<PAGE> 1
Form l0-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 September 29, 1996
----------------------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------ ---------------------------
Commission file number 1-8766
--------------------------------------------------------
VOLUNTEER CAPITAL CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TENNESSEE 62-0854056
- -------------------------------------------------------------- ------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
3401 West End Avenue, Suite 260, P.O. Box 24300, Nashville, Tennessee 37202
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(615) 269-1900
- --------------------------------------------------------------------------------
(Registrants telephone number, including area code)
- --------------------------------------------------------------------------------
(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
--- ---
Common Stock Outstanding - 5,322,507 shares at November 11, 1996.
Page 1 of 16 pages.
<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>
September 29 December 31
1996 l995
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,847 $ 2,234
Short-term investments - 505
Accounts and notes receivable, including current portion of direct
financing leases 208 313
Inventories 524 848
Deferred income taxes 4,314 1,541
Prepaid expenses and other current assets 155 484
Net assets held for disposal 17,320 -
------- -------
TOTAL CURRENT ASSETS 24,368 5,925
OTHER ASSETS 1,205 1,091
PROPERTY AND EQUIPMENT, at cost, less allowances for
depreciation and amortization of $3,913 and $20,661 at September 29,
1996, and December 31, 1995, respectively 41,329 46,915
DEFERRED INCOME TAXES 728 3,995
DEFERRED CHARGES, less amortization 2,797 2,214
------- -------
$70,427 $60,140
======= =======
</TABLE>
-2-
<PAGE> 3
<TABLE>
<CAPTION>
SEPTEMBER 29 DECEMBER 31
1996 1995
------------ -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,139 $ 3,704
Accrued expenses and other current liabilities 5,222 4,151
Current portion of long-term debt and obligations under
capital leases 88 297
------- -------
TOTAL CURRENT LIABILITIES 9,449 8,152
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL
LEASES, net of portion classified as current 25,926 18,512
DEFERRED COMPENSATION AND OTHER DEFERRED CREDITS 602 501
STOCKHOLDERS' EQUITY
Common Stock, par value $.05 per share: Authorized l0,000,000
shares; issued and outstanding 5,322,007 and 5,276,972 shares
at September 29, 1996, and December 31, 1995, respectively 266 264
Preferred Stock, no par value: Authorized 1,000,000 shares; none
issued - -
Additional paid-in capital 29,471 29,199
Retained earnings 5,741 4,540
------- -------
35,478 34,003
Note receivable - Employee Stock Ownership Plan (1,028) (1,028)
------- -------
TOTAL STOCKHOLDERS' EQUITY 34,450 32,975
------- -------
$70,427 $60,140
======= =======
</TABLE>
See notes to consolidated condensed financial statements.
-3-
<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
----------------- -------------
September 29 October 1 September 29 October 1
1996 l995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $70,640 $58,655 $25,584 $20,550
Costs and expenses:
Cost of sales 24,687 20,383 9,000 7,104
Restaurant labor and related costs 21,053 17,145 7,629 5,951
Depreciation and amortization of restaurant
property and equipment 2,360 2,183 497 770
Royalties 1,643 1,636 586 567
Other operating expenses 11,060 8,596 4,060 3,068
------- -------- ------- -------
Total restaurant operating expenses 60,803 49,943 21,772 17,460
------- -------- ------- -------
Income from restaurant operations 9,837 8,712 3,812 3,090
General and administrative expenses 6,268 5,457 2,242 1,860
Wendy's disposition costs 542 0 542 0
------- -------- ------- -------
Operating income 3,027 3,255 1,028 1,230
------- -------- ------- -------
Other income (expense):
Interest expense (1,220) (1,082) (475) (340)
Interest income 34 514 8 138
Other, net 7 66 9 (21)
------- -------- ------- -------
Total other income (expense) (1,179) (502) (458) (223)
------- -------- ------- -------
Income before income taxes 1,848 2,753 570 1,007
Income tax provision 647 168 200 23
------- -------- ------- -------
Net income $ 1,201 $ 2,585 $ 370 $ 984
======= ======== ======= =======
Earnings per share:
Primary $ .22 $ .48 $ .07 $ .18
======= ======== ======= =======
Fully diluted $ .22 $ .47 $ .07 $ .18
======= ======== ======= =======
Weighted average number of shares:
Primary 5,469 5,424 5,476 5,470
======= ======== ======= =======
Fully diluted 5,469 5,479 5,476 5,509
======= ======== ======= =======
</TABLE>
-4-
<PAGE> 5
VOLUNTEER CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 29 October 1
1996 1995
-------- --------
<S> <C> <C>
Net cash provided by operating activities $ 5,890 $ 5,704
Net cash provided (used) by investing activities:
Purchase of property and equipment (16,631) (13,305)
Proceeds from maturities and sales of investments 505 1,004
Other investing activities (86) (51)
-------- -------
(16,212) (12,352)
Net cash provided (used) by financing activities:
Payments on debt and obligations under capital leases (314) (312)
Borrowings on line of credit 9,973 -
Other financing activities 276 83
------- -------
9,935 (229)
Decrease in Cash and Cash Equivalents (387) (6,877)
Cash and cash equivalents at beginning of period 2,234 14,802
------- -------
Cash and Cash Equivalents at End of Period $ 1,847 $ 7,925
======= =======
</TABLE>
See notes to consolidated condensed financial statements.
-5-
<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 years
consolidated condensed financial statements to conform to the 1996
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 September
29, 1996, are not necessarily indicative of the results that may be expected
for the fiscal year ending December 29, 1996. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Companys annual report on Form 10-K for the fiscal year ended December 31,
1995.
NOTE B - SALE OF WENDY'S RESTAURANT OPERATIONS
In July 1996, the Company entered into a letter of intent to sell
substantially all of its Wendy's restaurant operations to Wendy's International,
Inc. (WI) for $28.3 million in cash plus the assumption of capitalized lease
obligations and long-term debt totalling approximately $2.5 million. Under
terms of the definitive purchase agreement which was executed in October 1996,
WI will purchase up to 52 of the Company's 58 Wendy's restaurants, subject to
the fulfillment of customary closing conditions. The Company's Wendy's
restaurants which are not purchased by WI will be closed or sold. Management
anticipates the transaction will be completed on or before November 30, 1996.
In accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" (SFAS No. 121), the net assets held for disposal at September
29, 1996, have been measured at the lower of carrying amount or fair value less
the estimated cost to sell. Included in the net carrying value of $17,320,000
are property and equipment ($19,202,000, net of $17,272,000 in accumulated
depreciation/amortization), inventory ($433,000) and prepaid expenses and other
assets ($149,000), net of mortgages ($1,936,000) and capital lease obligations
($528,000).
Under the provisions of SFAS No. 121, depreciation and amortization are
not recorded during the period in which assets are being held for disposal.
Accordingly, no depreciation expense has been recorded subsequent to July 3,
1996, the measurement date for the transaction, relative to assets utilized in
the Wendy's operations.
-6-
<PAGE> 7
Management estimates the divestiture of the Company's Wendy's
operations will generate net proceeds of approximately $24 million and a
pre-tax gain of approximately $8 to $10 million during the fourth quarter of
1996. In accordance with Emerging Issues Task Force Issue No. 94-3 "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity...", the Company has recorded expenses totalling $542,000 during
the third quarter of 1996 relative to accrued termination benefits ($450,000)
and accrued liabilities associated with the settlement of lease obligations on
two of the restaurants which are not being purchased by WI. There will be 30
employees eligible for termination benefits as a result of the Company's exit
from the Wendy's business.
Following the divestiture of the Wendy's restaurant Operations, the
operating revenues of the Company will be significantly reduced. The Wendy's
division generated restaurant operating income of $6.1 million on sales of
$41.1 million during the first nine months of 1996 and operating income of
$2.5 million on sales of $14.6 million during the third quarter of 1996.
NOTE C - PRE-OPENING COSTS
Costs of hiring and training personnel and certain other costs relating
to a new J. Alexander's restaurant have historically been capitalized and
amortized over the restaurant's first 24 months of operations. In the fourth
quarter of 1996, the Company intends to change its period of amortiztion for
these costs to 12 months. Management estimates that an additional $500,000 of
pre-opening expense will be recorded in the fourth quarter of 1996 as a result
of this change. Management does not anticipate the change will have a material
impact on periods subsequent to fiscal 1996.
-7-
<PAGE> 8
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Volunteer Capital Corporation operated 56 franchised Wendys Old
Fashioned Hamburgers restaurants and thirteen proprietary J. Alexander's
full-service, casual dining restaurants at September 29, 1996.
In July of 1996, the Company entered into a letter of intent to sell
substantially all of its Wendy's restaurants to Wendy's International, Inc. for
approximately $28.3 million in cash plus the assumption of capitalized lease
obligations and long-term debt totalling approximately $2.5 million. Under the
terms of the definitive purchase agreement which was executed in October of
1996, Wendy's International, Inc. will purchase 52 of the Company's Wendy's
restaurants. Two restaurants were closed during the third quarter of 1996 and
the remaining four will be closed and/or sold to other parties. Management
estimates that the divestiture will generate net proceeds of approximately $24
million in cash and a pre-tax gain of $8 to $10 million during the fourth
quarter of 1996. The net assets of the Wendy's division operations of
$17,320,000 have been included in the balance sheet as assets held for
disposition. The Company recorded expenses in connection with the disposition
of $542,000 during the third quarter of 1996.
Management anticipates that the transaction with Wendy's International,
Inc. will be completed on or before November 30, 1996. Following the
divestiture of the Wendy's restaurant operations, the operating revenues of the
Company will be significantly reduced. As indicated in the tables below, the
Wendy's division generated operating income of $6,061,000 on sales of
$41,051,000 for the first nine months of 1996 and operating income of $2,539,000
on sales of $14,641,000 during the third quarter of 1996. Management reached
the decision to sell the Wendy's operations because it believed focusing all of
the Company's capital and resources exclusively on casual dining offers the
greatest potential for long-term return for its shareholders. However, the
divestiture is expected to have a negative impact on earnings for the next
twelve to eighteen months before the lost revenue and operating income from the
Wendy's operations can be replaced by the development of new J. Alexander's
restaurants. Also, general and administrative expenses will not decrease in
proportion to the reduction in revenues and operating profits from the Wendy's
divestiture since a large portion of these costs is related to the ongoing
development of J. Alexander's restaurants.
For the first nine months of 1996, the Company's consolidated income
before income taxes decreased by $905,000, or 32.9%, as compared to the same
period of the previous year. Income before income taxes decreased by $437,000,
or 43.4%, for the third quarter of 1996. Consolidated restaurant operating
income increased by $1,125,000 and $722,000 during the first nine months and
third quarter of 1996, as compared to the 1995 periods. These increases were
more that offset, however, by other items including increases in interest
expense, decreases in interest income and increases in general and
administrative expenses.
-8-
<PAGE> 9
Net income decreased by $1,384,000 (53.5%) and $614,000 (62.4%) for the first
nine months and third quarter of 1996, as compared to the same periods in the
previous year. Due to the Company having recognized all of its deferred tax
assets in the fourth quarter of 1995, earnings for both of the 1996 periods
were taxed at an effective rate of 35%, as compared with effective rates of 6%
and 2% for the nine month and three month periods ended October 1, 1995.
WENDYS RESTAURANT OPERATIONS
Results of the Wendys restaurant operations before allocation of other
income, corporate overhead and net interest expense for the nine months and
third quarters ended September 29, 1996, and October 1, 1995, were as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 29, 1996 October 1, 1995
------------------------- -------------------------
Amount % of Amount % of
(in thousands) Sales (in thousands) Sales
------------- ----- ------------- -----
<S> <C> <C> <C> <C>
Net sales $41,051 100% $40,861 100.0%
Restaurant costs and expenses:
Cost of sales 14,383 35.0 14,162 34.7
Labor and related costs 11,883 28.9 11,684 28.6
Depreciation and amortization of restaurant
property and equipment 1,074 2.6 1,469 3.6
Royalties 1,643 4.0 1,636 4.0
Other operating expenses 6,007 14.6 5,773 14.1
------- ------ ------- -----
34,990 85.2 34,724 85.0
------- ------ ------- -----
Restaurant operating income $ 6,061 14.8% $ 6,137 15.0%
======= ====== ======= =====
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
September 29, 1996 October 1, 1995
------------------------ ---------------------------------
Amount % of Amount % of
(in thousands) Sales (in thousands) Sales
-------------- ----- -------------- -----
<S> <C> <C> <C> <C>
Net sales $14,641 100.0% $14,142 100.0%
Restaurant costs and expenses:
Cost of sales 5,242 35.8 4,837 34.2
Labor and related costs 4,147 28.3 4,024 28.5
Depreciation and amortization of restaurant
property and equipment - - 511 3.6
Royalties 586 4.0 567 4.0
Other operating expenses 2,127 14.5 2,038 14.4
------- ----- ------- -----
12,102 82.7 11,977 84.7
------- ----- ------- -----
Restaurant operating income $ 2,539 17.3% $ 2,165 15.3%
======= ===== ======= =====
</TABLE>
-9-
<PAGE> 10
The Company operated 56 Wendys restaurants at September 29, 1996 and
58 restaurants at October 1, 1995. Two restaurants were closed late in the
third quarter of 1996 in connection with the divestiture of the division.
Total sales in the Wendy's division increased 0.5% and 3.5% for the
first nine months and third quarter of 1996 as compared to the same periods in
1995. Weighted average per unit sales of restaurants open for all of the first
nine months of both 1996 and 1995 totalled $718,000, a 1.6% decrease from
$730,000 in 1995. For restaurants open for all of the third quarter in both
1996 and 1995, weighted average per unit sales totalled $256,000, a 3.6%
increase from $247,000 in 1995. The Company estimates that menu prices, after
considering promotional discounts, increased by approximately 3.0% and 2.5%
during the first nine months and third quarter of 1996, as compared to the same
periods in 1995.
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 1996 as compared to the same periods in 1995,
primarily as a result of higher chicken and, in the third quarter of 1996,
ground beef prices.
Restaurant labor and related costs increased as a percentage of net
sales for the first nine months of 1996, as compared to the corresponding
period of 1995, due primarily to the effect of higher wages and the decline in
weighted average sales per unit. For the third quarter, restaurant labor and
related costs decreased as a percentage of net sales, as compared to the same
quarter in 1995, as the favorable impact of increased menu prices and the
increase in weighted average sales per unit more than offset the effect of
higher wage rates.
Under the provisions of Statement of Financial Accounting Standards No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", no depreciation or amortization expense has been
recorded subsequent to July 3, 1996, the measurement date for the transaction,
on Wendy's assets held for disposal. As a result, depreciation and
amortization of restaurant property and equipment decreased for the first nine
months and third quarter of 1996, as compared to the same periods in 1995.
Other operating expenses increased as a percentage of net sales for the
first nine months of 1996, as compared to the same period in 1995, primarily
due to increases in rent expense associated with new units developed in 1995
and the impact of the decline in same store sales.
J. Alexanders Restaurant Operations
The Company operated thirteen J. Alexander's restaurants at September
29, 1996, compared with seven at October 1, 1995. New restaurants were opened
as follows:
Location Opening Date
-------- ------------
Toledo, Ohio November 13, 1995
Overland Park, Kansas December 4, 1995
Lyndhurst, Ohio April 29, 1996
Plantation, Florida July 22, 1996
Troy, Michigan August 15, 1996
Chattanooga, Tennessee September 3, 1996
-10-
<PAGE> 11
J. Alexanders operating results, before allocation of other income,
corporate overhead and net interest expense, for the nine months and third
quarters ended September 29, 1996, and October 1, 1995, were as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 29, 1996 October 1, 1995
------------------ ---------------
Amount % of Amount % of
(in thousands) Sales (in thousands) Sales
-------------- ----- -------------- -----
<S> <C> <C> <C> <C>
Net sales $29,589 100.0% $17,794 100.0%
Restaurant costs and expenses:
Cost of sales 10,304 34.8 6,221 35.0
Labor and related costs 9,170 31.0 5,461 30.7
Depreciation and amortization of restaurant
property and equipment 1,286 4.3 714 4.0
Other operating expenses 5,053 17.1 2,823 15.9
------- ----- ------- -----
25,813 87.2 15,219 85.5
------- ----- ------- -----
Restaurant operating income $ 3,776 12.8% $ 2,575 14.5%
======= ===== ======= =====
<CAPTION>
Quarter Ended
September 29, 1996 October 1, 1995
------------------ ---------------
Amount % of Amount % of
(in thousands) Sales (in thousands) Sales
-------------- ----- -------------- -----
Net sales $10,943 100.0% $6,408 100.0%
Restaurant costs and expenses:
Cost of sales 3,758 34.3 2,267 35.4
Labor and related costs 3,482 31.8 1,927 30.1
Depreciation and amortization of restaurant
property and equipment 497 4.5 259 4.0
Other operating expenses 1,933 17.7 1,030 16.1
------- ----- ------- -----
9,670 88.4 5,483 85.6
------- ----- ------- -----
Restaurant operating income $ 1,273 11.6% $ 925 14.4%
======= ===== ======= =====
</TABLE>
Net sales for the J. Alexander's division increased 66% and 71% for the
first nine months and third quarter of 1996, as compared to the same periods of
1995, due primarily to the opening of new restaurants. In addition, same store
sales, which include comparable sales for all restaurants open for more than 12
months, averaged $81,300 and $79,900 during the first nine months and third
quarter of 1996, reflecting increases of 6.4% and 3.5% from $76,400 and
$77,200 per week during the same periods of the previous year. Average weekly
sales for all restaurants were $75,200 and $72,700 for the first nine months
and third quarter of 1996, as compared to $76,400 and $77,200 for the
corresponding periods in 1995. The Company estimates that menu prices
increased approximately 5% in the first nine months and third quarter of 1996,
as compared to the same periods of 1995.
11
<PAGE> 12
In order to maximize the quality of guest service and to allow
successful completion of the extensive training and support of J. Alexander's
staff, there is typically little or no advertising or promotion of new J.
Alexander's restaurant openings. Management believes that this "quiet opening"
approach enhances guest experiences and contributes significantly to increases
in same store sales over a long period of time. Due to the slow building
nature of sales and the emphasis placed on training and quality of operations
during the opening months of operation, the financial performance of new
restaurants typically trails that of more mature restaurants. As a result, all
operating cost categories, with the exception of food cost, increased for both
the nine months and quarter ended September 29, 1996, as compared to the same
periods of the prior year due to the effect of the six new restaurants which
have opened subsequent to the third quarter of 1995. Food costs decreased as a
percentage of sales in both of the 1996 periods due primarily to management
emphasis on cost control in this area.
Restaurant operating margins for the seven restaurants open for more
than twelve months improved to 17% in the first nine months of 1996 from 14.6%
in the 1995 period and to 17.4% in the third quarter of 1996 as compared to
14.4% in the corresponding period of 1995.
General and Administrative Expenses
General and administrative expenses, which include all costs above the
restaurant level for both operating divisions as well as amortization of
pre-opening costs, totalled 8.9% and 8.8% of net sales for the first nine
months and third quarter of 1996, as compared to 9.3% and 9.1% of net sales
during the same periods of the prior year, primarily reflecting efficiencies
achieved at higher sales levels. Beginning with the fourth quarter of 1996,
the Company will amortize pre-opening costs related to new J. Alexander's
restaurants (approximately $250,000 per restaurant) over a period of twelve
months, as compared to its historical practice of using a 24 month amortization
period. In addition, the Company will record an estimated $500,000 of
additional amortization of pre-opening costs during the fourth quarter of 1996,
reflecting the impact of the change in amortization period for restaurants
already open.
General and administrative expenses are expected to decrease subsequent
to the disposal of the Company's Wendy's restaurant operation, though the
decrease will not be in proportion to the reduction in revenues and operating
profits resulting from the Wendy's divestiture since a large portion of these
costs is related to the operation and development of J. Alexander's
restaurants. For the nine months ended September 29, 1996, general and
administrative expenses directly related to the Wendy's operations were
approximately $2,225,000.
Other Expense
Other expense increased during the first nine months and third quarter
of 1996 as compared to the same periods of 1995, primarily due to increased net
interest expense as borrowings and funds on hand have been utilized for new
restaurant development.
Income Taxes
Under the provisions of Statement of Financial Accounting Standards No.
109 "Accounting for Income Taxes," the Company has significant deferred tax
assets at September 29, 1996 relating primarily to approximately $8.5 million
of net operating loss carryforwards and $2 million of tax credit carryforwards
available to reduce future federal income taxes. Realization of the deferred
tax assets is dependent principally on future earnings. Prior to 1995, a
valuation
-12-
<PAGE> 13
allowance reflecting the uncertainties associated with future earnings was
established. Since December 31, 1995, no such allowance has been deemed
necessary. The Company anticipates realizing approximately $3.3 million of its
deferred tax assets in connection with the pending sale of its Wendy's
restaurant operations.
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 totalled
$5,890,000 during the first nine months of 1996, an increase of $186,000 as
compared to the corresponding period of 1995. Working capital at September 29,
1996 totalled $14,919,000 as compared to $2,603,000 at October 1, 1995, with
the increase primarily attributable to the inclusion of the net assets of the
Company's Wendy's restaurant operations held for disposal in the current
assets category at September 29, 1996.
The Company's primary investing activity has historically been capital
expenditures for the development and maintenance of its restaurants. Capital
expenditures totalled $16,197,000 during the first nine months of 1996. In the
Wendy's division, capital expenditures of $1,717,000 included facilities
upgrades and miscellaneous equipment replacements. Capital improvements for J.
Alexander's restaurants were $14,297,000 and consisted primarily of development
costs for new restaurants in Cleveland, Ohio; Plantation, Florida; Troy,
Michigan; Chattanooga and Memphis, Tennessee; and Denver, Colorado.
Management expects the primary needs for capital resources in the
future will be for the development of new J. Alexander's restaurants and for
the maintenance of existing restaurants. Management may also consider
acquisitions of additional restaurants similar to J. Alexander's.
The Company's twelfth and thirteenth J. Alexander's restaurants opened
August 15, 1996 and September 3, 1996 in Troy, Michigan and Chattanooga,
Tennessee, respectively, and management anticipates opening the Memphis
restaurant in December 1996. Additional restaurants in Denver, Colorado and
Tampa, Florida are scheduled to open in Spring of 1997. The initial cost of
developing new J. Alexander's restaurants, including the cost of land, has
generally ranged from $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 developing additional building images for J.
Alexander's and expects that the cost of additional new units, including the
cost of land, will be within the range of $3,000,000 to $3,800,000. The
initial capital investment required for opening a new J. Alexander's restaurant
is significantly lower, however, when property is leased rather than purchased.
Management estimates that pre-opening costs will be approximately $250,000 for
each restaurant.
The Company does not have significant capital needs other than for
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 through that time. Further, since requirements for funding
accounts receivable and inventories are relatively small, the Company does not
have significant working capital needs. The Company obtained a $30,000,000
line of credit during the third quarter of 1995 and began using a portion of
this line to fund restaurant development during the first quarter of 1996. The
balance on the line at September 29, 1996 was $9,973,000.
-13-
<PAGE> 14
The Company expects to use a portion of the estimated net proceeds of
approximately $24 million from the sale of its Wendy's restaurant operations to
pay all amounts outstanding under its bank line of credit agreement ($12.3
million at November 7, 1996). The balance of the proceeds will be available
to fund continued development of its J. Alexander's restaurants. In order to
continue to borrow under the line of credit agreement after the divestiture of
its Wendy's operations, it will be necessary for the Company to renegotiate
certain covenants in the agreement. Management believes that it will be
successful in these negotiations and intends to maintain the current credit
line for use in funding a portion of the Company's development plan. Should
these negotiations not be successful, management believes that it will be able
to replace the credit line on terms satisfactory to the Company.
The Company believes that the net proceeds from the divestiture of its
Wendy's restaurant operations, together with cash flow from operations and
available borrowing capacity, will be sufficient to fund the development of its
J. Alexander's restaurants through the latter part of 1998.
-14-
<PAGE> 15
Volunteer Capital Corporation and Subsidiaries
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Nine Months Ended Quarter Ended
----------------- -------------
September 29 October 1 September 29 October 1
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Earnings per common and dilutive common equivalent share
Net income $1,201,000 $2,585,000 $ 370,000 $ 984,000
========== ========== ========== ==========
Adjustment of shares outstanding:
Actual weighted average shares outstanding 5,297,000 5,252,000 5,315,000 5,260,000
Net additional shares issuable, based on the treasury
stock method 172,000 172,000 161,000 210,000
---------- ---------- ---------- ----------
Adjusted shares outstanding 5,469,000 5,424,000 5,476,000 5,470,000
========== ========== ========== ==========
Per share amount $ .22 $ .48 $ .07 $ .18
========== ========== ========== ==========
Earnings per common share, assuming full dilution
Net income $1,201,000 $2,585,000 $ 370,000 $ 984,000
========== ========== ========== ==========
Adjustment of shares outstanding:
Actual weighted average shares outstanding 5,297,000 5,252,000 5,315,000 5,260,000
Net additional shares issuable, based on the treasury
stock method 172,000 227,000 161,000 249,000
---------- ---------- ---------- ----------
Adjusted shares outstanding 5,469,000 5,479,000 5,476,000 5,509,000
========== ========== ========== ==========
Per share amount $ .22 $ .47 $ .07 $ .18
========== ========== ========== ==========
</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.
-15-
<PAGE> 16
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit (10.1) Asset Purchase Agreement dated October 25, 1996
by and between VCE Restaurants, Inc.,
Volunteer Capital Corporation and Wendy's
International, Inc.
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
September 29, 1996.
-16-
<PAGE> 17
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 12, 1996
-17-
<PAGE> 18
VOLUNTEER CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit No.
- -----------
(10.1) Asset Purchase Agreement dated October 25, 1996 by and between
VCE Restaurants, Inc., Volunteer Capital Corporation and Wendy's
International, Inc.
(11) Computation of Earnings per Share
(27) Financial Data Schedules (For SEC Use Only)
-18-
<PAGE> 1
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is made and entered
into effective this 25th day of October, 1996, by and between VCE Restaurants,
Inc., a Tennessee corporation, Volunteer Capital Corporation, a Tennessee
corporation, and Wendy's International, Inc., an Ohio corporation.
RECITALS
A. Seller owns the assets located in or used in the operation of the
fifty two (52) Wendy's Old Fashioned Hamburgers Restaurants listed on Schedules
2.1(a) and 2.1(b) attached hereto.
B. Each of the Restaurants (as defined hereinafter) is operated under
and pursuant to a Unit Franchise Agreement or Restaurant Franchise Agreement
with Wendy's International, Inc.
C. Seller desires to sell, assign and transfer the assets used in the
operation of the Restaurants to Buyer, terminate the Franchise Agreements, and
release Buyer from claims related to or arising from the operation of the
Restaurants, all as set forth in this Agreement.
D. Buyer is willing to purchase the assets, terminate the Franchise
Agreements and release Seller from any claims it may have related to or arising
out of the operation of the Restaurants.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:
SECTION 1. CERTAIN DEFINITIONS: The definitions set forth in the
Recitals are hereby incorporated into this Agreement and, in addition, the
following terms have the following meanings;
"Action" means any action, suit, claim, investigation, or legal,
administrative, regulatory, or arbitral proceeding or inquiry before or by any
Governmental Body;
"Affiliate(s)" means those entities wholly owned or controlled by
Seller or Buyer or under common ownership or control with Seller and the
principal shareholders of Seller or Buyer.
"Assumed Obligations" has the meaning set forth in Section 3.2;
"Buyer" shall mean Wendy's International, Inc.or Wendy's Old Fashioned
Hamburgers of New York, Inc., an Ohio corporation which will purchase the
assets for the Restaurants located in Massachusetts;
"Cash Bank" means the amount listed for each Restaurant on Schedule
6.4(g) attached hereto which amount will be in the Restaurant at the Effective
Time.;
"Closing" has the meaning set forth in Section 6.1;
<PAGE> 2
"Closing Date" means the date on which the Closing occurs;
"Contemplated Transactions" means each transaction contemplated by this
Agreement or any Related Document;
"Contract" means any contract, agreement, indenture, note, bond, loan,
instrument, lease, conditional sale contract, mortgage, license, franchise,
commitment or other binding arrangement;
"Effective Time" means 12:01 a.m. on the day after the Closing Date;
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended;
"Fee Properties" means the land, buildings and other improvements,
together with all easements, appurtenances, servitudes, accessories and
components, access and use agreements, ancillary leases such as additional
parking and other agreements relating to the Restaurants listed on Schedule
2.1(a);
"Franchise Agreement(s)" means those Development Agreements and the
Unit Franchise Agreements issued pursuant thereto and Restaurant Franchise
Agreements (together with any amendments or addenda thereto) between Buyer and
Seller relating to the Restaurants;
"Governmental Body" means any government or political subdivision
thereof, whether federal, state, local or foreign, or any agency, authority or
instrumentality of any such government or political subdivision thereof, or any
federal or state court or arbitrator;
"HSR" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976
and any amendments thereto and the regulations implementing it.
"Knowledge" means when used in this Agreement that level of knowledge
which Seller would have if Seller had conducted an investigation of the matter
and made such inquiries as would have been reasonable under the circumstances
and includes within the scope of such investigation matters known or which in
the exercise of reasonable care should be known to its directors, officers,
employees, advisors, agents and representatives;
"Law" means any law, statute, code, ordinance, regulation, rule or
other requirements of any Governmental Body;
"Lease(s)" means each real estate lease together with any amendments,
modifications or supplements thereto; all easements, appurtenances, servitudes,
accessories and components, access and use agreements, ancillary leases, such
as additional parking and related agreement(s), security deposits, and any
purchase option, right of first refusal or similar right whether or not set
forth in the lease agreement, relating to the premises of the Restaurants
listed on Schedule 2.1(b) and the leases for the offices located at 1345 Garner
Lane, Suite 306, Jamestown Square, Columbia, SC 29210 and 355 Woodruff Road,
Suite 106 Highland Park, Greenville, SC 29607;
2
<PAGE> 3
"Lease Lessor(s)" means each lessor under any Lease;
"Lease Rents" means all rents and all other sums and charges owing by
the tenant under any Lease;
"Lien" means any lien, encumbrance, pledge, mortgage, security
interest, claim, lease (excluding the Leases), charge, option, right of first
refusal, special assessment, unsatisfied pre-emptive right, easement,
servitude, transfer restriction under any shareholder or similar agreement,
encumbrance or any other restriction or limitation whatsoever (except the
Permitted Encumbrances);
"Office Equipment" means all furniture, furnishings, calculators,
office equipment and supplies (excluding personal property belonging to
employees) located on the premises of the offices located at 1345 Garner Lane,
Suite 306, Jamestown Square, Columbia, SC 29210 and 355 Woodruff Road, Suite
106 Highland Park, Greenville, SC 29607;
"Order" means any order, ruling, judgment, injunction, award, decree,
writ or similar action of any Governmental Body;
"Permit(s)" means any license, authorization, permit, certificate,
order or approval of, and any required registration with, any Governmental Body;
"Permitted Encumbrances" has the meaning set forth in Section 9.10;
"Personal Property Leases" means the leases and other agreements listed
on Schedule 2.1(f);
"Person" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, trust, unincorporated organization,
Governmental Body or other entity;
"Purchase Price" has the meaning set forth in Section 3;
"Purchased Assets" has the meaning set forth in Section 2.1;
"Real Property Law" means all applicable building, zoning, subdivision
and other land use and similar laws, codes, ordinances, rules and regulations;
"Related Document(s)" means each agreement, instrument, schedule and
other documents (other than this Agreement) which is executed and delivered at
Closing or which is otherwise executed and delivered in connection with this
Agreement;
"Restaurant(s)" means each of the Wendy's Old Fashioned Hamburgers
Restaurants which are owned by Seller and which are located at the addresses
set forth on Schedule 2.1(a) and 2.1(b) hereto;
"Restaurant Business" means the business of operating the Restaurants;
3
<PAGE> 4
"Restaurant Employees" means all persons employed by Seller in the
Restaurants, having the title District Manager and below.
"Safety and Environmental Laws" means (i) the Occupational Safety and
Health Act of 1970, as amended and (ii) any Laws relating to pollution or
protection of the environment, including, without limitation, emissions,
discharges, release or threatened releases of pollutants, contaminants,
chemicals (including oil, gasoline and their constituents and byproducts), or
industrial, toxic or hazardous substances or wastes into the environment
(including, without limitation, ambient air, surface water, ground water or
land), or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or wastes
(collectively "Hazardous Substances"), including, without limitation, Laws
under the Comprehensive Environmental Compensation and Liability Act, 42 U.S.C.
par. 9601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. 901
et seq., the Safe Drinking Water Act, the Clean Water Act, 33 U.S.C. par. 251,
et seq., the Clean Air Act, the Hazardous Materials Transportation Act, or any
other similar Law;
"Seller" means VCE Restaurants, Inc. or with respect to any Purchased
Assets that are owned by Volunteer Capital Corporation, then the definition
includes Volunteer Capital Corporation.
"Service Contracts" means those Contracts which are for goods and
services directly used or required in the ordinary course of the Restaurant
Business and listed on Schedule 2.1(g);
"Taxes" means all federal, state, county, local, foreign and other
taxes (including without limitation, income, profits, premium, estimated,
excise, sales, use, occupancy, gross receipts, franchise, ad valorem,
severance, levy, production, transfer, withholding, employment, unemployment
compensation, payroll related and property taxes, import duties and other
governmental charges and assessments) of Seller or otherwise arising from or
relating in any way to the Restaurants, Restaurant Business, the Fee
Properties, the Leases, or any other Purchased Assets in respect of any period
prior to the Closing or for which Seller received a credit at Closing and
agreed to pay when due, whether or not measured in whole or in part by net
income, and including deficiencies, interest, additions to tax or interest, and
penalties with respect thereto;
"WNAP" means The Wendy's National Advertising Program, Inc.;
SECTION 2. PURCHASE AND SALE:
2.1 TRANSFER OF PURCHASED ASSETS: On the terms and subject to the
conditions set forth in this Agreement, on the Closing Date, Seller shall sell,
convey, assign and transfer to Buyer or its Affiliate, effective as of the
Effective Time, for the Purchase Price, free and clear of all Liens, except
those Liens expressly being assumed by Buyer in accordance with this Agreement,
the following specified tangible and intangible assets (collectively, the
"Purchased Assets"):
(a) All rights, title and interest of Seller in and to all the Fee
Properties listed by address on Schedule 2.1(a);
4
<PAGE> 5
(b) All rights, title and interest of Seller in and to all the Leases
pertaining to the Restaurants listed by address on Schedule 2.1(b) (the
"Assigned Properties");
(c) All Seller's right, title and interest in and to all improvements
to the Assigned Properties including without limitation all buildings (the
"Leasehold Improvements");
(d) All rights, title and interest of Seller in and to all machinery,
furnishings, furniture, fixtures, equipment, signs, improvements, trade
fixtures, spare parts, maintenance items, replacement items, tools, point of
sale systems, communication systems, uniforms, supplies, smallwares and other
tangible personal property located on the premises of the Restaurants (except
computer systems including all associated hardware and software) or, if located
elsewhere, intended for use or consumption in the Restaurants, including all
personal property at the Restaurants acquired by Seller prior to the Closing
Date (the "Equipment");
(e) All of Seller's inventory of food, paper goods premiums, kid's
meal premiums and promotional items and materials which is usable in the
ordinary course of the Restaurant Business and is located in the Restaurants as
of the Effective Time (the "Inventory");
(f) All rights, title and interest of Seller in and to the Personal
Property Leases listed on Schedule 2.1(f);
(g) All rights, title and interest of Seller in and to the Service
Contracts listed on Schedule 2.1(g);
(h) The Cash Banks;
(i) All keys, safe combinations, passwords, codes, telephone numbers
and other items and information required for operation of the Restaurants;
(j) All engineering, technical and shop drawings, plot plans,
blueprints, specifications, surveys, maintenance records, warranties, technical
manuals relating to the Purchased Assets in Seller's possession, together with
all of Seller's rights to use all of the foregoing;
(k) The Office Equipment; and
(l) To the extent transferable, all of Seller's rights to all Permits
listed on Schedule 2.1(l).
2.2 EXCLUDED ASSETS: Any assets not specifically defined as "Purchased
Assets" in Section 2.1 shall not be acquired by Buyer and without limiting the
generality of the foregoing, the Buyer shall not obtain any right, title or
interest in the following:
(a) Deposits and prepayments relating to the Restaurants except
security deposits or those for which Seller receives a credit pursuant to
Section 6.4, Seller's other deposits and cash (excluding the Cash Banks),
profit-sharing deposits, accounts receivable, notes receivable, any claims by
Seller against third parties, tax refunds, prepaid consultant fees,
5
<PAGE> 6
prepaid expenses, escrow and/or trust accounts held by or for the benefit of
Seller for any purposes, including, without limitation, prepaid insurance
premiums and utility deposits;
(b) Those Permits, if any, which by Law cannot be transferred by Seller
to Buyer;
(c) The corporation records and tax records of Seller; provided,
however, that Seller shall provide Buyer and its representatives with
reasonable access to such records related to the Purchased Assets as
contemplated by Section 9.1;
(d) Life and health insurance policies maintained by Seller for the
benefit of the Seller or Seller's employees;
(e) Vehicles owned or leased by Seller and not listed on Schedule
2.1(f);
(f) Seller's assets relating to and Seller's interest in other
properties and assets of Seller utilized in businesses other than Wendy's
restaurants.
SECTION 3. PURCHASE PRICE: As consideration for the purchase and sale
of the Purchased Assets, Buyer shall make the following payments and shall
assume the following obligations and liabilities of Seller (such payments and
the assumption of such obligations and liabilities are referred to collectively
as the "Purchase Price"):
3.1 CASH CONSIDERATION FOR PURCHASED ASSETS: Subject only to the
reimbursements and adjustments required pursuant to this Agreement, Buyer shall
pay to Seller at the Closing $28,300,000.00 (the "Cash Consideration") by bank
or wire transfer of immediately available funds.
3.2 ASSUMPTION OF CERTAIN OBLIGATIONS: At the Closing, Seller shall
assign to Buyer and Buyer, and Wendy's International, Inc. with respect to the
obligations of Wendy's Old Fashioned Hamburgers of New York, Inc., shall assume
and agree to timely perform, pay and discharge, on and after the Effective
Time, the following, and only the following, obligations of Seller (all such
assumed obligations being collectively referred to as the "Assumed
Obligations"):
(a) All obligations of Seller which accrue and arise under the Leases
on or after the Effective Time;
(b) All obligations of Seller which accrue and arise under the
Personal Property Leases on or after the Effective Time provided Buyer may
reject any of the Personal Property Leases and shall notify Seller prior to the
Closing of any Personal Property Lease the terms of which Buyer deems to be
unreasonable and which Buyer will reject;
(c) All obligations of Seller which accrue and arise under the Service
Contracts and the Franchise Agreements on or after the Effective Time, provided
Buyer may reject any of the Service Contracts and Buyer shall notify Seller
prior to the Closing of any Service Contract the terms of which Buyer deems to
be unreasonable and which Buyer will reject;
(d) Those Taxes which Buyer agrees to pay under Paragraph 6.4; and,
6
<PAGE> 7
(e) Those obligations of Seller which accrue and arise under the
Transferable Permits on or after the Effective Time.
Except for those liabilities and obligations of Seller expressly
enumerated in subparagraphs (a) through (e) of this Paragraph 3.2 which Buyer
agrees to assume pursuant to the provisions of this Agreement, Buyer shall not
assume or otherwise be responsible or liable for any other liabilities or
obligations of Seller (the "Retained Obligations"), including by way of
illustration but not limitation:
(i) any debt, obligation or liability accruing, arising out
of, or relating to any act or omission of Seller or any other occurrence or
event happening or existing before the Effective Time, including without
limitation any of the following: (i) royalties, WNAP contributions and other
advertising or marketing contributions or other monetary obligations arising
under the Franchise Agreements, (ii) liabilities or obligations arising under
any Contract not assumed by Buyer, or (iii) liabilities or obligations for any
intentional act, tort or defective product arising out of Seller's conduct of
the Restaurant Business or from any services or products sold prior to the
Effective Time;
(ii) any obligation or liability of Seller pursuant to any
loan agreement, promissory note, settlement agreement, Lien, or other financial
obligation of Seller except those specifically assumed pursuant to this
Paragraph 3.2;
(iii) any obligation or liability of Seller to its
Affiliates, stockholders, directors, employees, agents or representatives,
including, but not limited to, any obligation or liability under any employee
benefit program or employee insurance program;
(iv) except as specified in Section 6.4, any obligation or
liability for any Taxes (including deficiencies, interest and penalties
relating thereto) of any kind incurred, arising or accruing for any time period
(or portion thereof) ending prior to the Effective Time, including Taxes for
which extensions have been obtained;
(v) any obligation or liability for any fees, costs or
expenses (including without limitation, Taxes and attorneys' fees and
accountants' fees) incurred by Seller in connection with this Agreement, any
Related Documents or any Contemplated Transactions;
(vi) except as specified in Section 9.12, any obligation or
liability arising out of or resulting from Seller's non-compliance with any Law
(including without limitation, ERISA, Safety and Environmental Laws, Workers'
Compensation Laws, Laws relating to employment practices or the health and
safety standards applicable to Restaurant Employees) or which arise out of or
relate to an occurrence, event, or circumstance happening or existing before
the Effective Time;
(vii) any obligation or liability relating to any litigation
or disputes presently existing or threatened or arising out of any action or
omission taken or omitted to be take before the Effective Time;
(viii) any consultant's, brokerage or finder's fee payable by
Seller in connection with this Agreement, any Related Documents or any
Contemplated Transactions;
7
<PAGE> 8
(ix) any Lease Rent accruing at any time prior to the
Effective Time except Lease Rents which Buyer is obligated to pay pursuant to
Section 6.4(a) or liability or obligations arising from or relating to any
breach of any Lease by Seller; and
(x) any other obligation or liability of Seller not expressly
assumed by Buyer pursuant to this Agreement.
Seller shall remain liable for and shall indemnify Buyer with respect
to all of the Retained Obligations.
SECTION 4. ALLOCATION OF PURCHASE PRICE: Schedule 4.0 sets forth the
final allocation of the Purchase Price among the Purchased Assets.. The parties
hereto will adhere to such allocation for all purposes, including federal and
state income tax purposes. Seller and Buyer agree to cooperate in preparing and
filing IRS Form 8594 reflecting that allocation.
SECTION 5. MUTUAL CONDITIONS PRECEDENT TO CLOSING: The obligation of
the parties to enter into and complete the Closing and to consummate the
transfer of the Purchased Assets is subject, at the option of the parties in
accordance with the provisions of Section 12 with respect to the termination of
this Agreement, to the fulfillment on or prior to the Closing Date of the
following conditions, any one or more of which may be waived by mutual
agreement of Seller and Buyer:
(a) Delivery of the Release Agreement in the form attached hereto as
Exhibit A of all claims related to or arising from the "Transactions" as
defined in Exhibit A between Seller and Buyer, subject only to those certain
exceptions set forth in Exhibit A;
(b) Execution and delivery of an Assignment and Assumption Agreement
substantially in the form of Exhibit B for each of the Assigned Properties
listed on Schedule 2.1(b);
(c) Delivery of the written consent of all Lease Lessors whose consent
is required to the assignment by Seller to Buyer of an Assigned Lease, together
with executed "Lessor's Certificates" substantially in the form attached hereto
as Exhibit E or other form acceptable to Buyer;
(d) Execution and delivery of an Termination of Franchise Agreement
substantially in the form of Exhibit F attached hereto terminating the
Franchise Agreements as of the Effective Time.
(e) Delivery of written consent to the assignment of any Personal
Property Leases or Service Contracts requiring such consent, except those which
are terminable on not more than thirty (30) days notice;
(f) Execution and delivery of an instrument acceptable to Buyer
terminating any employment agreement, management agreement or consulting
agreement relating to the Restaurant Business or any Restaurant Employee, if
any, between Seller and any shareholder, director, executive or other employee
of Seller or between Seller and an Affiliate;
8
<PAGE> 9
(g) Delivery of written consent of all mortgagees, trustees or secured
parties whose consent is required for the assignment the Assigned Leases or the
transfer of any other of the Purchased Assets;
(h) Delivery of subordination, non-disturbance and attornment
agreements acceptable to Buyer in its reasonable discretion for each Assigned
Property the Lease for which is inferior to any mortgage, deed of trust or
other security interest or lien;
(i) Delivery of a Payoff Statement obligating delivery of a
Satisfaction and Release of Mortgage (all in form and substance reasonably
satisfactory to Buyer) executed by the mortgagee or trustee, if any, of any of
the Purchased Assets;
(j) Delivery of fully-executed UCC-3 financing statements or
equivalent instrument and all other releases, instruments and documents (all in
form and substance reasonably satisfactory to Buyer) necessary to effectuate
the release of any Lien on any Purchased Assets;
(k) Expiration or early termination of the waiting period under HSR;
(l) No court of competent jurisdiction has enjoined the performance of
either party's obligations under this Agreement or any of the Related Documents
or the consummation of the Contemplated Transactions or any one of them; and,
(m) Agreement by the parties upon the allocation of the Purchase Price.
SECTION 6. CLOSING:
6.1 CLOSING: The closing of the transactions contemplated herein and
the transfer of the Assets shall occur on October 31, 1996 or as soon
thereafter as possible (the "Closing Date"), at such time and place as the
parties may agree in writing (the "Closing").
6.2 SELLER'S DELIVERIES:
(a) At the Closing, Seller will, in addition to those deliveries
required under Section 5, deliver to Buyer:
(i) Special Warranty Deeds or other deeds meeting the
requirements of applicable Law and approved by the Title Insurance Company
conveying each of the Fee Properties;
(ii) an instrument in substantially the form attached hereto
as Exhibit B assigning to Buyer all of Seller's respective right, title and
interest in and to each of the Leases;
(iii) a bill of sale in substantially the form attached
hereto as Exhibit C conveying in the aggregate all other property included in
the Purchased Assets;
(iv) an assignment substantially in the form of Exhibit D
attached hereto transferring the Personal Property Leases and Service
Contracts; and
9
<PAGE> 10
(v) all such other instruments and documents as reasonably
shall be requested by Buyer to vest in Buyer good and merchantable title in and
to the Purchased Assets subject to the Permitted Encumbrances and to complete
the Contemplated Transaction.
(b) All instruments and other documents executed and delivered to
Buyer pursuant hereto shall be in form and substance, and shall be executed in
a manner that is reasonably satisfactory to Buyer.
6.3 BUYER'S DELIVERIES AT CLOSING:
(a) Buyer shall at Closing deliver the following:
(i) the Cash Consideration;
(ii) an Assumption Agreement in substantially the form
attached hereto as Exhibit B whereby Buyer assumes the Leases;
(iii) an Assumption Agreement in substantially the form
attached as Exhibit D whereby Buyer assumes the Personal Property Leases and
Service Contracts; and
(iv) all such other instruments and documents as are
reasonably necessary to complete the Contemplated Transaction.
(b) All instruments and other documents shall be in form and
substance, and shall be executed in a manner that is reasonably satisfactory to
Seller.
6.4 SETTLEMENT STATEMENT AND APPORTIONMENT: At Closing, Seller and
Buyer shall execute a Settlement Statement reflecting all adjustments to the
Cash Consideration contemplated by this Agreement to be made at Closing and in
addition the following items shall be paid or apportioned as follows:
(a) Apportionment of Lease Rents. All Lease Rents under each Assigned
Lease for the current month shall be apportioned as of the Effective Time
between Seller and Buyer and shall be paid by the Lessee of record on the date
due. With respect to rents based on the sales of the Restaurant ("Percentage
Rent") no adjustment will be made at Closing. The Percentage Rent payment will
be paid when due by the Lessee of record on the due date and the Percentage
Rent will be allocated based on actual sales prior to the Effective Time in the
case of Seller and actual sales after the Effective Time in the case of Buyer.
(b) Apportionment of Taxes: All real property taxes, personal property
taxes, improvement assessments and similar obligations imposed by a
Governmental Body based on the assessed value of the property ("Property
Taxes") with respect to the tax period in which the Effective Time occurs shall
be apportioned as of the Effective Time between Seller and Buyer using the most
recent tax bill so that Seller will be charged for all taxes up to but not
including the Effective Time. Seller's pro rata share of Property Taxes shall
be deducted from or added to the Purchase Price as appropriate and Buyer shall
pay or cause to be paid all Property Taxes due on or after the Closing Date.
10
<PAGE> 11
(c) Inventory. For purposes of the Closing, the Inventory in the
Restaurants will be assumed to be $7,500.00 per Restaurant. A physical count of
the Inventory shall be taken by representatives of Seller and Buyer at the
close of business on the Closing Date, as of the Effective Time, valued at
Seller's cost and a post-closing adjustment will be made pursuant to Section
6.4(h)
(d) Utility Charges. Unpaid utility charges for periods prior to the
Effective Time shall be paid by Seller. Buyer shall pay all charges for
utilities from and after the Effective Time. Each party shall pay utility bills
as received and an adjustment will be made pursuant to Section 6.4(h) for
payments made by one party for the benefit of the other.
(e) Reductions and Adjustments: All cash adjustments, if any, required
by or agreed to under Sections 9.3(f), 9.9, 9.10, 9.11 or 9.19 shall be made as
contemplated by those Sections.
(f) Vacation Pay: For those Restaurant Employees employed by Buyer,
Buyer shall reimburse Seller for one-half of the vacation pay including all
employer taxes and benefits, if any, actually paid to those Restaurant
Employees representing vested but unused vacation time for 1996. The
reimbursement pursuant to this provision shall be made as a post closing
adjustment pursuant to Section 6.4(h).
(g) Reimbursement for Office Equipment, Cash Banks, Security Deposits
and Prepaid Items. At Closing, Buyer will pay Seller in addition to the
Purchase Price an amount equal to Seller's net book value for the Office
Equipment as of the end of the month preceding the Closing Date, reimburse
Seller for the amount of the Cash Bank listed on Schedule 6.4(g) and reimburse
Seller for any security deposits which are transferred to Buyer, and for any
prepayments of fees or taxes with respect to any of the Transferable Permits.
(h) Adjustments Subsequent to Closing: Seller and Buyer will
periodically exchange information regarding bills and other liabilities
received and paid following the Closing Date. Not later than sixty (60) days
following the Effective Time, Buyer will furnish to Seller a reconciliation of
the Inventory valued at Seller's cost and a proration of any other liabilities
("Buyer's Statement") which are to be apportioned under this Agreement. Seller
shall notify Buyer within fifteen (15) days following Seller's receipt of the
reconciliation if Seller has additions to or disagrees with Buyer's Statement.
If Seller accepts, or fails to notify Buyer of any objection to, Buyer's
Statement, then Buyer or Seller, as the case may be, will pay the amount shown
as due within five (5) days after the expiration of the fifteen (15) day
period. Buyer shall promptly make available to Seller at Seller's request
copies of Buyer's or Buyer's accountants work papers prepared in connection
with Buyer's Statement. If Seller objects and Seller's objections cannot be
resolved by good faith negotiation within ten (10) business days after the
expiration of the fifteen (15) day period, then either party may submit the
disputed items to an independent public accounting firm reasonably acceptable
to Seller and Buyer, whose decision shall be final and binding on both parties.
In the event of such a submission, each party shall prepare and deliver to the
accounting firm a statement, individually as to each item in dispute, of the
amount it believes to be due to or from the other party, as the case may be.
The award of the accounting firm as to a particular item shall be not less than
the lowest amount so stated or higher than the highest amount so stated, and
the accounting firm, subject to the foregoing limitation, shall be empowered
only to direct the payment of money or to find that no payment is due. The fees
and expenses of the accounting firm shall be apportioned among the items in
11
<PAGE> 12
dispute, and the portion of such fees and expenses allocated to each item shall
be paid by the party whose amount was furthest from the amount determined as
correct by the accounting firm. The foregoing prorations and adjustments shall
not operate to relieve Seller or Buyer of their obligations to pay their
rightful share of any Lease Rents (including Percentage Rents), Property Taxes,
assessments, fees, charges or similar expenses, utility or other similar
charges that are properly payable by Seller or Buyer, as the case may be, in
the event that certain of such charges are not susceptible to definitive
apportionment on the Closing Date or the date of Buyer's Statement, except as
otherwise provided in this Agreement. The parties agree to make payments to
each other on a timely basis with respect to adjustments not susceptible to
definitive apportionment on the Closing Date or the date of Buyer's Statement,
when the correct amount of any amounts to be adjusted or apportioned pursuant
to this Section 6.4 are finally determined. Any disputes with respect to any
adjustments or apportionments to be made at a later time as contemplated by the
preceding sentence shall be settled by following the same procedures described
above with respect to the Buyer's Statement.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF SELLER: Seller and
Volunteer Capital Corporation, hereby represent, warrant and covenant to Buyer
on and as of the date hereof, unless stated to the contrary below, and on and
as of the Effective Time as follows:
7.1 ORGANIZATION AND GOOD STANDING OF SELLER: Seller is a corporation
duly organized and in good standing under the Laws of the State of Tennessee.
Seller has the power to own or lease its properties and to carry on its
business in the places where such properties are now owned, leased or operated,
and such business is now conducted.
7.2 AUTHORITY TO ENTER INTO AGREEMENT: Seller shall have at Closing
all the consents, approvals and authorizations necessary to enter into and
perform this Agreement and the Contemplated Transactions. All necessary
corporate consents and actions by Seller (including any necessary consents or
actions of the directors or shareholders of Seller or an Affiliate) have been
obtained. This Agreement has been duly executed and delivered by Seller and is
its valid and binding obligation enforceable in accordance with its respective
terms, subject to the effect of bankruptcy, insolvency, reorganization,
moratorium and similar Laws from time to time relating to the rights and
remedies of creditors. Each Related Document executed and delivered by Seller
at Closing shall have been duly executed and delivered by Seller and shall be
the valid and binding obligation of Seller enforceable in accordance with its
respective terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium and similar laws from time to time relating to the
rights and remedies of creditors.
7.3 NO DEFAULT: Neither the execution and delivery of this Agreement,
nor the execution and delivery of any Related Document at Closing, by Seller
and, nor the consummation of the Contemplated Transactions at Closing shall
conflict with or result in a breach of or constitute or result in a default
under (a) any of the terms, conditions or provisions of Seller's Articles of
Incorporation or By-laws, and (b) any judgment, order, injunction, ruling or
decree of any court or governmental authority by which the Seller is bound, or
any regulation or ruling of any Governmental Body.
12
<PAGE> 13
7.4 TITLE AND CONDITION OF PURCHASED ASSETS:
A. Title: To its Knowledge, Seller on the date of this Agreement has
good and marketable title to all of the Purchased Assets, except for (i) liens
and encumbrances of record, (ii) the Assumed Obligations and (iii) other
matters disclosed by Seller on Schedule 7.4. On the Closing Date, Seller shall
have good and marketable title to all of the Purchased Assets (other than the
Restaurants excluded therefrom pursuant to Sections 9.10 and 9.11) except for
the Permitted Encumbrances as defined in Section 9.10. For purposes of this
Section 7.4, Seller warrants its title to the Fee Properties only against
claims by persons claiming by, through or under Seller and not otherwise.
B. Leases: The Leases delivered to Buyer are true and complete. Seller
has not received a notice of default or termination under the Leases or of
default or foreclosure under a mortgage or other Lien encumbering the Leases or
the leased premises. To Seller's Knowledge, no events have occurred which, with
the passage of time, would result in issuance of such a notice under any of the
Leases. Except as furnished to Buyer with the Lease and as required or
permitted by this Agreement, there have been no waivers, amendments,
modifications, alterations to or assignment of the Leases, and the Seller has
not executed, or been requested to execute, any subordination or attornment
agreements. The term and monthly rental for the office leases are as follows:
Greenville, SC $1,410.00 per month expiring August 31, 1997 and Columbia, SC
$1,500.00 expiring April 30, 1997. Seller has paid all lease payments, invoices
and other amounts owed under all Personal Property Leases and Service Contracts
and has not received a notice of non-payment, default or termination under the
Personal Property Leases or Service Contracts. To the Seller's Knowledge, no
events have occurred which, with the passage of time, would result in issuance
of such a notice under any of them. The copies of the Personal Property Leases
and Service Contracts delivered to Buyer are true and complete.
C. Condition of the Purchased Assets: Seller has no Knowledge of any
actual or alleged violation of any Real Property Law or any material defect, as
defined herein, in any Restaurant building or other improvements included among
the Purchased Assets. The Equipment is free of material defects as defined
herein and in reasonably good operating condition and repair considering its
age and use. The Restaurant Business and the Equipment comply in all material
respects with the procedures, standards and specifications for food safety and
food handling established by Buyer for the Wendy's restaurant system. For
purposes of this provision, material defect shall mean a defect or condition
which renders the particular asset unusable or unsuitable for its intended
purpose or which creates a material risk of personal injury or damage to
property, which violates any applicable Law, which results in the asset being
unable to maintain food at the temperatures or in the condition specified in
the Operations Manual. Seller shall not be in breach of this representation and
warranty if the Material Defect or non conforming Equipment is repaired or
replaced.
7.5 TAX RETURNS AND TAX REPORTS: All copies of federal, state and
local Tax returns and Tax reports furnished by VCE, or by Volunteer Capital
Corporation with respect any of the Purchased Assets which it owns, prior to or
at Closing are true and complete copies. All Tax returns and Tax reports
required to be filed by VCE, or by Volunteer Capital Corporation with respect
any of the Purchased Assets which it owns, have been or will be timely filed
(or timely extension requests have been or will be filed) with the appropriate
Governmental Body in all jurisdictions in which such returns and reports are
required to be filed. All Taxes (including
13
<PAGE> 14
interest and penalties) due and payable by VCE, or by Volunteer Capital
Corporation with respect any of the Purchased Assets which it owns, as of the
date hereof have been fully paid. Except as disclosed on Schedule 7.5, no
notices of audit, delinquency or deficiency, levy, lien or foreclosure relating
to any of the Purchased Assets have been received from any Government Body.
7.6 NO LIABILITIES: At Closing, VCE or Volunteer Capital Corporation
with respect any of the Purchased Assets which it owns shall have no
liabilities or obligations of any nature, whether direct or indirect, whether
absolute, accrued, contingent or otherwise, and whether due or to become due,
which will not be either paid, adequately insured against or provision for
payment made, or specifically assumed or waived by Buyer at or prior to
Closing.
7.7 ACTIONS AND ORDERS: Except as disclosed on Schedule 7.7, there are
no Actions pending or, to the Knowledge of the Seller, threatened against, by
or affecting the Purchased Assets or the Restaurant Business in any court or
before any arbitrator or Governmental Body, which are not adequately covered by
insurance or as to which an insurer has reserved any right to deny coverage.
Except, as disclosed on Schedule 7.7, to Seller's Knowledge, Seller is
not in violation of any applicable Law in any material respect or Order entered
by any Governmental Body relating to the operation or conduct of the Restaurant
Business or ownership of the Purchased Assets, nor has the Seller been charged
with, or is Seller under investigation with respect to any charge concerning
any such violation. Seller has not received any notice from any Governmental
Body of any permanent or temporary taking by condemnation or eminent domain or
any other taking of any of the Purchased Assets under applicable Law, and to
Seller's Knowledge, its has received no correspondence or inquiries regarding
any contemplated taking and there are no plans, investigations or studies
pending for any such taking.
There are no judgments unsatisfied against the Seller and there are no
continuing consent decrees to which the Seller is subject. The Seller is not
involved in or threatened with any labor dispute as of the date hereof.
7.8 HAZARDOUS SUBSTANCES: Except as set forth on Schedule 7.8, (i)
Seller has not used the premises of any Restaurant for the storage, treatment,
generation, production or disposal of or released or permitted the release of
any Hazardous Substance in violation of any Safety or Environmental Law nor
does Seller have Knowledge of such use or release by others; (ii) Seller has no
Knowledge of the release of any Hazardous Substance on the premises of any
Restaurant or nearby the premises of any Restaurant ; (iii) to Seller's
Knowledge, no event has occurred with respect to the Premises which would
constitute a violation of any applicable Safety and Environmental Law; (iv)
Seller has not received any notice from any Governmental Body concerning the
removal of any Hazardous Substance from the Premises; (v) Seller has disclosed
to Buyer the location of all underground storage tanks on the premises of any
Restaurant (if any) of which it has Knowledge, and (vi) Seller has not
permitted any third party to conduct tests or install monitoring devices on the
premises of any Restaurant for the purpose of determining the presence of any
Hazardous Substance.
7.9 LICENSES AND PERMITS: To Seller's Knowledge, Seller holds all
necessary Permits required for the Seller to engage in its business as
currently conducted. Seller has
14
<PAGE> 15
obtained all required certificates of occupancy or similar right to occupy the
property relating to the Restaurants.
7.10 APPROVALS OF GOVERNMENTAL AUTHORITIES: No consent, approval or
authorization of, or declaration, filing or registration with, any Governmental
Body is required in connection with the execution and delivery of this
Agreement and the consummation of the Contemplated Transactions, other than
requirements of any applicable state corporation or partnership Laws, federal
or state securities or "blue sky" Laws.
7.11 UNION AGREEMENTS AND EMPLOYEE RELATIONS: The Seller is not a
party to any union or collective bargaining agreements, nor to the Seller's
Knowledge is there any pending or potential attempt to unionize any of the
employees of the Seller. The Seller has not, during the last three (3) years,
been the subject of a union election. To Seller's Knowledge, the Seller has no
reason to believe that its continuing relations with its employees will vary in
any way which would have a material adverse effect on the business or
operations of the Seller.
7.12 INVENTORY: All Inventory owned by the Seller and used in the
operation of the Restaurants is, and at the Effective Time will be, of a
quality and quantity substantially usable or salable consistent with Wendy's
current standards and specifications on the date of this Agreement.
7.13 EMPLOYEE BENEFIT PLANS AND COMPENSATION: Except as listed on
Schedule 7.13 attached hereto, Seller does not maintain any pension, profit
sharing, bonus, deferred compensation, or other retirement plans or
arrangements, whether oral or written, which constitute an "employee pension
benefit plan" as such term is defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or any medical,
health, disability, insurance or other plan or arrangement, whether oral or
written, which constitutes an "employee welfare benefit plan" as such term is
defined in Section 3(1) of ERISA. Seller has complied in all material respects
with all the continuation health care requirements of the Internal Revenue Code
of 1986 and ERISA, as amended, known to Seller, as such requirements have
applied to any group health care plan maintained by or for applied to any group
health care plan maintained by or for Seller. All wages, bonuses, vacation pay,
sick pay and other compensation owing to Restaurant Employees as of the
Effective Time shall be paid by Seller in accordance with applicable Law and
Seller's policies and procedures, and all contributions to employee pension
benefit plans and employee welfare benefit plans for all periods prior to the
Effective Time will be paid by Seller as required by Law. There are no written
agreements with Restaurant Employees and, to Seller's Knowledge, no authorized
verbal agreements with Restaurant Employees regarding compensation, bonuses,
relocation or other expense reimbursement or other aspects of employment that
will be binding on Buyer after the Effective Time.
7.14 MISSTATEMENT OR OMISSION: To Seller's Knowledge, no
representation or warranty by Seller in this Agreement and no exhibit,
schedule, certificate or other instrument prepared by or on behalf of Seller in
connection with the Contemplated Transactions contains or will contain any
untrue statement of a material fact, or omits or will omit to state any
material facts which are necessary to make the statements contained herein or
therein not misleading.
7.15 FINANCIAL STATEMENTS: VCE has delivered to Buyer copies of its
unaudited financial statements for 1995. Those Financial Statements were
prepared consistently with
15
<PAGE> 16
previous practice and fairly reflect the financial condition, except as set
forth on Schedule 7.15, of VCE as of December 31, 1995. VCE shall furnish to
Buyer its unaudited balance sheet as of June 30, 1996 and its unaudited income
statement for the periods ending June 30, 1996 which financial statements shall
fairly reflect the financial condition, except as set forth on Schedule 7.15,
of VCE as and at such dates, subject to normal year end audit adjustments, and
which shall be prepared consistent with prior practices.
7.16 FEES AND COMMISSIONS: Seller has not employed, agreed to pay or
become liable to pay any consultant, broker, finder, originator, and/or agent
in connection with this Agreement, the Related Documents and the Contemplated
Transactions, but if Seller has, Seller shall be solely liable for any sums due
such consultant, broker, finder, originator and/or agent.
SECTION 8. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER: Buyer
hereby represents, warrants and covenants to Seller on and as of the date
hereof, unless stated to the contrary below, and on and as of the Closing Date
as follows:
8.1 ORGANIZATION AND STANDING OF BUYER: Wendy's International, Inc. and
Wendy's Old Fashioned Hamburgers of New York, Inc. are corporations
incorporated and in good standing under the Laws of the State of Ohio. Each has
the power to own or lease its properties and to carry on its business in the
places where such properties are now owned, leased or operated, and such
business is now conducted.
8.2 FEES AND COMMISSIONS: Buyer has not employed, agreed to pay or
become liable to pay any consultant's, broker's, finder's, originator's and/or
agent's fee or commission by reason of services alleged to have been rendered
for or at the instance of Buyer in connection with this Agreement, the Related
Documents and the Contemplated Transactions, but if Buyer has, Buyer shall be
solely liable for any sums due to such consultant, broker, finder, originator
and/or agent.
8.3 AUTHORITY TO ENTER INTO AGREEMENTS: Buyer has full power and
authority to enter into this Agreement and to perform this Agreement and the
Contemplated Transactions. All corporate and other proceedings required to be
taken by or on the part of the Buyer to authorize Buyer to execute, deliver,
and carry out this Agreement and each of the Related Documents and to authorize
Buyer to complete the acceptance of the assignments, transfers, conveyances,
and delivery of the Purchased Assets to Buyer have been duly and properly taken
or will have been duly and properly taken prior to Closing. This Agreement has
been duly executed by Buyer and is the valid and binding obligation of Buyer
enforceable in accordance with its terms subject to the effect of bankruptcy,
insolvency, reorganization, moratorium and similar laws from time to time
relating to the rights and remedies of creditors. Each Related Document to be
executed and delivered at Closing will have been duly executed by Buyer and
will be the valid and binding obligation of Buyer enforceable in accordance
with its terms subject to the effect of bankruptcy, insolvency, reorganization,
moratorium and similar laws from time to time relating to the rights and
remedies of creditors. Neither the execution and delivery of this Agreement and
each Related Document by Buyer, nor compliance with their respective terms,
will result in the breach or violation of Buyer's Articles of Incorporation or
Regulations or any agreement, indenture, order or decree to which it is a party
or may otherwise be bound.
16
<PAGE> 17
SECTION 9. COVENANTS AND AGREEMENTS:
9.1 ACCESS AND INFORMATION: From the date hereof until the Closing
Date, upon reasonable notice to Seller from Buyer, Seller shall permit Buyer
and its employees, agents, counsel, accountants, engineers, consultants and
other representatives at their sole cost, risk and expense reasonable access
during hours mutually acceptable to Seller and Buyer to all of the Purchased
Assets, Restaurants, books, contracts and records of Seller related to the
Purchased Assets, and during such period, Seller shall furnish Buyer with all
such statements (financial and otherwise), records and documents, or copies
thereof at Buyer's expense, and all such other reasonable information
concerning the Purchased Assets or the operations of the Restaurants as Buyer
shall, from time to time, reasonably request. Buyer agrees to hold harmless and
indemnify Seller from and against any loss, liability, damage or expense caused
by the intentional or negligent acts or omissions of Buyer or its employees,
agents, counsel, accountants, engineers, consultants or other representatives
while on Seller's property.
9.2 DOCUMENTS: As promptly as possible after execution and delivery of
this Agreement but in any event not later than thirty (30) days following the
date of this Agreement, Seller, as requested by Buyer, shall deliver or
otherwise make available to Buyer true, correct and complete copies of the
following agreements and other documents to the extent available relating to
Seller or to which Seller or an Affiliate is a party or may otherwise be bound
(none of which agreements and documents, except for the Leases and those
obligations described in Section 3.2, are being assigned to and assumed by the
Buyer or otherwise impose any obligations or liabilities upon the Buyer):
(a) Complete copies of all Leases including all amendments and
addenda; all Title Insurance Policies or Commitments relating to both the Fee
Properties and Leases; surveys, site plans and drawings relating to the
Restaurants, and all engineering reports, soil test results, environmental
consultants' reports, and inspection reports relating to any of the
Restaurants.
(b) All Personal Property Leases and Service Contracts;
(c) All employment contracts, consulting agreements, summary plan
descriptions, and all other agreements relating to the compensation (including
without limitation, fringe benefits) of any Restaurant Employees;
(d) A schedule (the "Employee Schedule") of (i) each and every
employee who was employed at any Restaurant as of the payment of the last
payroll for the month prior to the Closing Date and their rate of pay; (ii) the
date each such employee commenced employment with Seller; and (iii) the number
of hours each such employee worked for the current year. Seller shall update
this Employee Schedule to reflect the required information as of the Closing
Date within thirty (30) days following the Effective Time. After the Effective
Time, Seller shall provide Buyer and its employees, consultants, counsel and
other representatives with reasonable access for a period of three (3) years
following the Effective Time during normal business hours to payroll records
for the Restaurant Employees;
(e) Access to all Tax returns and reports filed by VCE Restaurants,
Inc. within the past two (2) years with any Governmental Body and access to all
Tax returns and reports for the same period filed by Volunteer Capital
Corporation with respect to any of the Purchased Assets;
17
<PAGE> 18
(f) Copies of all 1996, or 1995, if current year not available,
statements or bills for Taxes which relate to the Restaurants or the
Purchased Assets;
(g) Copies of all current insurance policies or certificates of
insurance relating to the Restaurants or the Purchased Assets and copies of all
retrospective premium adjustments received from an insurer during the preceding
12 months;
(h) Copies of all actions, inspection reports, notices or
communications received during the preceding 12 months from a Governmental Body
or insurance company and which relate to the Restaurants, the Purchased Assets
or the Restaurant Employees;
(i) Copies of all loss reports, claims, notices of injury,
applications for disability benefits and other notices or claims for personal
injury or property damage relating to the Restaurants received by Seller or
Seller's insurer during the preceding two (2) years and copies of all loss or
claim reports received by Seller or its agents from its insurer or claims
administrator during the preceding two (2) years; and
(j) Copies of all Actions, complaints, petitions, summons, judgments,
default judgments, attachments, subpoenas, subpoenas duces tecum and all other
notices or communications received during the preceding two (2) years and
copies of all active garnishments relating to the Restaurants or the Purchased
Assets.
9.3 CONDUCT OF BUSINESS: From the date hereof through the Closing
Date, the Seller (a) shall operate the Restaurant Business in the ordinary
course and in substantially the same manner as previously conducted by it, and
shall maintain to the extent possible under the circumstances, Seller's
business organization intact, retain the Restaurant Employees and preserve the
confidence of the Seller's suppliers, distributors, dealers, representatives
and customers, (b) shall pay when due in accordance with current practices all
liabilities which arise in the ordinary course of business including without
limitation all payments due under the Franchise Agreements and all WNAP
payments; (c) shall maintain the Purchased Assets in their current state of
repair excluding ordinary wear and tear; (d) shall replace in accordance with
past practice worn-out, obsolete or destroyed Purchased Assets; (e) shall
conduct its business in such a manner so that the representations and
warranties of Seller contained in Section 7 or any other provision of this
Agreement shall continue to be true and correct on and as of the Effective Time
as if made on and as of the Effective Time. The Seller shall give the Buyer
notice of any event, condition or circumstance occurring from the date hereof
through the Closing Date of which Seller becomes aware that would constitute a
violation or breach of any representation or warranty, whether made as of the
date hereof or as of the Closing Date, or that would constitute a violation or
breach of any covenant of Seller contained in this Agreement. Without limiting
the generality of the foregoing, from the date hereof until the Closing Date,
Seller shall not, without the prior written consent of Buyer, which consent
will not be unreasonably withheld or delayed:
(a) (i) Enter into any contract of employment with any Restaurant
Employee or (ii) grant any increase in the rates of pay, salaries, or other
compensation of any Restaurant Employees or any increase in the other benefits
to which such Restaurant Employees are presently entitled, other than scheduled
increases for Restaurant management employees consistent with Seller's
compensation policies, regular wage increases for Restaurant
18
<PAGE> 19
Employees paid on an hourly basis made in the ordinary course of business, as
required by Law and/or consistent with prior practice; or (iii) defer any
portion of the compensation of any Restaurant Employee beyond the date such
compensation would have been paid in the ordinary course of business and
consistent with prior practice;
(b) Fail to give Buyer notice forty-eight (48) hours prior to entering
into any contract or commitment for the acquisition of depreciable capital
items in excess of $5,000.00 except for emergency replacement equipment and
except as provided in Section 9.16. .;
(c) Enter into any new or extend any Personal Property Lease or Service
Contract, beyond the Closing Date;
(d) Fail to maintain existing liability, casualty, property loss and
other such insurance coverage upon the Purchased Assets and with respect to the
conduct of the Restaurant Business, in such amounts, with such insurance
carriers and to such extent and covering such risks as Seller had been carrying
prior to the execution of this Agreement and as required under the Leases and
Franchise Agreements;
(e) Fail to maintain its books of account and records in the usual and
regular manner in accordance with accounting principles applied on a consistent
basis with prior years;
(f) Fail to notify Buyer upon receipt of any notice of termination or
material default, non-payment or similar notice, whether written or oral,
relating to the Purchased Assets, Leases, Personal Property Leases, Service
Contracts, Restaurants or Restaurant Business;
(g) Engage in any material transaction which is not in the ordinary
course of business or which is inconsistent with prior practices.
9.4 SCHEDULES: Seller shall promptly prepare and deliver to Buyer not
later than thirty (30) days from the date of this Agreement for Buyer's
approval all Schedules required or necessary under this Agreement. Seller shall
notify Buyer of any event, condition, circumstance or change occurring
following preparation of any Schedule which requires amendment, deletion or
addition to any Schedule so that each Schedule shall be true and correct as of
the Effective Date. Seller shall promptly revise any Schedule for which
revision is necessary pursuant to this provision and provide the revised
Schedule to Buyer. Buyer shall notify Seller within twenty (20) days following
receipt of any Schedule or any amendment, deletion or change to any Schedule if
Buyer objects to the matters disclosed. Seller and Buyer shall use their best
efforts to resolve any of Buyer's objections. If Seller and Buyer are unable to
resolve any matter, then Buyer may terminate this Agreement or waive the
objection and close the transaction.
9.5 PAYMENT OF SELLER'S LIABILITIES. On or before Closing Date, except
as specified to the contrary herein, Seller shall pay, or otherwise secure, to
the reasonable satisfaction of Buyer, the discharge in full of (i) all Taxes
accrued for years prior to 1996 and (ii) all Lease Rents which are due and
payable for periods prior to the month in which the Closing occurs. Promptly
following the Effective Time, Seller will pay in accordance with its policies
and procedures all employee wages, fringe benefits, vacation pay, sick pay, any
and all other compensation and any and all other employee expenses or other
payroll-related obligations in respect of all periods prior to the Effective
Time and all its liabilities and obligations of any kind
19
<PAGE> 20
whatsoever arising from or otherwise relating in any way to any of the
Purchased Assets or the operation of the Restaurants in respect of all periods
prior to the Effective Time, except in each case, (x) any Assumed Obligations,
(y) liabilities which are apportioned pursuant to Section 6.4 and (z) any
contingent liability or obligation of Seller arising under or otherwise in
respect of any Lease, Seller's operation of any Restaurant or any other act,
event, conduct or circumstance occurring prior to the Effective Time, which
contingent liability or obligation shall be promptly paid by Seller after such
liability or obligation becomes due and payable.
9.6 RELEASE AND TERMINATION OF LIENS: On or before the Closing Date,
the Seller shall cause (i) the release and termination of all Liens of any
Person on any of the Purchased Assets, except for the Assumed Obligations and
the Permitted Encumbrances, and (ii) the execution and delivery to Buyer of all
UCC-3 financing statements or the equivalent under the law of the state in
which the Purchased Assets are located, and such other documentation, in form
and substance satisfactory to Buyer.
9.7 FEES AND EXPENSES: The parties hereto shall share equally any
transfer taxes, documentary stamps, conveyance tax or other similar tax imposed
by any Governmental Body on the conveyance of the Fee Properties. Seller shall
pay all sales taxes, recording fees, filing fees and similar taxes and charges
applicable to the transfer of the other Purchased Assets and the recording of
the Deeds and Assignment and Assumption of Lease Agreements. Otherwise the
parties will bear their respective expenses incurred in connection with the
preparation, execution and performance with this Agreement, the Related
Documents and the Contemplated Transactions, including without limitation, all
fees and expenses of the parties' respective agents, representatives, counsel
and accountants.
9.8 REASONABLE EFFORTS: Seller and Buyer shall each use their
reasonable efforts to assure the prompt consummation of the Contemplated
Transaction including the timely completion and submission of all Permits.
9.9 INSPECTION OF RESTAURANTS AND REPAIRS: Buyer has completed its
inspection of the physical condition of the Restaurants and the Equipment.
Buyer has provided the results of the inspections to Seller for its review.
Seller has agreed to allow Buyer a credit against the Purchase Price in the
amount of $198,000.00 as partial compensation to Buyer for its estimated cost
of repairing the Restaurants and the Equipment. Buyer acknowledges and agrees
that in consideration of the credit described in this Section 9.9, Buyer will
not claim that Seller has breached the representations and warranties set forth
in Section 7.4(C) except for latent material defects (as defined in Section 7.4
of which Seller had Knowledge and did not disclose to Buyer. Seller and Buyer
hereby agree that the Cash Consideration will be adjusted at Closing to reflect
the credit of $198,000.00.
9.10 TITLE INSURANCE. . Seller agrees to provide all title information
in Seller's possession relating to the Premises. Buyer shall promptly order at
Seller's expense a title insurance commitment or preliminary title report
issued by Lawyer's Title Insurance Company in which the Title Insurance Company
commits that upon delivery and recordation of the Deeds, Assignment and
Assumption of Lease Agreements and other documents provided for in this
Agreement and receipt of the surveys to be obtained pursuant to Section 9.11,
it will issue, at its usual rate, an ALTA (1992 form) owner's and leasehold
policies with extended coverage or comparable form (the "Policy"), provided,
however, that in some states the Policy may include an exception for the
calculation of acreage. Without limiting the foregoing or being limited
20
<PAGE> 21
thereby, the standard exceptions for parties in possession, mechanics' and
materialmen's liens and matters which would be disclosed by an accurate shall
be eliminated from said Policy. If Buyer's title insurance commitment or report
or any survey Buyer obtains pursuant to Section 9.11 shows any exceptions to
title other than (i) Property Taxes not yet due and payable; (ii) easements,
agreements, restrictions, covenants or conditions which will not preclude or
materially interfere with the continued use of the applicable property as a
Restaurant or the continued use of any other Purchased Assets in the operation
of the Restaurant Business; (iii) the Assumed Obligations, (iv) Liens which
will be released and discharged at or prior to the Closing; and/or (v) other
exceptions approved in writing by Buyer (collectively, the "Permitted
Encumbrances, Buyer will promptly notify Seller of Buyer's objections to title
and Buyer shall within thirty (30) days following receipt of the final title
commitments, copies of all documents and records referred to in the commitment
or report and the completed survey and surveyor's report referenced in Section
9.11 notify Seller as to all Buyer's objections to title. Seller and Buyer will
attempt in good faith to resolve Buyer's objections to title. If after using
their good faith efforts, Seller and Buyer are unable to resolve Buyer's
objections, then Buyer may in its discretion elect to terminate this Agreement
with respect to the Restaurant or Restaurants to which Buyer's objections
relate and the Purchase Price will be reduced by the total amount allocated to
the Restaurant or Restaurants on Schedule 4.0, or to waive its objections and
consummate the transaction. Seller shall pay the premiums for Buyer's title
insurance.
9.11 SURVEY. Buyer shall promptly obtain at its expense a certified
survey, bearing a legal description, made by a licensed surveyor, showing the
area, dimensions and location of the Premises to the nearest monuments,
streets, alleys or property, the location of all improvements and
encroachments, the location of all proposed and recorded easements against or
appurtenant to the Premises and a surveyor's report satisfactory to the Title
Insurance Company. If a completed survey for a Restaurant discloses a condition
which would materially interfere with or restrict Buyer's use of the premises
or which materially adversely affects the value of the premises to Buyer, Buyer
will notify Seller as to all such conditions. Seller and Buyer will attempt in
good faith to remedy such conditions. If after using their best efforts, Seller
and Buyer are unable to remedy the conditions, then Buyer may in its discretion
elect to terminate this Agreement with respect to the Restaurant or Restaurants
to which Buyer's objections relate and the Purchase Price will be reduced by
the total amount allocated to the Restaurant or Restaurants on Schedule 4.0, or
to waive its objections and consummate the transaction.
9.12. ENVIRONMENTAL AUDIT AND TESTING. Buyer shall obtain at its
expense a Phase I Environmental Audit of the premises of each Restaurant
performed by an Environmental Consulting firm (the "Consultant") selected by
Buyer . If the Consultant recommends further investigation and/or subsurface
testing due to the possible presence of Hazardous Substances, then Buyer may at
its expense have the additional investigation and/or subsurface testing
completed. Seller agrees to cooperate with Buyer in conducting the Phase I
Environmental Audit and any further investigation and subsurface testing,
including without limitation permitting the Consultant or its subcontractors
access to the premises of each Restaurant for purposes of conducting such
tests. Buyer will provide Seller copies of all reports and analysis received
from the Consultant. If, prior to closing, Consultant renders an opinion that
the premises of any Restaurant is probably contaminated by Hazardous Substances
in excess of standards established by a Governmental Body under applicable Law,
then Seller shall comply with the requirements of applicable Law with regard to
notifying any Governmental Body regarding the probable contamination identified
by the Consultant in such opinion and if required to do so by a
21
<PAGE> 22
Governmental Body as a result of such reporting by Seller shall remediate the
contamination. If a Governmental Body requires Seller to remediate any
Hazardous Substances identified by consultant in such report and if no third
party has assumed responsibility for the remediation, then Buyer agrees that it
will pay the first $300,000.00 of the cost of such remediation. Subject to
Section 9.13, Seller will pay all costs in excess of $300,000.00 and will
reimburse Buyer for Buyer's contribution from any amounts recovered from a
responsible third party or reimbursed by a Governmental Body. If more than one
Restaurant is subject to remediation and the total cost of all remediation is
estimated to exceed $300,000.00, then Buyer may in its discretion allocate the
$300,000.00 among the affected Restaurants. Provided that if Buyer allocates
any funds to a particular Restaurant and if funds are available, Buyer will
fully fund the cost of remediation. Under no circumstances will Buyer's
obligation under this Section 9.12 exceed $300,000.00.
9.13 SELLER'S OPTION TO EXCLUDE RESTAURANTS. If Seller's estimated
cost of required remediation for a particular Restaurant under Section 9.12,
after taking into account Buyer's contribution with respect to that individual
Restaurant, will exceed the greater of $200,000.00 or twenty percent (20%) of
the amount allocated to the Restaurant on Schedule 4.0, Seller may in its
discretion terminate this Agreement with respect to that Restaurant and the
Purchase Price will be reduced by the total amount allocated to the affected
Restaurant on Schedule 4.0. Seller may exclude up to five (5) Restaurants under
this Section 9.13. If Seller proposes to exclude more than five Restaurants,
then Buyer may in its discretion terminate this Agreement.
9.14 RESTAURANT EMPLOYEES. It is the Buyer's intention, but Buyer
shall have no obligation, to offer employment as of the Effective Time to the
Restaurant Employees, all such offers of employment to be pursuant to Buyer's
standard employment practices and policies, but this expression of intent shall
not be deemed to create any written contractual right of employment on the part
of any such Restaurant Employee. All wages, salaries and benefits owed by
Seller to the Restaurant Employees at the Effective Time shall be paid by
Seller in compliance with the applicable Laws.
9.15 LESSOR CONSENTS AND LESSOR CERTIFICATES. Seller will use its
reasonable efforts to deliver to Buyer at Closing the consent to the assignment
of the lease for each Assigned Property and a Lessor's Certificate
substantially in the form attached hereto as Exhibit E for each of the Assigned
Properties. If Seller is unable to obtain execution of a Lessor's Certificate
after using its reasonable efforts, Buyer agrees to accept Seller certification
as to the matters addressed in the Lessor's Certificate. Seller shall not be
required to pay any sum to any Lessor or to agree to any amendment,
modification or change in any lease or other agreement or relationship
involving the Lessor in order to comply with this Section 5.12. If the consent
of the Lessor under a Lease is required for the assignment to Buyer and if
Seller is unable to obtain consent, then Buyer may in its discretion terminate
this Agreement with respect to the affected Restaurant(s) and the Purchase
Price will be reduced by the total amount allocated to the affected Restaurant
on Schedule 4.0.
9.16 CAPITAL IMPROVEMENTS TO RESTAURANTS. Seller has made the capita
improvements to the Restaurants as listed on Schedule 9.16.
9.17 EXCLUDED RESTAURANTS. Buyer is not purchasing the assets related
to the Restaurants listed on Schedule 9.17 (the "Excluded Restaurants"). Seller
agrees to close and to deidentify the Restaurants at 301 Eighth Avenue N.,
Myrtle Beach, SC and 7046 N. Airline
22
<PAGE> 23
Hwy., Baton Rouge, LA prior to Closing. Seller and Buyer agree that Seller will
have a period of nine months beginning on the Closing Date to sell or transfer
the remaining Excluded Restaurants as Wendy's restaurants. Seller acknowledges
and agrees that Seller is familiar with Buyer's requirements, policies and
procedures for the transfer of franchise rights including without limitation
the Franchise Agreement and Wendy's Transactions Policy as amended. Seller
acknowledges and agrees that any proposed transfer of the franchise rights will
be subject to all of Buyer's requirements, policies and procedures. At the
expiration of the nine month period, Seller will close and deidentify any
Excluded Restaurants subject to and in accordance with the requirements of the
Franchise Agreement. The Franchise Agreement for each Excluded Restaurant will
terminate on the date on which the Excluded Restaurant closes or is transferred
pursuant to this Section 9.17. If Seller excludes any other Restaurant from
this Agreement as provided in this Agreement, Seller and Buyer agree to
cooperate with regard to the disposition of those Restaurants.
9.18 BULK SALES COMPLIANCE. Seller and Buyer hereby both waive
compliance with any applicable bulk sales or similar laws excluding bulk sales
requirements under applicable state tax laws. Seller agrees that it will pay
all its creditors in due course following the Effective Time and will hold
harmless and indemnify Buyer against any claims from creditors which would have
been avoided by compliance with the bulk sales or similar laws. This
indemnification is not subject to any of the limitations and restrictions set
forth in Section 13.3 of this Agreement.
9.19 CASUALTY LOSS: If, prior to the Effective Time, any of the
Purchased Assets are damaged or destroyed by fire or other casualty and the
cost of repair or replacement exceeds ten thousand dollars ($10,000) ("Casualty
Defect"), Seller shall notify Buyer promptly after Seller learns of such event.
Seller shall have the right, but not the obligation, to cure any such Casualty
Defect by repairing such damage, or in the case of personal property or
fixtures, replacing the Purchased Assets affected thereby with equivalent items
no later than the Closing Date. If any Casualty Defects exist at Closing, Buyer
shall purchase the Purchased Assets affected thereby, and Seller, at Buyer's
election, shall either (i) reduce the cash portion of the Purchase Price by the
aggregate estimated cost of repair or replacement of such Purchased Assets or
(ii) assign to Buyer all insurance proceeds and claims against other parties in
respect of any such Casualty Defect.
9.20 COMPLIANCE WITH HSR: Within thirty (30) days following the date
of this Agreement, Seller and Buyer shall prepare and file their respective HSR
notification forms in accordance with applicable Law. The parties shall furnish
each other with a draft notification form at least two (2) business days prior
to submission. Buyer shall pay the HSR filing fee.
SECTION 10. CONDITIONS TO SELLER'S OBLIGATIONS TO CLOSE The obligation
of Seller to enter into and complete the Closing and to consummate the transfer
of the Purchased Assets and the Contemplated Transactions is subject, in
addition to satisfaction of the Mutual Conditions Precedent to Closing set
forth at Section 5 and the deliveries by Buyer under section 6.3(a), at the
option of Seller acting in accordance with the provisions of Section 12 with
respect to the termination of this Agreement, to the fulfillment on or prior to
the Closing Date of the following conditions, any one or more of which may be
waived by Seller:
10.1 REPRESENTATIONS AND COVENANTS: The representations and warranties
of the Buyer contained in this Agreement shall be true as of the Closing Date
with the same force and effect as though made on and as of the Closing Date,
and this Agreement shall not have been
23
<PAGE> 24
breached materially by the Buyer on or prior to the Closing Date. The Buyer
shall have performed and complied with all covenants and agreements required by
this Agreement to be performed and complied in all material respects prior to
the Closing Date. The Buyer shall have delivered to the Seller a certificate,
dated as of the Closing Date, and signed by an authorized officer of the Buyer
on its behalf to the foregoing effect.
10.2 CERTIFIED RESOLUTION: Buyer shall have delivered to Seller a
Certified Resolution of Buyer's and Wendy's Old Fashioned Hamburgers of New
York, Inc.'s, Board of Directors or the Executive Committee of the Board of
Directors approving this Agreement and the Contemplated Transactions and
authorizing the officers of Buyer to execute and deliver this Agreement, the
Related Documents and any other agreements, documents or instruments necessary
or desirable to consummate the Contemplated Transactions and to take all other
actions necessary or desirable to consummate the Contemplated Transactions in
accordance with this Agreement.
10.3 Fairness Opinion: Seller shall have received from its investment
bankers, J.C. Bradford & Co., an opinion that the terms of the Contemplated
Transactions are fair to Volunteer Capital Corporation and its shareholders
from a financial point of view, which opinion is satisfactory in form and
substance to Volunteer Capital Corporation and its counsel.
SECTION 11. CONDITIONS TO BUYER'S OBLIGATION TO CLOSE: The obligation
of the Buyer to enter into and complete the Closing and to consummate the
transfer of the Purchased Assets and the other Contemplated Transactions is
subject, in addition to satisfaction of the Mutual Conditions Precedent to
Closing set forth at Section 5, at the option of the Buyer acting in accordance
with the provisions of Section 12 with respect to the termination of this
Agreement, to the fulfillment on or prior to the Closing Date of the following
conditions, any one or more of which may be waived by Buyer:
11.1 REPRESENTATIONS AND COVENANTS: The representations and warranties
of Seller contained in this Agreement shall be true on and as of the Closing
Date with the same force and effect as though made on and as of the Closing
Date, and this Agreement shall not have been materially breached by Seller on
or prior to the Closing Date. Seller shall have performed and complied in all
material respects with all covenants and agreements required by this Agreement
to be performed or complied with by Seller on or prior to the Closing Date.
Seller shall have delivered to the Buyer a certificate, dated as of the Closing
Date, signed by an authorized officer of Seller to the foregoing effect.
11.2 CONSENTS: All consents, approvals and waivers from Lease Lessors,
third parties, Governmental Bodies and other parties necessary to permit Seller
to transfer the Purchased Assets to Buyer as contemplated hereby, or necessary
to permit Buyer to conduct the Restaurant Business as presently conducted,
shall have been obtained.
11.3 CERTIFIED RESOLUTION: Seller shall have delivered to Buyer a
Certified Resolution of Seller's Board of Directors approving this Agreement
and the Contemplated Transactions and authorizing the officers of Seller to
execute and deliver this Agreement, the Related Documents and any other
agreements, documents or instruments necessary or desirable to consummate the
Contemplated Transactions and to take all other actions necessary or desirable
to consummate the Contemplated Transactions in accordance with this Agreement.
24
<PAGE> 25
11.4 TITLE TO PURCHASED ASSETS: Buyer has received a commitment for
Buyer's Title Insurance Company to issue a policy or policies in accordance
with Section 9.10 and Buyer is reasonably satisfied with the results of the
inspections conducted in accordance with Section 9.1, the surveys obtained in
accordance with Section 9.11 and the Environmental Audit and Testing conducted
in accordance with Section 9.12.
SECTION 12. TERMINATION: This Agreement may be terminated at any time
prior to the consummation of the Contemplated Transactions on the Closing Date
as follows:
12.1 MUTUAL AGREEMENT: In accordance with the terms and conditions of
this Agreement or by mutual written agreement of Seller and Buyer; or
12.2 BY BUYER: By written notice of Buyer to Seller if (i) Closing has
not occurred by December 27, 1996, or (ii) any condition to the obligations of
Buyer set forth in Sections 5, 9 or 11 is not satisfied on or prior to the
Closing Date and such condition is not waived by Buyer on or prior to the
Closing Date, and (iii) the Buyer is not in material default of its obligations
under this Agreement; or
12.3 BY SELLER: By written notice of Seller to Buyer if (i) Closing
has not occurred by December 27, 1996, or (ii) any condition to the obligations
of Seller set forth in Section 5 or 11 is not satisfied on or prior to the
Closing Date and such condition is not waived by Seller on or prior to the
Closing Date, and (iii) the Seller is not in material default of its
obligations under this Agreement; or
12.4 MATERIAL ADVERSE CHANGE: At Buyer's election on forty-eight (48)
hours written notice in the event of a material adverse change in the
Restaurant Business or the value of the Purchased Assets for any reason not
applicable to Wendy's Old Fashioned Hamburgers restaurants generally, including
without limitation, Seller's filing of a petition under Chapter 7 or 11 of the
Bankruptcy Code or similar Law.
12.5 LIABILITIES OF THE PARTIES: In the event of the valid termination
of this Agreement by any party hereto pursuant to this Section, the parties
hereto shall have no liability under this Agreement of any nature whatsoever
(other than pursuant to this Section 12.5) to the other parties hereto
(including without limitation, any liability for damages or for the costs and
expenses incurred in connection with the negotiation of this Agreement).
However each party shall be entitled to any and all remedies available at Law
or in equity or under this Agreement in the event of a default by the other
party. In the event that a condition precedent to the obligations of a party
hereto is not satisfied, nothing herein shall be deemed to require any such
party to terminate this Agreement rather than to waive such condition precedent
and proceed with the Closing.
SECTION 13. INDEMNITIES:
13.1 INDEMNITY BY SELLER: Seller and Volunteer Capital Corporation
hereby agree, jointly and severally, to indemnify and hold harmless Buyer and
its respective successors and assigns, from and against any and all
liabilities, losses, damages, deficiencies, debts, claims, costs or expenses of
any nature, including without limitation, reasonable attorney's fees
(collectively, "Damages") suffered or incurred by Buyer by reason of (i) any
misrepresentation
25
<PAGE> 26
or breach of any warranty or nonfulfillment of any covenant by Seller contained
in this Agreement, or in any Related Document furnished or to be furnished by
Seller to Buyer pursuant thereto; (ii) any Retained Obligation; or (iii) any
and all claims for damages for personal injury, disability or death or property
damage, whether known or unknown, contingent, unliquidated or disputed, which
are based upon occurrences or accidents arising prior to the Effective Time.
13.2 INDEMNITY BY BUYER: Wendy's International, Inc. shall indemnify
and hold harmless Seller and their respective successors, assigns, heirs and
legal representatives, from and against any and all Damages suffered or
incurred by Seller by reason of(i) any misrepresentation or breach of any
warranty or nonfulfillment of any covenant on the part of Buyer contained in
this Agreement or in any Related Document furnished or to be furnished by Buyer
to Seller pursuant hereto; (ii) any Assumed Obligation; or (iii) any and all
claims for damages for personal injury, death, disability or property damage,
contingent, unliquidated or disputed which are based upon occurrences or
accidents arising after the Effective Time.
13.3 LIMITATION OF LIABILITY AND PROCEDURES RELATING TO
INDEMNIFICATION: The obligations and liabilities of the party making the
indemnity pursuant to Sections 13.1 and 13.2 hereof (the "Indemnitor") with
respect to claims subject to indemnification pursuant to such Sections (the
"Indemnitee") shall be subject to the following terms and conditions:
(a) All representations and warranties shall survive the Closing. No
indemnification pursuant to Section 13.1(i) and 13.2(i) shall be required to be
made with respect to Damages resulting from claims as to which Indemnitor has
not received written notice from Indemnitee on or prior to the second (2nd)
anniversary of the Closing Date (whether or not such Damages have then actually
been sustained); provided, however, that this time limitation shall not apply
to the representations and warranties contained in Section 7.1, 7.2, 7.3,
7.4(a), 8.1 and 8.3 which obligations, representations and warranties shall
survive Closing indefinitely and shall not apply to the representations and
warranties contained in Section 7.5 which shall survive Closing for a period of
three (3) years beginning on the date on which the Taxes are due or the
applicable report or return is filed, whichever date is later.
(b) Seller shall not be required to indemnify Buyer for Damages under
this Section 13 unless and until net Damages exceed the sum of One Hundred
Fifty Thousand Dollars ($150,000.00) (the "Deductible") for which Damages are
claimed and indemnification will be made only for Damages in excess of the
Deductible.
(c) All Damages shall be computed net of any net recovery under any
insurance coverage with respect thereto which reduces the Damages that would
otherwise be sustained and net of any tax benefits which accrue to Indemnitee.
(d) The Indemnitee will give the Indemnitor prompt notice of any such
claim, which notice shall contain a reasonably detailed description of the
claim and claimant, and Indemnitor shall have the right to undertake (at the
Indemnitor's sole cost and expense) the defense thereof by representatives
chosen by it and reasonably acceptable to the Indemnitee.
(e) If the Indemnitor, within a reasonable time after notice of any
such claim, fails to defend the Indemnitee against which such claim has been
asserted, the Indemnitee will, upon further notice to the Indemnitor, have the
right to undertake the defense, compromise or
26
<PAGE> 27
settlement of such claim on behalf of and for the account and risk of the
Indemnitor, subject to the right of the Indemnitor to assume the defense of
such claims at any time prior to settlement, compromise or final determination
thereof.
(f) Anything in this Section 13.3 to the contrary notwithstanding, if
there is a reasonable probability that a claim may materially and adversely
affect the Indemnitee other than as a result of money damage or other money
payments, (i) the Indemnitee shall have the right, at its own cost and expense,
to co-defend, compromise or settle such claim, and (ii) the Indemnitor shall
not, without the written consent of the Indemnitee which consent shall not be
unreasonably withheld, settle or compromise any claim or consent to the entry
of any judgment.
(g) In connection with all claims defended under this Section 13, the
Indemnitee will give the Indemnitor prompt written notice of all material
developments in connection with all claims, will promptly supply the Indemnitor
with all papers, documents and evidence in the Indemnitee's possession and such
other information within the Indemnitee's possession and such other information
within the Indemnitee's possession and such other information within the
Indemnitee's knowledge pertinent to such claims, and will produce at the
appropriate place or places, at reasonable times, such witnesses under the
Indemnitee's control as may be reasonably requested by the Indemnitor or its
representatives and shall not settle or otherwise compromise any claim under
this Section 13 to Indemnitor's detriment without Indemnitor's consent.
SECTION 14. FURTHER ASSURANCES: Seller and Buyer agree that they will,
from time to time on or after the Closing Date when so requested by the other,
perform, execute, acknowledge, or deliver or cause to be performed, executed,
acknowledged or delivered, all such further acts, deeds, assignments,
transfers, conveyances, documents, instruments and assurances as may be
reasonably necessary or advisable to carry out the provisions of this Agreement
or any Related Document or to effectuate the consummation of any Contemplated
Transactions, including without limitation, putting Buyer in possession and
operating control of the Purchased Assets and the Restaurant Business. The
parties hereto further agree that so long as any books, records and files are
retained by Seller or Buyer with respect to the Purchased Assets or the
Restaurants (to the extent such books, records and files relate to the
Purchased Assets or the Restaurant Business prior to the Effective Time) remain
in existence and available, each party, at its expense and upon prior notice to
the other party, shall have the right to inspect and make copies of the same at
any time during normal business hours for any proper purpose. Buyer will at the
request of Seller provide information regarding any amendment, termination,
purchase option exercise or other significant modification or event with
respect to any of the Leases under which Seller retains any contingent
liability.
SECTION 15. MISCELLANEOUS:
15.1 ASSIGNMENT: This Agreement shall be binding upon and inure to the
benefit of, and be enforceable by, the parties hereto and their respective
heirs, executors, successors and assigns, provided that this Agreement shall
not be assignable by any party except to an Affiliate without the prior written
consent of the other party.
15.2 ENTIRE AGREEMENT: This Agreement, together with all exhibits and
schedules and all Related Documents, is the entire agreement among the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements, understandings, negotiations
27
<PAGE> 28
and discussions, whether oral or written, of the parties. No representation or
warranty has been made by or on behalf of any party to this Agreement, or any
officer, director, employee, agent or representative thereof, to induce the
other party to enter into this Agreement or to abide by or consummate any of
the Contemplated Transactions, except the representations and warranties
expressly set forth herein. No representations, inducement, agreement, promise
or understanding altering, modifying, taken from or adding to the terms and
conditions hereof shall have any force or effect unless the same is in writing
and validly executed by the parties hereto. No waiver of any of the provisions
of this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided.
15.3 NOTICE: All notices or other communications required or permitted
under this Agreement shall be in writing and shall be deemed to have been duly
given if sent by registered or certified mail, postage-prepaid, and return
receipt requested or other means which affords the sender evidence of delivery,
or of attempted delivery, addressed as follows:
(i) If to Buyer, to: WENDY'S INTERNATIONAL, INC.
4288 West Dublin-Granville Road
PO Box 256
Dublin, Ohio 43017
Attn.: John K. Casey
Copy to: WENDY'S INTERNATIONAL, INC.
4288 West Dublin-Granville Road
PO Box 256
Dublin, Ohio 43017
Attn.: General Counsel
(ii) If to Seller, to: VCE Restaurants, Inc.
3401 West End Avenue, Suite 260
Nashville, TN 37202
Attn.: Lonnie J. Stout II
Copy to: Bass, Berry & Sims
2700 First American Center
Nashville, TN 37328-2700
Attn.: J. Bradbury Reed, Esq.
The addresses so indicated for any party may be changed by similar written
notice. Notices shall be deemed effective as of the date of their receipt, not
as of the date of their delivery. Failure to send a copy of any notice shall
not be deemed a failure to give notice in accordance with this Agreement.
15.4 COUNTERPARTS: This Agreement may be executed in any number of
counterparts, each of which shall be treated as an original (including
telecopied or facsimile
28
<PAGE> 29
copied counterparts of this Agreement containing signatures if the original of
any such counterpart is delivered to the other parties hereto by overnight
courier for receipt the next business day), but all of which, collectively,
shall constitute a single instrument.
15.5 SEVERABILITY: In the event that any one or more of the provisions
contained in this Agreement or in any other Related Document shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement or any Related Document.
15.6 CAPTIONS: The captions in this Agreement are for convenience only
and shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement.
15.7 NO BENEFIT TO THIRD PARTIES: Except as specifically set forth or
referred to herein, nothing in this Agreement is intended or shall be construed
to confer upon or give to any person or corporation other than the parties
hereto and their successors or permitted assigns, any rights or remedies under
or by reason of this Agreement.
15.8 AGREEMENT NOT ASSUMABLE: This Agreement is, and is acknowledged
by Seller to be, a contract which includes financial accommodations to and for
the benefit of Seller, all within the meaning of 11 U.S.C. Section 365(c). In
addition, the time for Closing and all other terms of this Agreement,
including, without limitation, the delivery of the consents and releases from
Investors and the payments and distribution described in Section 9.5 of this
Agreement, are material to the performance of this Agreement by Seller. As a
result, this Agreement may not be assumed pursuant to 11 U.S.C., Section 365.
15.11 GOVERNING LAW: This Agreement shall be governed by and construed
in accordance with the laws of the State of Ohio including the choice-of-law
rules.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
to the date first written above.
"BUYER"
WENDY'S INTERNATIONAL, INC.
By: _________________________________
Title: ______________________________
By: _________________________________
Title: ______________________________
29
<PAGE> 30
"SELLER"
VCE RESTAURANTS, INC.
By: _________________________________
Title: ______________________________
Fein #_______________________________
"SELLER "
VOLUNTEER CAPITAL CORPORATION
By: ________________________________
Title: _____________________________
30
<PAGE> 31
EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A Release Agreement
Exhibit B Assignment and Assumption of Lease Agreement
Exhibit C Bill of Sale
Exhibit D Assignment and Assumption of Personal Property Leases and
Service Contracts
Exhibit E Lessor's Certificate
Exhibit F Franchise Termination Agreement
Schedule 2.1(a) Fee Properties
Schedule 2.1(b) Leases
Schedule 2.1(f) Personal Property Lease
Schedule 2.1(g) Service Contracts
Schedule 2.1(l) Transferable Permits
Schedule 4.0 Purchase Price Allocation
Schedule 7.4 Easements, Agreements, Restrictions, Covenants and Conditions
Schedule 7.5 Notice of Audit, Delinquency, Deficiency, Levy, Lien or Foreclosure
Schedule 7.7 Actions
Schedule 7.8 Hazardous Substances
Schedule 7.13 Employee Benefit Plans and Compensation
Schedule 7.15 Financial Statement Qualification
Schedule 9.16 Capital Improvements
Schedule 9.17 Excluded Restaurants
</TABLE>
31
<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 SEPTEMBER 29, 1996, 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-29-1996
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-29-1996
<CASH> 1,847
<SECURITIES> 0
<RECEIVABLES> 208
<ALLOWANCES> 0
<INVENTORY> 524
<CURRENT-ASSETS> 24,368
<PP&E> 45,242
<DEPRECIATION> 3,913
<TOTAL-ASSETS> 70,427
<CURRENT-LIABILITIES> 9,449
<BONDS> 25,926
0
0
<COMMON> 266
<OTHER-SE> 34,184
<TOTAL-LIABILITY-AND-EQUITY> 70,427
<SALES> 70,640
<TOTAL-REVENUES> 70,640
<CGS> 24,687
<TOTAL-COSTS> 45,740
<OTHER-EXPENSES> 15,063
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,220
<INCOME-PRETAX> 1,848
<INCOME-TAX> 647
<INCOME-CONTINUING> 1,201
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,201
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
