 16
VOLUNTEER CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C>
(10.1) $30,000,000 Loan Agreement dated August 29, 1995 by and between Volunteer Capital Corporation, VCE
Restaurants, Inc., Total Quality Management, Inc. and NationsBank of Tennessee, N.A.
(10.2) $30,000,000 Line of Credit note dated August 29, 1995 by and between Volunteer Capital Corporation,
VCE Restaurants, Inc., Total Quality Management, Inc. and NationsBank of Tennessee, N.A.
(11) Computation of Earnings per Share
(27) Financial Data Schedules (for SEC use only)
</TABLE>
-16-
<PAGE> 1
EXHIBIT 10.1
LOAN AGREEMENT
This Loan Agreement ("Agreement") entered into the 29th day of August,
1995, by and between VOLUNTEER CAPITAL CORPORATION, VCE RESTAURANTS, INC. AND
TOTAL QUALITY MANAGEMENT, INC., Tennessee corporations (collectively referred
to as the "Borrower"), and NATIONSBANK OF TENNESSEE, N.A. ("Lender"), a
national banking association.
W I T N E S S E T H
WHEREAS, to evidence the indebtedness owed by Borrower to Lender,
Borrower executed and delivered to Lender a promissory note, being a Line of
Credit Note having an original maximum principal amount of $30,000,000 dated
August 29, 1995; and
WHEREAS, Lender and Borrower hereby enter into a comprehensive
agreement setting forth the terms and conditions of Borrower's line of credit
and term loan;
NOW, THEREFORE, as an inducement to cause Lender to extend credit to
Borrower, and for other valuable consideration, the receipt and sufficiency of
which are acknowledged, it is agreed as follows:
1. Line of Credit. Concurrently with the execution of this
Agreement, Lender shall make a Line of Credit (the "Line of Credit") available
to Borrower under the following terms:
a. Amount. The principal indebtedness of Borrower to
Lender under the Line of Credit shall not exceed Thirty Million and
No/100 Dollars ($30,000,000).
b. Interest Rate. The principal amount outstanding
under the Line of Credit shall bear interest at Borrower's option at
either (i) the Lender's Prime Rate, as it may change from time to
time, or (ii) Lender's LIBOR Rate for 30, 60, 90, or 180-day periods
(a "LIBOR Period") plus a spread of 1.5% or 2.5%, depending on the
then Fixed Charge Coverage Ratio ("FCC"). Where the FCC Ratio is
greater than or equal to 1.20, the LIBOR spread will be 1.5%; where
the FCC Ratio is greater than or equal to 1.1, the LIBOR spread will
be 2.5%; and where the FCC Ratio is less than 1.1, the Borrower will
be in default. As more particularly described below, Borrower may
elect that a portion of the outstanding principal balance of the Line
of Credit bear interest at the Prime Rate and that a portion bear
interest at a LIBOR Rate plus the spread described above.
<PAGE> 2
i. As used in this Agreement, Lender's "Prime Rate" is the
fluctuating rate of interest established by Lender from time to time
as its "Prime Rate", whether or not such rate shall be otherwise
published. Such Prime Rate is established by Lender as an index or
base rate and may or may not at any time be the best or lowest rate
charged by Lender on any loan. If at any time or from time to time
the Prime Rate increases or decreases, then the rate of interest
hereunder shall be correspondingly increased or decreased effective on
the day on which any such increase or decrease of the Prime Rate
changes, unless otherwise herein provided. In the event that Lender,
during the term hereof, shall abolish or abandon the practice of
establishing a Prime Rate, or should the same become unascertainable,
Lender shall designate a reasonably comparable reference rate which
shall be deemed to be the Prime Rate.
ii. For purposes hereof, the Fixed Charge Coverage Ratio, ("FCC")
is defined as: (net income plus depreciation and amortization plus
rent and lease payments plus interest expense plus non-cash taxes
minus cash dividends) divided by (current maturities of long term
debts (calculated as set forth below) plus rent and lease payments
plus interest expense), all measured on a trailing four-quarter basis.
Current maturities of long-term debt shall be calculated by totaling
all of the Funded Debt, as defined in Section 31(b), (including
subordinated and convertible debt) plus capital leases (excluding
payables and accruals) and dividing by seven years.
iii. For purposes hereof, the "LIBOR Rate" shall mean the rate per
annum announced by Lender as its LIBOR Rate for a period equal to the
length of such LIBOR Period as adjusted, without duplication, to
reflect Lender's reserve requirements, all as calculated and announced
from time to time by Lender, whose announcement shall be binding
absent manifest error. To elect the LIBOR Rate for a LIBOR Period,
Borrower shall deliver a written election to Lender at least two (2)
business days in advance of the effective date of such election, which
notice shall specify which LIBOR Period is selected and the amount of
the Line of Credit that is to bear interest based upon the LIBOR Rate.
Interest hereunder shall be calculated based upon a 360-day year and
actual days elapsed. If the adoption of or change in any applicable
legal requirement or any change in the interpretation or
administration thereof by any governmental authority or compliance by
the Lender with any request or directive (whether or not having the
force of law) from any central bank or other governmental authority,
shall at any time as a result of any portion of the principal balance
of this Note being maintained on the LIBOR Rate:
2
<PAGE> 3
A. Subject the Lender to any tax (including without
limitation any United States Interest Equalization Tax), levy, impost,
duty, charge, fee (collectively "Taxes"), other than income and
franchise taxes of the United States and its political subdivisions;
or
B. Change the basis of taxation on payments due from
the Borrower to the Lender under any LIBOR Rate Borrowing (otherwise
than by a change in the rate of taxation of the overall net income of
the Lender); or
C. Impose, modify, increase or make applicable any
reserve requirement, special deposit requirement or similar requirement
(including, but not limited to, state law requirements and Regulation
D) against assets held by the Lender, or against deposits or accounts
in or for the account of the Lender, or against any loans made by the
Lender, or against any other funds, obligations or other property
owned or held by Lender; or
D. Impose on the Lender any other condition regarding
any LIBOR Rate Borrowing;
and the result of any of the foregoing is to increase the cost to the
Lender of agreeing to make or of making, renewing or maintaining such
borrowing on the basis of the LIBOR Rate, or reduce the amount of
principal or interest received by the Lender, then, upon demand by the
Lender, the Borrower shall pay to the Lender, from time to time as
specified by the Lender, additional amounts which shall reasonably
compensate the Lender for such increased cost or reduced amount
relating to LIBOR Rate Borrowings outstanding after Lender's demand.
The Lender's reasonable determination of the amount of any such
increased cost, increased reserve requirement or reduced amount shall
be conclusive and binding, absent manifest error.
(iv) In no event shall the interest rate charged on the Line of
Credit exceed the maximum rate allowed under applicable law. Any
amounts paid in excess of the maximum lawful rate shall be applied to
reduce the principal amount of Borrower's obligations to Lender or
shall be refunded to Borrower, at Lender's election. After maturity
(by acceleration or otherwise), the principal amount under the Line of
Credit shall bear interest at the rate of interest in effect
immediately before maturity plus three percent (3%).
c. Payments. Payment of all obligations arising under
the Line of Credit shall be made as follows:
(1) Interest. Interest on the outstanding
principal balance under the Line of Credit shall be paid
3
<PAGE> 4
in arrears on the first (1st) day of each month beginning on
August 1, 1995 except, in the case of a LIBOR Rate Borrowing
at Borrower's option, interest shall be payable monthly as set
forth above or at the end of the applicable LIBOR Period.
(2) Voluntary Prepayment. Voluntary prepayments
of principal or accrued interest may be made, in whole or in
part, at any time without penalty.
(3) Mandatory Prepayment. Borrower must
immediately prepay any amount by which the principal balance
of the Line of Credit exceeds $30,000,000.
(4) All Amounts Due. All remaining principal,
interest and expenses outstanding under the Line of Credit
shall become due July 1, 1998, unless the borrower exercises
its option to extend for a seven (7) year term, in which case
all remaining principle, interest and expenses outstanding
under the Line of Credit shall become due July 1, 2005.
(5) Conversion to Term Loan. At any time prior
to July 1, 1998 so long as Borrower is not then in default, Borrower
may elect to convert this Line of Credit to a Term Loan. The election
must in writing and must be delivered to Lender at least fifteen (15)
days prior to the conversion date. There will be a one-quarter (1/4)
of one percent (1%) conversion fee payable on the then outstanding
unpaid principal balance. The principal balance of the Term Note will
be repaid in 84 equal monthly installments of principal with the first
payment due on the 30th day following the conversion date. Interest
will accrue at the NationsBank Prime Rate or LIBOR Rate as provided
above or at a fixed rate equal to 200 basis points in excess of the
then rate on treasury securities having a like maturity as the Term
Loan. The election as to which method of interest accrual (prime,
LIBOR or fixed) will be used in the Term Note must be stated in the
conversion notice to the Lender which method of interest accrual
(either Prime Rate, LIBOR Rate or fixed) will be used.
d. Use of Proceeds. Advances under the Line of Credit
shall be used by Borrower to pay or reimburse itself for capital
expenditures. At no time will the total amount advanced under the
Line of Credit exceed the cumulative amount of capital expenditures
made by Borrower from and after the date of this Agreement.
e. Revolving Loans; Disbursements. During the term of
this Agreement, Borrower may from time to time request, repay and
reborrow advances under the Line of Credit, provided that
4
<PAGE> 5
the total principal amount outstanding under the Line of Credit shall
not at any time exceed $30,000,000 and that no event of default or any
event which with the giving of notice, the passage of time, or both,
would constitute an event of default, then exists hereunder.
Disbursements shall be made as follows:
(1) Disbursement Requests. Lender may honor
requests for advances made on Borrower's behalf by Borrower's
CFO, CEO or other officer designated by Borrower, whether such
request is made in person, by telephone, or in writing.
Lender may require that requests for advances be submitted in
writing, and may also require that Borrower submit with such
requests written warranties or other reasonable assurances
acceptable to Lender showing that Borrower is not then in
default hereunder and is otherwise entitled to receive the
requested advance.
(2) Funding. As long as Borrower meets the
conditions for funding stated herein, Lender shall fund
advances requested under the Line of Credit within one (1)
business day of the actual receipt of Borrower's request by
Lender. All funds shall be disbursed directly into an account
maintained by Borrower with Lender. Borrower agrees that if
Lender elects to fund any requested advance(s) sooner after
requested than is required of Lender hereunder, Lender may
nevertheless use the entire response period allowed hereunder
upon receipt of any subsequent request, at Lender's sole
option.
(3) Conditions to Funding. Lender shall not be
obligated to make any advance under the Line of Credit unless
all of the following conditions are satisfied as of the time
of the request and of funding.
A. All of the Loan Documents provided
for herein (or otherwise requested by Lender pursuant
to the "Further Assurance" provision hereof) to
evidence and secure the Line of Credit must have been
executed and delivered to Lender.
B. All warranties made in the Loan
Documents must be true as of the dates of the advance
request and as of the date of funding thereof except
those that by their terms speak of a particular date
(the submission of a request for advance by Borrower
shall be deemed a reaffirmation of such warranties as
of the date of the request).
5
<PAGE> 6
C. All covenants made in the Loan
Documents must have been complied with as of the
dates of the advance request and funding thereof.
D. Borrower must not otherwise be in
default hereunder and no condition shall exist which,
with the giving of notice, the passing of time, or
both, would constitute a default hereunder.
(4) Advance Not Waiver. Lender's making of any
advance under the Line of Credit that it is not obligated to
make under Paragraph 1(e)(3) above shall not be construed as a
waiver of Lender's right to withhold future advances, declare
a default, or otherwise demand strict compliance with this
Agreement.
(5) Draws by Debit Memorandum. Lender may,
without prior notice, draw amounts available under the Line of
Credit to pay any obligation of Borrower to Lender that is not
timely paid.
(6) LIBOR Rate Election. No more than five (5)
LIBOR Rate Borrowings may be outstanding at any time. Each
LIBOR Rate draw must be at least One Million and 00/100
Dollars ($1,000,000) and, if greater, shall be in $250,000
increments.
2. Loan Documents. Concurrently with the execution hereof,
Borrower shall deliver to Lender the following documents in form and substance
acceptable to Lender (the "Loan Documents"):
(a) This Agreement;
(b) Line of Credit Note made by Borrower in the
principal amount of $30,000,000 payable to the order of Lender
("Line of Credit Note");
(c) Certificate of Borrower's Good Standing under
Tennessee law issued by the Tennessee Secretary of State;
(d) Certified copy of Resolution of Borrower's
Board of Directors authorizing a named officer of Borrower to
enter into this Agreement and to execute all related documents
on Borrower's behalf; and
(e) Legal Opinion executed by Borrower's counsel
addressing such matters as Lender shall require.
3. Capacity. Borrower warrants that it is and shall remain a
duly organized Tennessee corporation in good standing under the laws of
Tennessee, and that Borrower is and shall remain duly qualified to do business
in each state other than Tennessee in
6
<PAGE> 7
which the failure to qualify would result in a material adverse impact on
Borrower or Borrower's business. Borrower warrants that its execution of and
performance under this Agreement and all related documents are permitted under
and will not violate any provision of Borrower's Charter or By-Laws or any
agreement to which Borrower is a party or any law, rule, ordinance, regulation
or Court Order to which Borrower is subject. Borrower further warrants that
the execution of all necessary resolutions and other prerequisites of corporate
action have been duly performed so that the individual executing this Agreement
and related documents on behalf of Borrower is duly authorized to bind Borrower
by his signature.
4. No Subsidiaries. Except as set forth in Schedule 4, Borrower
warrants that it presently has no subsidiaries or interests in any partnership
or other business entity, and Borrower covenants that it will not hereafter
acquire stock of any other corporation or acquire an equity interest in any
other business entity in excess of One Million and No/Dollars ($1,000,000)
without the prior written approval of Lender.
5. Corporate Records. Borrower covenants to maintain current
corporate minute books and stock ledgers and agrees to allow Lender to inspect
the same at any time.
6. Accounting. Borrower warrants that Borrower's accounting
complies with all generally acceptable accounting principles ("GAAP") and
covenants that it will continue to apply GAAP throughout the life of the loan.
7. ERISA. Borrower has not incurred and shall not incur a
material accumulated funding deficiency within the meaning of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and has not
incurred any material liability to the Pension Benefit Guaranty Corporation
established under ERISA (or any successor thereto under ERISA) in connection
with any retirement plan, and no reportable event has occurred and is
continuing or shall occur with respect to any such plans.
8. Books, Records and Property. Borrower covenants to maintain
financial books and records in a manner that will allow financial statements to
be prepared in accordance with GAAP, consistently applied, and shall allow
Lender to inspect such records at any time. Borrower warrants that its
consolidated audited annual and unaudited quarterly financial statements
properly reflect the financial condition of Borrower in all material respects
(subject to year-end adjustments not known to Borrower in the case of quarterly
statements) and that no material adverse change has occurred since the date of
the most recent financial information. Lender has full authority to inspect
all Borrower's property at any reasonable time.
7
<PAGE> 8
9. Insurance. In addition to any specific insurance requirements
contained herein or in any other document pertaining to the Line of Credit,
Borrower agrees to generally maintain adequate insurance against casualty and
liability losses in accordance with customary practices in Borrower's field of
enterprise (provided that Borrower does not carry employee practices liability
or directors and officers liability insurance). Borrower agrees to provide
Lender with proof of the existence of such insurance upon demand.
10. Chief Executive Office. Borrower warrants that the address
designated herein to which notices are to be sent to Borrower is Borrower's
chief executive office. Borrower agrees to notify Lender in writing of any
change thereof and agrees that the same shall not in any event be moved outside
Davidson or Williamson County, Tennessee, without Lender's prior written
consent.
11. No Defaults Under Other Agreements. Borrower warrants that
neither Borrower nor, to the best of Borrower's knowledge, information, and
belief, any other party thereto is presently in default under or in breach of
any material contract or agreement to which Borrower is a party, and no
condition presently exists which, with the giving of notice, the passing of
time, or both, would cause such a default or breach.
12. Disclosure of Litigation. Borrower warrants that Borrower is
not presently a party to any pending litigation, arbitration or administrative
proceeding or the subject of any investigation involving a single amount in
controversy in excess of $100,000.00 or in the aggregate in excess of
$500,000.00; that there is no litigation, arbitration or administrative
proceeding or investigation either threatened or likely to be instituted in
which Borrower will be a party involving a single amount in controversy in
excess of $100,000.00 or in the aggregate in excess of $500,000.00; that
Borrower is not subject to any outstanding court or administrative order; and
that, to the best of Borrower's knowledge, information and belief, no facts
exist which give rise to claims by third parties against Borrower involving a
single amount in controversy in excess of $100,000.00 or in the aggregate in
excess of $500,000.00 which have not yet been asserted. Borrower covenants to
give Lender prompt written notice of any litigation, arbitration,
administrative proceeding or investigation that may hereafter be instituted or
threatened in which Borrower would be a party, whether or not Borrower's
liability under such proceeding would be covered by insurance involving a
single amount in controversy in excess of $100,000.00 or in the aggregate in
excess of $500,000.00.
13. Financial Statements.
a. Warranties. Borrower warrants that Borrower's
consolidated quarterly and annual financial statements
8
<PAGE> 9
delivered to Lender in connection with the Line of Credit have been
prepared in accordance with generally accepted accounting principles,
consistently applied, and are true, accurate and complete in every
material respect. Without limiting the foregoing, Borrower warrants
that such financial statements disclose all known material contingent
liabilities as well as material direct liabilities. Borrower
acknowledges that Lender has advanced (or shall advance) the Line of
Credit in reliance upon such financial statements, and Borrower
warrants that no material adverse change has occurred in the financial
condition of Borrower as set forth in the most recent financial
statements. Borrower warrants that Borrower has good and absolute
title to the assets disclosed on Borrower's balance sheet disclosed to
Lender, subject only to liens, security interest and other
encumbrances securing liabilities listed thereon and, in the case of
real estate, easements and other minor encumbrances that do not affect
Borrower's use thereof.
b. Reporting Requirements. Borrower covenants to
furnish Lender annual audited financial statements and annual budget
and cash flow projections for the upcoming year within ninety (90)
days of the close of the preceding fiscal year. Each audit must be
performed by Ernst & Young or another certified public accountant
reasonably acceptable to Lender, at Borrower's expense. In addition,
Borrower covenants to furnish to Lender, on or before the forty-fifth
(45th) day following the end of each fiscal quarter, income
statements, cash flow statements and balance sheets together with an
officer's certificate executed by the chief financial officer of
Borrower certifying compliance with the financial covenants set forth
herein and further stating that, to the best of his knowledge,
information and belief, no default exists hereunder as of the date of
the certification. Borrower also covenants to furnish to Lender, upon
demand, copies of Borrower's tax returns and additional financial
information in form and substance acceptable to Lender.
14. Notice of Changes in Financial Condition and Defaults.
Borrower covenants to give Lender prompt written notice of (i) the creation or
discovery of any material additional contingent liability or the occurrence of
any other material adverse change in the financial condition of Borrower, and
(ii) the occurrence of any event, or presence of any condition, which
constitutes a default hereunder or which with the giving of notice, the passing
of time, or both, would constitute a default. Borrower represents that its
fiscal year ends on the Sunday closest to December 31, and Borrower covenants
that it will not change its fiscal year without obtaining the prior written
consent of Lender.
9
<PAGE> 10
15. No Unpaid Taxes. Except for taxes that Borrower is disputing
in compliance with the last sentence of this Section 15, Borrower warrants that
Borrower is not presently delinquent in the payment of any taxes imposed by any
governmental authority or in the filing of the tax return and that Borrower is
not involved in a dispute with any taxing authority over tax amounts due.
Borrower covenants that all future taxes due from Borrower shall be timely paid
and that all tax returns required of Borrower shall be timely filed. If
Borrower contests in good faith the amount of any tax that is due and owing,
Borrower shall adequately reserve for taxes in accordance with GAAP.
16. No Untrue or Misleading Representations. Borrower warrants
that no information, exhibit or report furnished to Lender nor any statement or
representation made by Borrower to Lender in connection with the Unsecured
Indebtedness contains any untrue statement of material fact or omits to state a
material fact necessary to make the foregoing not misleading.
17. Compliance with Law. Borrower warrants that Borrower's
business activities are conducted substantially in accordance with all material
applicable laws and regulations, including, but not limited to OSHA, EPA,
Pension Guarantee Board, and ERISA. Borrower covenants that such activities
shall continue to be so conducted.
18. Insurance. Borrower warrants that it has proper casualty and
business interruption insurance and will maintain such insurance throughout the
life of the loan.
19. Assistance in Litigation. Borrower covenants to, upon
request, cooperatively participate in any proceeding in which Borrower is not
an adverse party to Lender and which concerns Lender's rights regarding the
Line of Credit or any collateral securing its payment.
20. Name. Borrower warrants that during the past five (5) years,
Borrower has not been known under or done business under any name other than
the name used by Borrower in executing this Agreement and under the J.
Alexander's and Wendy's Old Fashion Hamburgers trade names. Borrower agrees to
give Lender at least fifteen (15) days prior written notice before Borrower
begins using any name other than that used in executing this Agreement.
21. Negative Pledge. Except for liens existing on the date of this
Agreement, which liens are described on the attached Exhibit 21, any liens
permitted under Section 30(b) hereof and easements or minor encumbrances
relating to real estate, Borrower covenants and agrees that it will not suffer,
permit or grant any lien, security interest, deed of trust, mortgage, deed to
secured debt, pledge, assignment or other collateral assignment of any of its
assets in favor of any party other than Lender without the prior written
consent of Lender.
10
<PAGE> 11
22. Expenses. Upon demand, Borrower will advance to Lender or, at
Lender's option, reimburse Lender for, the following expenses:
a. Taxes. All taxes (other than income taxes) that Lender
may be required to pay because of the Line of Credit;
b. Administration. All expenses that Lender may incur in
connection with the preparation, execution, or enforcement of this
Agreement or of any other document pertaining to the Line of Credit;
c. Costs of Collection. All court costs and other costs of
collecting any debt, overdraft or other obligation included in the
Line of Credit;
d. Litigation. All costs arising from any litigation,
investigation, or administrative proceeding (whether or not Lender is
a party thereto) that Lender may incur as a result of the Line of
Credit or as a result of Lender's association with Borrower,
including, but not limited to, expenses incurred by Lender in
connection with a case or proceeding involving Borrower under any
chapter of the Bankruptcy Code or any successor statue thereto;
e. Attorneys Fees. Reasonable attorneys' fees incurred in
connection with any of the foregoing.
If Lender pays any of the foregoing expenses, they shall become a part of the
Line of Credit and shall bear interest at the rate of interest then in effect.
This paragraph shall remain in full effect regardless of the full payment of
the Line of Credit, the purported termination of this Agreement, the delivery
of the executed original of this Agreement to Borrower, or the content or
accuracy of any representation made by Borrower to Lender; provided, however,
Lender may terminate this Paragraph by executing and delivering to Borrower a
written instrument of termination specifically referring to this Paragraph.
23. Further Assurances. Borrower covenants to execute such other
assignments, security agreements, financing statements, and other documents
that Lender may reasonably deem necessary to further evidence the obligations
provided for herein.
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<PAGE> 12
24. Default Certificates. Borrower covenants to deliver to
Lender, within five (5) business days after request, the certificate of
Borrower or of Borrower's appropriate representative (as specified by Lender)
stating whether, to the best of the person's knowledge, information, and belief
and after due investigation, a default exists under this Agreement. The
certificate shall describe with particularity any default and shall address
with particularity any circumstances or subjects described by Lender in its
request. Borrower covenants that it will promptly forward to Lender a copy of
any notice of default Borrower receives from any party with which Borrower has
a contract, where the amount of such contract exceeds $100,000.
25. Recitals. Borrower warrants and agrees that the recitals set
forth at the beginning of this Agreement are true.
26. No Burdensome Agreements. Borrower warrants that Borrower is
not a party to any contract or agreement and is not subject to any contingent
liability that does or may impair Borrower's ability to perform under the terms
of this Agreement. Borrower further warrants that the execution and
performance of this Agreement will not cause a default, acceleration or other
event under any other contract or agreement to which Borrower or any property
of Borrower is subject, and will not result in the imposition of any charge,
penalty, lien or other encumbrance against any of Borrower's property except in
favor of Lender.
27. Legal and Binding Agreement. Borrower warrants that the
execution and performance of this Agreement will not violate any judicial or
administrative order or governmental law or regulation, and that this Agreement
is valid, binding and enforceable in every respect according to its terms,
subject to bankruptcy and other laws affecting the rights of creditors
generally.
28. No Consent Required. Borrower warrants that Borrower's
execution, delivery and performance of this Agreement do not require the
consent of or the giving of notice to any third party including, but not
limited to, any other lender, governmental body or regulatory authority.
29. No Default. Borrower warrants that, as of the execution of
this Agreement, no default exits hereunder and no condition exists which, with
the giving of notice, the passing of time, or both, would constitute such a
default.
30. Negative Covenants. Without Lender's prior written consent,
Borrower shall not do any of the following:
a. Other Debt. Incur, create, assume or permit to exist
any indebtedness for borrowed money except:
(1) Indebtedness to Lender.
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(2) Debts existing as of the execution hereof and
disclosed in the financial statements delivered to Lender and
any modifications, renewals or extensions thereof.
(3) Unsecured debts on open account incurred in
the ordinary course of business.
(4) Ten Million ($10,000,000) of debt to be used
for capital expenditures of Wendy's or J. Alexander's to be
allocated in one-third (1/3) increments during calendar years
1995, 1996 and 1997, on a cumulative basis.
b. Pledge or Mortgage of Assets. Pledge or mortgage any of
its existing, or future acquired assets to any other party, except:
(1) liens that exist on the date hereof, together
with renewals, extensions and modification thereof; and
(2) land, building or equipment which has a
fair-market value not to exceed $10,000,000 in the aggregate may be
pledged, from time to time, to secure some or all of the indebtedness
permitted under Section 30(a)(4).
c. Stock Transactions. Redeem or agree to redeem any
stock, subordinated debt, warrants, or debt securities convertible
into stock, other than redemptions of up to 1,000 shares of Borrower's
common stock at its then fair-market value in any fiscal year and
now-scheduled payments to the sinking fund or to make an early
redemption of subordinated debt up to $1,875,000 prior to July 1,
1998.
d. Reorganization. Enter into any agreement to merge,
consolidate, or otherwise reorganize or recapitalize; provided,
however, this shall not apply to any transaction where Borrower is the
surviving corporation and the fair market value of the assets acquired
does not exceed $1 million.
e. Disposition of Assets. Sell, lease, or otherwise
transfer more than $1,000,000 of its assets in any transaction which
is not in the ordinary course of business.
f. Acquisition of Assets. Acquire assets or an interest
in any entity having a value of more than $1,000,000 in any
transaction which is not in the ordinary course of business or for the
development of new J. Alexander's or Wendy's Restaurants.
g. Store Openings. Open more than ten (10) J. Alexander
stores in any one calendar year, open more than
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<PAGE> 14
twelve (12) new J. Alexander stores from January 1, 1995 through
December 31, 1996, open more than twenty (20) new J. Alexander stores
for the period from January 1, 1995 through December 31, 1997 and open
more than 25 new J. Alexander stores for the period from January 1,
1995 through July 1, 1998.
i. Guaranties. Guarantee any obligations of any other
business or individual, except through the endorsement of items
tendered to Borrower as payment in the ordinary course of business.
j. Action Outside Ordinary Course. Take any other
material action outside the ordinary course of its business.
k. Creation of New Subsidiaries. Acquire an interest in
any subsidiary corporation which has assets of $10,000 or more unless,
concurrent with the acquisition of such ownership interest, the new
subsidiary executes the Line of Credit Note and becomes a party to
this Agreement.
31. Financial Covenants. Borrower shall maintain the following
financial requirements as determined by GAAP on a consolidated basis (unless
otherwise noted):
a. Total Liabilities. Borrower's total liabilities to
net worth shall be the ratio of less than or equal to 1.2:1.0 through
December 31, 1995; less than or equal to 1.50:1.0 through December 31,
1996; less than or equal to 1.75:1.0 through December 31, 1997; and
less than or equal to 2.0:1.0 through July 31, 1998.
b. Funded Debt. The ratio of Funded Debt to Net Fixed
Assets shall be no greater than .7 to 1.0 at all times. Funded Debt
means all long-term debt, the current portion of long-term debt,
obligations under Leases (both long-term and current), any notes
payable or other borrowed money and any subordinated or convertible
debt. Net Fixed Assets means all tangible property (real and
personal), equipment and improvements of the Borrower, net of
accumulated depreciation and amortization, which would appear as such
on a consolidated balance sheet of the Borrower prepared at such time
in accordance with generally-accepted accounting principles.
c. Fixed Charge Coverage Ratio. The Fixed Charge
Coverage Ratio measured on a trailing four fiscal-quarters basis shall
be at least 1.1 to 1.0 at all times.
d. Grant of Security. If Borrower elects to convert to
a Term Loan and thereafter if the Fixed Charge Coverage Ratio
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<PAGE> 15
measured on a trailing four-quarters basis falls below 1.2 to 1.0,
Borrower shall provide to Bank, at Lender's request, security for the
then outstanding balance of the Term Loan. Borrower agrees to grant a
lien to Bank in all of Borrower's assets, with the loan-to-value ratio
being no more than 70%. The cost of obtaining current appraisals
shall be borne by Borrower. Should the ratio of the then outstanding
balance of the Line of Credit to the then Fair Market Value of the
assets be less than 70%, Borrower shall make a payment to Lender of
the difference, which amount shall be a permanent reduction of the
Term Loan to be applied in inverse order of the maturity. The liens
in favor of Bank will be evidenced by deeds of trust, mortgages, deeds
to secure debt, security interests and other collateral documents in
form and content satisfactory to Bank. All costs and expense of
granting the liens to Bank, including, but not limited to, costs of
appraisals, environmental assessments, title searches, surveys, title
insurance premiums, indebtedness tax and counsel fees to Bank shall be
borne by Lender. All liens must attach and be perfected within 45
days of the date of Lender's request.
32. Environmental Matters
a. Definitions
(1) "Environmental Laws" means the Environmental
Protection Act, the Resource Conservation and Recovery Act of
1976, the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, the Hazardous Materials
Transportation Act and any other federal, state or municipal
law, rule or regulation relating to air emissions, water
discharge, noise emissions, solid or liquid waste disposal,
hazardous or toxic waste or materials, or other environmental
or health matters.
(2) "Hazardous Materials" means those substances
included from time to time within the definition of hazardous
substances, hazardous materials, toxic substances, or solid
waste under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 as amended, 42 U.S.C.
Section 9601 et seq.; the Resource Conversation and Recovery
Act of 1976, 42 U.S.C. Section 1801 et seq., and in the
regulations promulgated pursuant to such acts and laws; and
such other substances that are or become regulated under any
applicable local, state or federal law or regulation
addressing environmental hazards.
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<PAGE> 16
b. Environmental Law Compliance. Borrower warrants and
covenants that the conduct of Borrower's business operations does not
and will not violate, in any material respect, any federal laws,
rules, or ordinance for environmental protection, regulations of the
Environmental Protection Agency and any applicable local or state law,
rule, regulation, or rule of common law and any judicial
interpretation thereof relating primarily to the environmental or
Hazardous Materials and Borrower will not use or permit any other
party to use any Hazardous Materials at any of Borrower's places of
business or at any other property owned by Borrower except such
materials as are incidental to Borrower's normal course of business,
maintenance and repairs and which are handled in material compliance
with all applicable environmental laws. Borrower agrees to permit
Lender, its agents, contractors, and employees to enter and inspect
any of Borrower's places of business or any other property of Borrower
at any reasonable times upon five (5) days prior notice for the
purpose of conducting an environmental investigation and audit
(including taking physical samples) to insure that Borrower is
complying with this covenant and Borrower shall reimburse Lender on
demand for the costs of any such environmental investigation and
audit, provided Borrower shall pay the cost only if it reasonably
appears that Borrower is not complying with this covenant. Borrower
shall provide Lender, its agents, contractors, employees, and
representatives with access to and copies of any and all data and
documents relating to or dealing with any Hazardous Materials used,
generated, manufactured, stored or disposed of by Borrower's business
operations within five (5) days of the request thereof.
c. Notification of Environmental Claims. Borrower shall
immediately advise Lender in writing of (i) any and all enforcement,
cleanup, remedial, removal, or other governmental or regulatory
actions instituted, completed, or threatened pursuant to any
applicable federal, state, or local laws, ordinances or regulations
relating to any Hazardous Materials affecting Borrower's business
operations; and (ii) all claims made or threatened by any third party
against Borrower relating to damages, contribution, cost recovery,
compensation, loss or injury resulting from any Hazardous Materials.
Borrower shall immediately notify Lender of any remedial action taken
by Borrower with respect to Borrower's business operations.
d. Indemnification. Borrower shall indemnify, defend,
and hold Lender and its successors and assigns harmless from and
against any and all claims, demands, suits, losses, damages,
assessments, fines, penalties, costs, or other expenses (including
reasonable attorneys' fees and court costs) arising from or in any way
related to any of the transactions contemplated hereby, including but
not limited to
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<PAGE> 17
actual or threatened damage to the environment, agency costs of
investigation, personal injury or death, or property damage, due to a
release or alleged release of Hazardous Materials, arising from
Borrower's business operations, any other property owned by Borrower
or in the surface or ground water arising from Borrower's business
operations, or gaseous emissions arising from Borrower's business
operations or any other condition existing from Borrower's business
operations resulting from the use or existence of Hazardous Materials,
whether such claim proves to be true or false. Borrower further
agrees that its indemnity obligations shall include, but are not
limited to, liability for damages resulting from the personal injury
or death of an employee of the Borrower, regardless of whether the
Borrower has paid the employee under the workmen's compensation laws
of any state or other similar federal or state legislation for the
protection of employees. The term "property damage" as used in this
paragraph includes, but is not limited to, damage to any real or
personal property of the Borrower, the Lender, and of any third
parties. The Borrower's obligations under this paragraph shall
survive the repayment of the Loan and any deed in lieu of foreclosure
or foreclosure of any Deed of Trust, Security Agreement, or Mortgage
securing the Loan.
33. Default Defined. The occurrence of any one or more of the
following events shall constitute a default under this Agreement:
a. Monetary Default. The failure of Borrower to timely pay any
amount due Lender under the Line of Credit or under any other
obligation to Lender if such failure continues for ten (10) days after
notice of nonpayment from Bank to Borrower provided, however, that
should Bank give Borrower a notice of nonpayment, then for the
12-month period following such notice of nonpayment, Bank shall not be
required to give Borrower notice of nonpayment and Borrower will be in
default if it fails to make a monetary payment within ten (10) days of
the due date.
b. Breach of Covenant. The failure of Borrower or any other
party to perform or observe any obligation or covenant made with
respect to the Line of Credit or contained within this Agreement or
any other Loan Document; provided, except for the provisions of
Sections 30 and 31, Borrower shall have a cure period of thirty (30)
days after Borrower has actual knowledge or notice of the failure by
Borrower to perform.
c. Breach of Warranty. Lender's discovery that any
representation of warranty in connection with this Agreement or the
Line of Credit or any other Loan Document was materially false when
made.
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<PAGE> 18
d. Default Under Other Document. Subject to applicable cure
periods, the occurrence of a default under the terms of any document
evidencing, securing, or otherwise pertaining to the Line of Credit,
including, without limitation, the Loan Documents.
e. Voluntary Bankruptcy. The Borrower shall commence a voluntary
case or other proceeding seeking liquidation, reorganization
or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter
in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property or shall consent to any such
relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding
commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any corporate action
to authorize any of the foregoing.
f. Involuntary Bankruptcy. An involuntary case or other
proceeding shall be commenced against the Borrower seeking
liquidation, reorganization or other relief with respect to it or its
debts under any bankruptcy, insolvency or similar law now or hereafter
in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of sixty
(60) days; or an order for relief shall be entered against the
Borrower under the bankruptcy laws as now or hereafter in effect.
34. Remedies Upon Default. Lender may exercise any or all of the
following remedies:
a. Remedies. Lender may exercise any right that it may
have at law or equity, including an action to collect the Line of
Credit Loan or the Term Loan and to foreclose under any deeds of trust
and security agreements or other collateral documents securing
repayment thereof. All obligations of Bank to advance or readvance
under the Line of Credit will terminate.
b. Application of Proceeds. All amounts received by
Lender for Borrower's account by exercise of its remedies hereunder
shall be applied as follows: First, to the payment of all reasonable
expenses incurred by Lender in exercising its rights hereunder,
including reasonable attorney's fees, and any other expenses due
Lender from Borrower; Second, to the payment of all interest included
in the Line of Credit or Term Loan, in such order as Lender may elect;
Third, to the payment of all principal included in the Line of Credit
or
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<PAGE> 19
Term Loan, in such order as Lender may elect; and Fourth, surplus to
Borrower or other party entitled thereto.
35. Resolution of Disputes.
a. Arbitration. Any controversy or claim between or
among the parties to the Loan Documents or any related agreements or
instruments, including any claim based on or arising from an alleged
tort, shall be determined by binding arbitration in accordance with
the Federal Arbitration Act (or if not applicable, the applicable
state law), the Rules of Practice and Procedure for the arbitration of
commercial disputes of Judicial Arbitration and Mediation Services,
Inc. (J.A.M.S.), and the "special rules" set forth below. In the
event of any inconsistency, the special rules shall control. Judgment
upon any arbitration award may be entered in any court having
jurisdiction. Any party to the Loan Documents may bring an action,
including a summary or expedited proceeding, to compel arbitration of
any controversy or claim to which this agreement applies in any court
having jurisdiction over such action.
b. Special Rules. The arbitration shall be conducted in
Nashville, Tennessee and administered by J.A.M.S. who will appoint an
arbitrator; if J.A.M.S. is unable or legally precluded from
administering the arbitration, then the American Arbitration
Association will serve. All arbitration hearings will be commenced
within 90 days of the demand for arbitration; further, the arbitrator
shall only, upon a showing of cause, be permitted to extend the
commencement of such hearing for up to an additional 60 days.
c. Reservations of Rights. Nothing in foregoing
arbitration shall be deemed to (i) limit the applicability of any
otherwise applicable statutes of limitation or repose and any waivers
contained in the Loan Documents; or (ii) be a waiver by NationsBank of
the protection afforded to it by 12 U.S.C. Sec. 91 or any
substantially equivalent state law; or (iii) limit the rights of
NationsBank under the Loan Documents (a) to exercise self help
remedies such as (but not limited to) set-off, or (b) to foreclose
against any real or personal property collateral, or (c) to obtain
from a court provisional or ancillary remedies such as (but not
limited to) injunctive relief, possession of collateral or the
appointment of a receiver. NationsBank may exercise such self help
rights, foreclose upon such property, or obtain such provisional or
ancillary remedies before, during or after the pendency of any
arbitration proceeding brought pursuant to the Loan Documents. At
NationsBank's option, foreclosure under a deed of trust or mortgage
may be accomplished by any of the following: the exercise of a power
of sale under the deed of trust or mortgage, or by judicial sale under
the deed of trust or
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<PAGE> 20
mortgage, or by judicial foreclosure. Neither this exercise or self
help remedies nor the institution or maintenance of an action for
foreclosure or provisional or ancillary remedies shall constitute a
waiver of the right of any party, including the claimant in any such
action, to arbitrate the merits of the controversy or claim
occasioning resort to such remedies.
36. Not Partners; No Third Party Beneficiaries. Nothing contained
herein or in any related document shall be deemed to render Lender a partner of
Borrower for any purpose. This Agreement has been executed for the sole
benefit of Lender, and no third party is authorized to rely upon Lender's
rights hereunder or to rely upon an assumption that Lender has or will exercise
its rights under this Agreement or under any document referred to herein.
37. Regulation U. Borrower warrants that none of the proceeds of
the loan evidenced by the Note will be used to purchase or carry "margin
stock," as defined in Regulation U issued by the Federal Reserve Board.
38. Business Days. If any payment date under the Unsecured
Indebtedness fails on a day that is not a business day of Lender, or if the
last day of any notice period falls on such a day, the payment shall be due and
the notice period shall end on the next succeeding Lender business day.
39. Notices. Any communications concerning this Agreement or the
credit described herein shall be addressed as follows:
As to Borrower:
Volunteer Capital Corporation
Attention: R. Gregory Lewis
3401 West End Avenue
Suite 260
Nashville, TN 37203
With a Copy to:
T. Andrew Smith
BASS, BERRY & SIMS
First American Center, Suite 2700
Nashville, Tennessee 37238
As to Lender:
NationsBank of Tennessee, N.A.
Attention: William H. Diehl, Vice President
One NationsBank Plaza
Nashville, Tennessee 37239
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<PAGE> 21
With a copy to:
Neal & Harwell
Attn: James R. Kelley
2000 First Union Tower, 150 4th Avenue North
Nashville, Tennessee 37219
Communications to be given to Lender shall only be effective when set forth in
writing and actually received by an officer of Lender at the address indicated
above. Communications to be given to Borrower shall be effective when actually
or constructively received by Borrower or two (2) days after when set forth in
writing and mailed or delivered to Borrower's address stated above. Any party
may change its address for receipt of notices by submitting the change in
writing to the other party.
41. Participations. Lender may, from time to time, in its sole
discretion, and without notice to Borrower, sell participations in any credit
subject hereto to such other investors or financial institutions as it may
elect. Such participants will have no direct relationship with Borrower and
will have no right with respect to waivers or amendments or default
declarations. Lender may from time to time disclose to any participant or
prospective participant such information as Lender may have regarding the
financial condition, operations, and prospects of Borrower, but Lender shall
take reasonable precautions to require such participant or prospective
participant to keep such information confidential. Lender agrees that it will
not assign or participate more than 33% of the interest in the Line of Credit
Note and the Agreement.
42. Incorporation of Exhibits. All Exhibits referred to in this
Agreement are incorporated herein by this reference.
43. Indulgence Not Waiver. Lender's indulgence in the existence
of a default hereunder or any other departure from the terms of this Agreement
shall not prejudice Lender's rights to declare a default or otherwise demand
strict compliance with this Agreement.
44. Cumulative Remedies. The remedies provided Lender in this
Agreement are not exclusive of any other remedies that may be available to
Lender under any other document or at law or equity.
45. Amendment and Waiver in Writing. No provision of this
Agreement can be amended or waived, except by a statement in writing signed by
the party against which enforcement of the amendment or waiver is sought.
46. Assignment. This Agreement shall be binding upon and inure to
the benefit of the respective heirs, successors and assigns of Borrower and
Lender, except that Borrower shall not
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<PAGE> 22
assign any rights or delegate any obligations arising hereunder without the
prior written consent of Lender. Any attempted assignment or delegation by
Borrower without the required prior consent shall be void.
47. Entire Agreement. This Agreement and the other written
agreements between Borrower and Lender represent the entire agreement between
the parties concerning the subject matter hereof, and all oral discussions and
prior agreements are merged herein. Provided, if there is a conflict between
this Agreement and any other documents executed contemporaneously herewith with
respect to the Unsecured Indebtedness, the provision most favorable to Lender
shall control.
48. Severability. Should any provision of this Agreement be
invalid or unenforceable for any reason, the remaining provisions hereof shall
remain in full effect.
49. Time of Essence. Time is of the essence of this Agreement,
and all dates and time periods specified herein shall be strictly observed,
except that Lender may permit specific deviations therefrom by its written
consent.
50. Applicable Law. The validity, construction and enforcement of
this Agreement and all other documents executed with respect to the Unsecured
Indebtedness shall be determined according to the laws of Tennessee applicable
to contracts executed and performed entirely within that state, in which state
this Agreement has been executed and delivered.
51. Gender and Number. Words used herein indicating gender or
number shall be read as context may require.
52. Captions Not Controlling. Captions and headings have been
included in this Agreement for the convenience of the parties, and shall not be
construed as affecting the content of the respective paragraphs.
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<PAGE> 23
Executed the date first written above.
THE UNDERSIGNED ACKNOWLEDGE A
THOROUGH UNDERSTANDING OF THE TERMS OF
THIS AGREEMENT AND AGREE TO BE BOUND
THEREBY:
NATIONSBANK OF TENNESSEE, N.A.
By: /s/ William H. Diehl
--------------------------------
Title: Vice President
-----------------------------
VOLUNTEER CAPITAL CORPORATION
By: /s/ R. Gregory Lewis
--------------------------------
Its: Vice President and Chief
Financial Officer
-------------------------------
VCE RESTAURANTS, INC.
By: /s/ R. Gregory Lewis
--------------------------------
Its: Secretary
-------------------------------
TOTAL QUALITY MANAGEMENT, INC.
By: /s/ R. Gregory Lewis
--------------------------------
Its: Secretary
-------------------------------
23
<PAGE> 1
EXHIBIT 10.2
LINE OF CREDIT NOTE
$30,000,000.00 Nashville, Tennessee August 29, 1995
FOR VALUE RECEIVED, VOLUNTEER CAPITAL CORPORATION, VCE RESTAURANTS,
INC. AND TOTAL QUALITY MANAGEMENT, INC., Tennessee corporations, (collectively
the "Maker") jointly and severally promise to pay to the order of NATIONSBANK
OF TENNESSEE, N.A. ("Payee" or "NationsBank"), the sum of Thirty Million and
No/100 Dollars ($30,000,000.00), or as much thereof as may be outstanding from
time to time, together with interest thereon as set forth below.
Advances under this Note shall be governed by that certain Loan
Agreement dated June 30, 1995 ("Loan Agreement"). Subject to the provisions of
the Loan Agreement, Maker may borrow, repay and reborrow and there is no limit
on the number of advances against this Note as long as the total unpaid
principal balance at any time outstanding does not exceed Thirty Million and
No/100 Dollars ($30,000,000.00).
Interest shall accrue at either (i) the NationsBank Prime Rate, as it
may change from time to time; or (ii) upon Maker's written election, for any
given period of 30, 60, 90, or 180 days (a "LIBOR Period") the LIBOR Rate plus
a spread of either 1.5% or 2.5% depending on the Fixed Charge Coverage Ratio
("FCCR") as further provided in the Loan Agreement.
A non-usage fee of either .25% or .50% based upon the daily average
unused amount and based on the FCCR will be paid quarterly in arrears. If the
FCCR is greater than or equal to 1.20, the fee will be .25%. If the FCCR is
less than 1.20, the fee will be .50%.
Interest in arrears shall be due and payable on the first (1st) day of
each month beginning in August 1, 1995, except in the case of a LIBOR Rate
Borrowing, at Maker's option, interest shall be payable monthly as set forth
above or at the end of the LIBOR Period.
All remaining principal and interest shall become due on July 1, 1998
under the three year revolver, or July 1, 2005 if the option to convert to an
additional seven (7) year term loan is exercised.
Should Maker elect in writing to use the LIBOR Rate Option for a LIBOR
Period, the following restrictions will apply. No more than five (5) LIBOR
Rate Borrowings may be outstanding at any time. The borrowings will be in
minimum amounts of One Million and 00/100 Dollars ($1,000,000.00) each or
greater amounts in Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00)
increments.
<PAGE> 2
Maker has the option to convert this Line of Credit Note to a Term
Note. Providing that Borrower is not then in default hereunder, Borrower may
make a written election to convert the Line of Credit Note to a Term Note any
time prior to July 1, 1998. The written election must be delivered to Payee at
least fifteen (15) days prior to the conversion date. There will be a
conversion fee equal to one-quarter (1/4) of one percent (1%) of the then
outstanding principal balance. The unpaid principal balance will then be
repayable in eighty-four (84) equal monthly installments of principal with the
first principal payment due thirty (30) days following the conversion date.
Interest will continue to be paid monthly at the same time as the principal
payment is due. Interest shall accrue on the Term Note at the NationsBank
Prime Rate, as it may change from time to time or the LIBOR Rate discussed
above (subject to the restriction on the number of LIBOR borrowings discussed
above) or at a fixed rate equal to the rate for treasury securities having a
comparable maturity plus 200 basis points. Maker shall specify the interest
rate option (Prime Rate, LIBOR Rate or fixed) to be used in the conversion
election.
As used herein, the term "NationsBank Prime Rate" shall mean the
fluctuating rate of interest established by NationsBank from time to time as
its "Prime Rate", whether or not such rate shall be otherwise published. Such
Prime Rate is established by NationsBank as an index or base rate and may or
may not at any time be the best or lowest rate charged by NationsBank on any
loan. If at any time or from time to time the Prime Rate increases or
decreases, then the rate of interest hereunder shall be correspondingly
increased or decreased effective on the day on which any such increase or
decrease of the Prime Rate changes, unless otherwise herein provided. In the
event that NationsBank, during the term hereof, shall abolish or abandon the
practice of establishing a Prime Rate, or should the same become
unascertainable, NationsBank shall designate a comparable reference rate which
shall be deemed to be the Prime Rate for purposes hereof.
For purposes hereof, the "LIBOR Rate" shall mean the rate per annum
announced by NationsBank as its LIBOR Rate for a period equal to the length of
such LIBOR Period and in an amount comparable to the then aggregate unpaid
principal balance hereunder (or will be outstanding by the commencement of the
LIBOR Period requested by Maker) as adjusted to reflect NationsBank's reserve
requirements, all as calculated and announced from time to time by Payee, whose
announcement shall be binding absent manifest error.
Interest hereunder shall be calculated based upon a 360 day year and
actual days elapsed. The interest rate required hereby shall not exceed the
maximum rate permissible under applicable law, and any amounts paid in excess
of such rate shall be applied to reduce the principal amount hereof or shall be
refunded to Maker, at the option of the holder of this Note.
2
<PAGE> 3
All amounts due under this Note are payable at par in lawful money of
the United States of America, at the principal place of business of Payee in
Nashville, Tennessee, or at such other address as the Payee or other holder
hereof (herein "Holder") may direct.
Any payment not made within fifteen (15) days of its due date will be
subject to assessment of a late charge equal to five percent (5%) of such
payment. Holder's right to impose a late charge does not evidence a grace
period for the making of payments hereunder.
The occurrence of any of the following shall constitute an event of
default under this Note: (a) the failure of Maker to timely pay any amount due
Holder under this Note or any other obligation to Holder if such failure
continues for ten (10) days after notice of nonpayment from Holder to Maker
provided, however, that should Holder give Maker a notice of nonpayment, then
for the twelve month period following such notice of nonpayment, Holder shall
not be required to give Maker notice of nonpayment and Maker will be in default
if it fails to make a monetary payment within ten (10) days of the due date;
(b) the institution of proceedings by Maker under any state insolvency law or
under any federal bankruptcy law; (c) the institution of proceedings against
Maker under any state insolvency law or under any federal bankruptcy law, if
such proceedings are not dismissed within sixty (60) days; (d) Maker's becoming
insolvent or generally failing to pay its debts as they become due; (e) the
discovery by Holder that Maker has made a material misrepresentation of
financial condition in any written statement made to any present or previous
Holder which remains uncured for thirty (30) days; (f) the instigation of legal
proceedings against Maker for the violation of a material criminal statute; (g)
the issuance of an attachment against property of Maker unless removed, by bond
or otherwise, within ten (10) days; (h) the entry of a judgment against Maker
that remains unsatisfied for thirty (30) days after execution may first issue;
(i) Maker's liquidation or cessation of business; (j) the occurrence of a
default under the terms of any loan agreement, security agreement, deed of
trust, or similar document to which Maker is a party or to which any property
securing this Note is subject which results in the acceleration of an
indebtedness of One Hundred Thousand and 00/100 Dollars ($100,000.00) or more;
or (k) the occurrence of any of the foregoing with regard to any surety,
guarantor, endorser, or other person or entity primarily or secondarily liable
for the payment of the indebtedness evidenced by this Note.
Upon the occurrence of an event of default, as defined above, Holder
may, at its option and without notice, terminate any obligation to advance
funds under this Note, declare all principal and interest provided for under
this Note, and any other obligations available to Holder under any documents
securing or evidencing debts of Maker to Holder. Holder
3
<PAGE> 4
may waive any default before or after it occurs and may restore this Note in
full effect without impairing the right to declare it due for a subsequent
default, this right being a continuing one. Upon default, at Holder's
election, the remaining unpaid principal balance of the indebtedness evidenced
hereby and all expenses due Holder shall bear interest at the interest rate in
effect immediately before the default plus three percent (3%).
All amounts received for payment of this Note shall be first applied
to any expenses due Holder under this Note or under any other documents
evidencing or securing obligations of Maker to Holder, then to accrued
interest, and finally to the reduction of principal. Prepayment of principal
or accrued interest may be made, in whole or in part, at any time without
penalty. Any prepayment(s) shall reduce the final payment(s) and shall not
reduce or defer installments next due.
This Note may be freely transferred by Holder.
Maker and all sureties, guarantors, endorsers and other parties to
this instrument hereby consent to any and all renewals, waivers, modifications,
or extensions of time (of any duration) that may be granted by Holder with
respect to this Note and severally waive demand, presentment, protest, notice
of dishonor, and all other notices that might otherwise be required by law.
All parties hereto waive the defense of impairment of collateral and all other
defenses of suretyship.
Maker's performance under this Note is unsecured. There will be a
negative pledge on existing unencumbered assets, as further described in the
Loan Agreement.
Maker and all sureties, guarantors, endorsers and other parties hereto
agree to pay reasonable attorneys' fees and all court and other costs that
Holder may incur in the course of efforts to collect the debt evidenced hereby
or to protect Holder's interest in any collateral securing the same.
The validity and construction of this Note shall be determined
according to the laws of Tennessee applicable to contracts executed and
performed within that state. If any provision of this Note should for any
reason be invalid or unenforceable, the remaining provisions hereof shall
remain in full effect.
The provisions of this Note may be amended or waived only by
instrument in writing signed by the Holder and Maker and attached to this Note.
Any controversy or claim between or among the parties to this Note or
any related loan or collateral agreements or instruments (collectively, "Loan
Documents"), including any claim based on or arising from an alleged tort,
shall be determined by binding
4
<PAGE> 5
arbitration in accordance with the Federal Arbitration Act (or if not
applicable, the applicable state law), the Rules of Practice and Procedure for
the arbitration of commercial disputes of Judicial Arbitration and Mediation
Services, Inc. (J.A.M.S.), and the "special rules" set forth below. In the
event of any inconsistency, the special rules shall control. Judgment upon any
arbitration award may be entered in any court having jurisdiction. Any party
to the Loan Documents may bring an action, including a summary or expedited
proceeding, to compel arbitration of any controversy or claim to which this
agreement applies in any court having jurisdiction over such action.
The following "Special Rules" shall apply. The arbitration shall be
conducted in Nashville, Tennessee and administered by J.A.M.S. who will
appoint an arbitrator; if J.A.M.S. is unable or legally precluded from
administering the arbitration, then the American Arbitration Association will
serve. All arbitration hearings will be commenced within 90 days of the demand
for arbitration; further, the arbitrator shall only, upon a showing of cause,
be permitted to extend the commencement of such hearing for up to an additional
60 days.
Nothing in foregoing arbitration shall be deemed to (i) limit the
applicability of any otherwise applicable statutes of limitation or repose and
any waivers contained in the Loan Documents; or (ii) be a waiver by NationsBank
of the protection afforded to it by 12 U.S.C. Sec. 91 or any substantially
equivalent state law; or (iii) limit the rights of NationsBank under the Loan
Documents (a) to exercise self help remedies such as (but not limited to)
set-off, or (b) to foreclose against any real or personal property collateral,
or (c) to obtain from a court provisional or ancillary remedies such as (but
not limited to) injunctive relief, possession of collateral or the appointment
of a receiver. NationsBank may exercise such self help rights, foreclose upon
such property, or obtain such provisional or ancillary remedies before, during
or after the pendency of any arbitration proceeding brought pursuant to the
Loan Documents. At NationsBank's option, foreclosure under a deed of trust or
mortgage may be accomplished by any of the following: the exercise of a power
of sale under the deed of trust or mortgage, or by judicial sale under the deed
of trust or mortgage, or by judicial foreclosure. Neither this exercise or
self help remedies nor the institution or maintenance of an action for
foreclosure or provisional or ancillary remedies shall constitute a waiver of
the right of any party, including the claimant in any such action, to arbitrate
the merits of the controversy or claim occasioning resort to such remedies.
5
<PAGE> 6
Words used herein indicating gender or number shall be read as context may
require.
VOLUNTEER CAPITAL CORPORATION
By: /s/ R. Gregory Lewis
--------------------------------
Title: Vice President
-----------------------------
VCE RESTAURANTS, INC.
By: /s/ R. Gregory Lewis
--------------------------------
Its: Secretary
-------------------------------
TOTAL QUALITY MANAGEMENT, INC.
By: /s/ R. Gregory Lewis
--------------------------------
Its: Secretary
-------------------------------
6
<PAGE> 1
Volunteer Capital Corporation and Subsidiaries
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Nine Months Ended Quarter Ended
-------------------- --------------------
OCTOBER 1 October 2 OCTOBER 1 October 2
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings per common and dilutive common equivalent share
Net income . . . . . . . . . . . . . . . . . . . . . . $2,585,000 $2,054,000 $ 984,000 $ 819,000
========== ========== ========== ===========
Adjustment of shares outstanding:
Actual weighted average shares outstanding . . . . . 5,252,000 5,171,000 5,260,000 5,230,000
Net additional shares issuable, based on the treasury
stock method . . . . . . . . . . . . . . . . . . . 172,000 211,000 210,000 153,000
---------- ---------- ---------- ----------
Adjusted shares outstanding . . . . . . . . . . . . 5,424,000 5,382,000 5,470,000 5,383,000
Per share amount . . . . . . . . . . . . . . . . . . . $ .48 $ .38 $ .18 $ .15
========== ========== ========== ===========
Earnings per common share, assuming full dilution
Net income . . . . . . . . . . . . . . . . . . . . . . $2,585,000 $2,054,000 $ 984,000 $ 819,000
========== ========== ========== ==========
Adjustment of shares outstanding:
Actual weighted average shares outstanding . . . . . 5,252,000 5,171,000 5,260,000 5,230,000
Net additional shares issuable, based on the treasury
stock method . . . . . . . . . . . . . . . . . . . 227,000 211,000 249,000 153,000
---------- ---------- ---------- ----------
Adjusted shares outstanding . . . . . . . . . . . . 5,479,000 5,382,000 5,509,000 5,383,000
========== ========== ========== ==========
Per share amount . . . . . . . . . . . . . . . . . . . $ .47 $ .38 $ .18 $ .15
========== ========== ========== ==========
</TABLE>
Note: The computations of earnings per common and dilutive common
equivalent share and earnings per common share, assuming full
dilution, are based on the weighted average number of common shares
outstanding each period after considering the effect of stock options
using the treasury stock method. Shares issuable upon the conversion
of convertible subordinated debentures have not been included as the
effect of their inclusion would be antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTH PERIOD
ENDED OCTOBER 1, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-02-1995
<PERIOD-END> OCT-01-1995
<CASH> 7,925
<SECURITIES> 0
<RECEIVABLES> 111
<ALLOWANCES> 0
<INVENTORY> 714
<CURRENT-ASSETS> 9,910
<PP&E> 60,391
<DEPRECIATION> 20,264
<TOTAL-ASSETS> 56,314
<CURRENT-LIABILITIES> 7,307
<BONDS> 18,593
<COMMON> 263
0
0
<OTHER-SE> 29,709
<TOTAL-LIABILITY-AND-EQUITY> 56,314
<SALES> 58,655
<TOTAL-REVENUES> 58,655
<CGS> 20,383
<TOTAL-COSTS> 37,528
<OTHER-EXPENSES> 14,665
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,082
<INCOME-PRETAX> 2,753
<INCOME-TAX> 168
<INCOME-CONTINUING> 2,585
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,585
<EPS-PRIMARY> .48
<EPS-DILUTED> .47
</TABLE>
