-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LmsOw6U6UHxnqb0xQZHLTAn8kIs2BTfvQvx5mzE8Pv6c6bVR1KF/9l0jKin2vez7 ytzqsHVxjNdR5WnzEj8Mhw== 0000950144-95-003292.txt : 19951120 0000950144-95-003292.hdr.sgml : 19951120 ACCESSION NUMBER: 0000950144-95-003292 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951001 FILED AS OF DATE: 19951115 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VOLUNTEER CAPITAL CORP / TN / CENTRAL INDEX KEY: 0000103884 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 620854056 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08766 FILM NUMBER: 95593746 BUSINESS ADDRESS: STREET 1: 3401 WEST END AVE STREET 2: P O BOX 24300 CITY: NASHVILLE STATE: TN ZIP: 37202 BUSINESS PHONE: 6152691900 MAIL ADDRESS: STREET 1: 3401 WEST END AVE STREET 2: SUITE 260 CITY: NASHVILLE STATE: TN ZIP: 37202 FORMER COMPANY: FORMER CONFORMED NAME: WINNERS CORP DATE OF NAME CHANGE: 19890910 FORMER COMPANY: FORMER CONFORMED NAME: VOLUNTEER CAPITAL CORP DATE OF NAME CHANGE: 19820520 10-Q 1 VOLUNTEER CAPITAL FORM 10-Q 10-01-95 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT UNDER SECTION l3 OR l5(d) OF THE SECURITIES EXCHANGE ACT OF l934 For quarterly period ended October 1, 1995 --------------------------------------------------- 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) TENNESSEE 62-0854056 - ------------------------------- ------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3401 West End Avenue, Suite 260, P.O. Box 24300, Nashville, Tennessee 37202 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (615) 269-1900 - ------------------------------------------------------------------------------- (Registrant's 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 --- --- Comon Stock Outstanding - 5,268,881 shares at November 10, 1995. 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)
OCTOBER 1 January 1 1995 l995 --------- --------- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 7,925 $14,802 Short-term investments . . . . . . . . . . . . . . . . . . - 1,000 Accounts and notes receivable, including current portion of direct financing leases . . . . . . . . . . . . . . . 111 155 Inventories . . . . . . . . . . . . . . . . . . . . . . . . 714 577 Deferred income taxes . . . . . . . . . . . . . . . . . . . 699 699 Prepaid expenses and other current assets . . . . . . . . . 461 215 ------- ------- TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . 9,910 17,448 INVESTMENT SECURITIES . . . . . . . . . . . . . . . . . . 506 510 OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . 1,106 1,106 PROPERTY AND EQUIPMENT, at cost, less allowances for depreciation and amortization of $20,264 and $18,115 at October 1, 1995, and January 1, 1995, respectively . . . . . 40,127 29,776 DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . 2,752 2,752 DEFERRED CHARGES, less amortization . . . . . . . . . . . . 1,913 1,714 ------- ------- $56,314 $53,306 ======= =======
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OCTOBER 1 January 1 1995 1995 --------- --------- (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $2,542 $ 3,089 Accrued expenses and other current liabilities . . . . . . . . . . . 4,461 3,310 Current portion of long-term debt and obligations under capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . 304 350 ------- ------- TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . . . . 7,307 6,749 LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES, net of portion classified as current . . . . . . . . . . . . 18,593 18,847 DEFERRED INCOME TAXES AND OTHER DEFERRED CREDITS 442 406 STOCKHOLDERS' EQUITY Common Stock, par value $.05 per share: Authorized l0,000,000 shares; issued and outstanding 5,264,881 and 5,240,481 shares at October 1, 1995, and January 1, 1995, respectively . . . . . . . . . 263 262 Preferred Stock, no par value: Authorized 1,000,000 shares; none issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 28,800 28,718 Retained earnings (accumulated deficit). . . . . . . . . . . . . . . . 2,109 (476) ------- ------- 31,172 28,504 Note receivable - Employee Stock Ownership Plan . . . . . . . . . . . (1,200) (1,200) ------- ------- TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . 29,972 27,304 COMMITMENTS AND CONTINGENCIES ------- ------- $56,314 $53,306 ======= =======
See notes to consolidated condensed financial statements. -3- 4 VOLUNTEER CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Nine Months Ended Quarter Ended ----------------- ------------- OCTOBER 1 October 2 OCTOBER 1 October 2 1995 l994 1995 1994 ---- ---- ---- ---- Net sales. . . . . . . . . . . . . . . . . . . . . $58,655 $48,814 $20,550 $16,872 Costs and expenses: Cost of sales. . . . . . . . . . . . . . . . . 20,383 16,957 7,104 5,807 Restaurant labor and related costs . . . . . . 17,145 13,965 5,951 4,821 Depreciation and amortization of restaurant property and equipment . . . . . . . . . 2,183 1,629 770 573 Royalties. . . . . . . . . . . . . . . . . . . 1,636 1,546 567 522 Other operating expenses . . . . . . . . . . . 10,846 9,054 3,841 3,114 ------- ------- ------- ------- Total restaurant operating expenses . . . 52,193 43,151 18,233 14,837 ------- ------- ------- ------- Income from restaurant operations. . . . . . . . . 6,462 5,663 2,317 2,035 General and administrative expenses. . . . . . . . 3,207 2,897 1,087 989 ------- ------- ------- ------- Operating income . . . . . . . . . . . . . . . . . 3,255 2,766 1,230 1,046 ------- ------- ------- ------- Other income (expense): Interest expense. . . . . . . . . . . . . . . . (1,082) (1,216) (340) (394) Interest income . . . . . . . . . . . . . . . . 514 628 138 223 Other, net . . . . . . . . . . . . . . . . . . 66 45 (21) 21 ------- ------- ------- ------- Total other income (expense) . . . . . . . . (502) (543) (223) (150) ------- ------- ------- ------- Income before income taxes . . . . . . . . . . . . 2,753 2,223 1,007 896 Income tax provision . . . . . . . . . . . . . . . 168 169 23 77 ------- ------- ------- ------- Net income . . . . . . . . . . . . . . . . . . . . $ 2,585 $ 2,054 $ 984 $ 819 ======= ======= ======= ======= Earnings per share: Primary. . . . . . . . . . . . . . . . . . . . . $ .48 $ .38 $ .18 $ .15 ======= ======= ======= ======= Fully diluted. . . . . . . . . . . . . . . . . . $ .47 $ .38 $ .18 $ .15 ======= ======= ======= ======= Weighted average number of shares: Primary. . . . . . . . . . . . . . . . . . . . . 5,424 5,382 5,470 5,383 ======= ======= ======= ======= Fully diluted . . . . . . . . . . . . . . . . . 5,479 5,382 5,509 5,383 ======= ======= ======= ======= See notes to consolidated condensed financial statements.
-4- 5 VOLUNTEER CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED IN THOUSANDS)
Nine Months Ended ------------------------ OCTOBER 1 October 2 1995 1994 ---- ---- Net cash provided by operating activities $ 5,704 $ 4,300 Net cash provided (used) by investing activities: Purchase of property and equipment (13,305) (7,223) Maturities of investments 1,004 506 Other investing activities (51) (38) -------- ------- (12,352) (6,755) Net cash provided (used) by financing activities: Payments on debt and obligations under capital leases (312) (298) Other financing activities 83 574 -------- ------- (229) 276 Decrease in Cash and Cash Equivalents (6,877) (2,179) Cash and cash equivalents at beginning of period 14,802 17,755 -------- ------- Cash and Cash Equivalents at End of Period $7,925 $15,576 ======== =======
See notes to consolidated condensed financial statements. -5- 6 VOLUNTEER CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Certain reclassifications have been made in the prior year's consolidated condensed financial statements to conform to the 1995 presentation. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended October 1, 1995, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1995. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the fiscal year ended January 1, 1995. NOTE B - LINE OF CREDIT On August 29, 1995 the Company entered into an unsecured bank line of credit agreement which provides for up to $30 million of revolving credit for the purpose of financing future capital expenditures. Interest is payable monthly with the interest rate, at the Company's option, at the bank's prime rate or the bank's LIBOR rate plus 1.5% or 2.5%, depending on compliance with certain ratios set forth in the agreement. In addition, a fee of 1/4% on any unused portion of the facility is payable on a quarterly basis. All outstanding principal, interest and expenses under the agreement become due July 1, 1998, unless the Company exercises its option to convert amounts outstanding under the line of credit to a seven year term loan. The agreeement requires the Company to meet certain restrictive financial and other covenants, including limitations on other borrowing, all of which were met as of October 1, 1995. No borrowings were outstanding under the agreement as of October 1, 1995. -6- 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS OVERVIEW Volunteer Capital Corporation operated 58 franchised Wendy's Old Fashioned Hamburgers restaurants at October 1, 1995. In addition, the Company operated seven proprietary J. Alexander's full-service, casual dining restaurants. Income before income taxes increased by $530,000 (23.8%) and $111,000 (12.4%) for the first nine months and third quarter of 1995 as compared to the same periods of the previous year. Restaurant operating income in the J. Alexander's division increased by $1,164,000 and $362,000 for the nine months and quarter ended October 1, 1995, as compared to the 1994 periods, more than offseting decreases of $365,000 and $80,000 in the Wendy's division during the same periods. Other expense (net interest expense plus other income) decreased $41,000 for the first nine months of 1995, as compared to the 1994 period, while the third quarter reflected an increase of $73,000. The combined effect of the aforementioned items more than offset the planned increases in general and administrative expenses incurred during the 1995 periods. WENDY'S RESTAURANT OPERATIONS Results of the Wendy's restaurant operations before allocation of other income, corporate overhead and net interest expense for the nine months and third quarters ended October 1, 1995, and October 2, 1994, were as follows:
Nine Months Ended OCTOBER 1, 1995 October 2,1994 ----------------------- --------------------- AMOUNT % OF Amount % of (IN THOUSANDS) SALES (in thousands) Sales -------------- ----- -------------- ----- Net sales . . . . . . . . . . . . . . . . $40,861 100.0% $38,608 100.0% Restaurant costs and expenses: Cost of sales . . . . . . . . . . . . . 14,162 34.7 13,301 34.4 Labor and related costs . . . . . . . . 11,684 28.6 10,785 27.9 Depreciation and amortization of restaurant property and equipment . . . . . . . 1,469 3.6 1,256 3.3 Royalties . . . . . . . . . . . . . . 1,636 4.0 1,546 4.0 Other operating expenses . . . . . . . 7,453 18.2 6,898 17.9 ------- ----- ------- ----- 36,404 89.1 33,786 87.5 ------- ----- ------- ----- Restaurant operating income . . . . . . . $ 4,457 10.9% $ 4,822 12.5% ======= ===== ======= =====
-7- 8
Quarter Ended OCTOBER 1, 1995 October 2, 1994 --------------------- -------------------------- AMOUNT % OF Amount % of (IN THOUSANDS) SALES (in thousands) Sales -------------- ----- -------------- ----- Net sales . . . . . . . . . . . . . . . $14,142 100.0% $13,022 100.0% Restaurant costs and expenses: Cost of sales . . . . . . . . . . . . 4,837 34.2 4,426 34.0 Labor and related costs . . . . . . . 4,024 28.5 3,700 28.4 Depreciation and amortization of restaurant property and equipment . 511 3.6 428 3.3 Royalties . . . . . . . . . . . . . . 567 4.0 522 4.0 Other operating expenses . . . . . . 2,618 18.5 2,281 17.5 ------- ----- ------- ----- 12,557 88.8 11,357 87.2 ------- ----- ------- ----- Restaurant operating income . . . . . . $ 1,585 11.2% $ 1,665 12.8% ======= ===== ======= =====
The Company operated 58 Wendy's restaurants at October 1, 1995, compared with 54 at October 2, 1994, and 55 at January 1, 1995. Three new restaurants were opened in 1995, in Myrtle Beach, South Carolina (April 7), Greer, South Carolina (June 12) and Baton Rouge, Louisiana (June 13). Total sales in the Wendy's division increased 5.8% and 8.6% for the first nine months and third quarter of 1995 as compared to the same periods in 1994. These increases are due entirely to sales from new units, as the weighted average per unit sales of restaurants open for all of the first nine months of both 1995 and 1994 decreased by 1.8% to $724,000 and sales of restaurants open for the entire third quarter of 1995 and 1994 were flat at $244,000 per unit. The Company estimates that menu prices, after considering promotional discounts, decreased by approximately 1% during the first nine months of 1995 as compared to the same period in 1994. For the third quarter, menu prices are estimated to have increased by approximately .5% as compared to the third quarter of 1994. Management believes that local and national marketing and promotional efforts, which have generally been very effective for most of the past several years, competitive menu pricing, continued emphasis on guest service and improvement in efficiency of operations, and a continuing program of enhancements of guest service areas in a number of restaurants have contributed, over the last several years, to increasing and maintaining per unit sales averages. However, continued competition in the quick-service restaurant industry in general and, more recently, intense retail price competition by other major hamburger chains in particular have continued to adversely impact the Company's weighted average sales per unit, which declined in both the last half of 1994 and the first half of 1995. The development of new Wendy's restaurants by other franchisees in certain of the Company's market areas, and to a lesser degree the opening of new restaurants by the Company near its existing restaurants, have also negatively affected the Company's sales in certain locations. Sales declines have been most pronounced in the Company's North and South Carolina markets, which represent 42 of its 58 Wendy's units. A number of programs and products have been targeted at these markets by the Company in an attempt to reverse the declining sales trends. Management continues to believe that aggressive core product discounting is counterproductive because of its negative impact on margins. The Company expects the competitive factors noted above will continue to affect the performance of the Company's Wendy's units for the remainder of 1995. In addition, during the third quarter of 1995, two restaurants were closed for an average of almost two weeks each as part of the Company's remodeling program. The Company anticipates remodeling an additional four units -8- 9 during the fourth quarter of 1995 and that these restaurants will also be closed an average of two weeks each. Cost of sales, which includes the cost of food and paper supplies, increased as a percentage of sales in the Wendy's division for the first nine months and third quarter of 1995 as compared to the same periods in 1994. For the first nine months of 1995, the impact of decreased menu prices, the increased cost of lettuce resulting from adverse weather in California during the early Spring, and the increased cost of paper supplies more than offset the favorable impact of decreased costs of ground beef. For the third quarter of 1995, the increased cost of paper supplies more than offset the favorable impact of decreased costs of ground beef and the slight increase in menu prices. Restaurant labor and related costs also increased as a percentage of net sales for the first nine months and third quarter of 1995, compared to the same periods in 1994. For the first nine months of 1995, the increase principally reflects the impact of decreased same store sales, wage increases and the effect of lower menu prices. For the third quarter of 1995, wage increases slightly offset the favorable impact of increased menu prices. Depreciation and amortization of restaurant property and equipment increased as a percentage of net sales for the first nine months and third quarter of 1995, compared to the same periods in 1994, principally reflecting the impact of higher depreciation associated with both new and remodeled restaurants and, with respect to the first nine months of 1995, the impact of decreased same store sales. Other operating expenses increased as a percentage of sales for the first nine months and third quarter of 1995, compared to the same periods in 1994, principally due to additional rent expense and amortization of pre-opening costs related to new restaurants opened in 1994 and 1995. J. ALEXANDER'S RESTAURANT OPERATIONS The Company operated seven J. Alexander's restaurants at October 1, 1995, compared with four at October 2, 1994. The fifth J. Alexander's restaurant opened on October 17, 1994, in Oak Brook, Illinois; the sixth opened February 13, 1995 in Ft. Lauderdale, Florida and the seventh opened August 28, 1995, in Hoover, Alabama. J. Alexander's operating results, before allocation of other income, corporate overhead and net interest expense, for the nine months and third quarters ended October 1, 1995, and October 2, 1994, were as follows:
Nine Months Ended OCTOBER 1, 1995 October 2,1994 --------------------- ----------------------- AMOUNT % OF Amount % of (IN THOUSANDS) SALES (in thousands) Sales -------------- ----- -------------- ----- Net sales . . . . . . . . . . . . . . . $17,794 100.0% $10,206 100.0% Restaurant costs and expenses: Cost of sales . . . . . . . . . . . . 6,221 35.0 3,656 35.8 Labor and related costs . . . . . . . 5,461 30.7 3,180 31.2 Depreciation and amortization of restaurant property and equipment. . 714 4.0 373 3.7 Other operating expenses . . . . . . . 3,393 19.0 2,156 21.1 ------- ----- ------- ----- 15,789 88.7 9,365 91.8 ------- ----- ------- ----- Restaurant operating income. . . . . . . $ 2,005 11.3% $ 841 8.2% ======= ===== ======= =====
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Quarter Ended OCTOBER 1, 1995 October 2, 1994 ------------------------------------------------- AMOUNT % OF Amount % of (IN THOUSANDS) SALES (in thousands) Sales ------------- ----- ------------- ----- Net sales . . . . . . . . . . . . . . . . . . $6,408 100.0% $3,850 100.0% Restaurant costs and expenses: Cost of sales . . . . . . . . . . . . . . . 2,267 35.4 1,381 35.9 Labor and related costs . . . . . . . . . . 1,927 30.1 1,121 29.1 Depreciation and amortization of restaurant property and equipment. . . . . . . . . . 259 4.0 145 3.8 Other operating expenses. . . . . . . . . . 1,223 19.1 833 21.6 ------ ----- ------ ----- 5,676 88.6 3,480 90.4 ------ ----- ------ ---- Restaurant operating income . . . . . . . $ 732 11.4% $ 370 9.6% ====== ===== ====== ====
Net sales for the J. Alexander's division increased 74% in the first nine months of 1995 compared to the same period of 1994, due primarily to the opening of new units. For the three restaurants open for all three quarters of 1995 and 1994 (Nashville, Tennessee; Franklin, Tennessee; and Dayton, Ohio), sales averaged $2,994,000 per unit in 1995, a 4.4% increase from $2,869,000 in the same period of 1994. Sales for the two J. Alexander's prototype units open during all of the first nine months of both 1995 and 1994 averaged $3,345,000 per unit in 1995, a 3.5% increase from $3,231,000 in 1994. For the third quarter, net sales for the J. Alexander's division increased 66% in 1995 as compared to the 1994 quarter. For the four restaurants open for all of the third quarter in both 1995 and 1994, sales averaged $1,047,000 in 1995, an 8.7% increase from $963,000 in 1994. Sales for the three J. Alexander's prototype units open during all of the third quarter in both 1995 and 1994 (Franklin, Tennessee; Dayton, Ohio; and Columbus, Ohio) averaged $1,140,000 in the 1995 quarter, a 9.1% increase from $1,045,000 in 1994. The Company estimates that menu prices increased approximately 4% and 5.5% during the first nine months and third quarter of 1995 as compared to the same periods in 1994. Cost of sales decreased as a percentage of sales for the first nine months and third quarter of 1995, compared to the same periods of the prior year, as the favorable effect of increased menu prices coupled with more favorable food costs at the Columbus restaurant which opened in April, 1994, more than offset higher costs associated with the start-up of operations at the Ft. Lauderdale and Hoover restaurants. The Company expects newly opened restaurants to experience operating losses in their initial months of operation prior to becoming profitable. Restaurant labor and related costs decreased during the first nine months of 1995, as compared to the same period in 1994, due in large part to the favorable effect of increased menu prices. This factor, combined with the effect of sales increases at the Columbus restaurant more than offset higher benefits expense and higher costs associated with the start-up of operations in Ft. Lauderdale and Hoover. For the third quarter of 1995, restaurant labor and related costs increased over the same period in 1994, as higher costs associated with the restaurants opened during the current year and higher benefits expense more than offset the favorable effect of increased menu prices and sales increases at the Columbus restaurant. -10- 11 Depreciation and amortization of restaurant property and equipment increased as a percentage of sales during the first nine months and third quarter of 1995 compared to the same periods of 1994, principally reflecting the impact of four new units added since April, 1994. Other operating expenses decreased as a percentage of sales during the first nine months and third quarter of 1995 compared to the same periods of 1994, as reduced training costs, the favorable effects of increased menu prices, and operating efficiences achieved at higher sales levels more than offset additional rent expense related to the Ft. Lauderdale restaurant (a ground lease) and other operating expenses associated with the opening of the Ft. Lauderdale and Hoover restaurants. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses, which include certain costs related to both the Wendy's and J. Alexander's operations, totaled 5.5% and 5.3% of net sales for the first nine months and third quarter of 1995, as compared to 5.9% of net sales during the same periods of the prior year, primarily reflecting higher sales levels. Management anticipates that the growth rate for general and administrative expenses during 1995 will be less than that of the Company's revenues. OTHER INCOME (EXPENSE) Interest expense decreased during the first nine months and third quarter of 1995 compared to the corresponding periods in 1994, principally due to an increase in interest expense which was capitalized in connection with new restaurant development in 1995. Interest income decreased during the first nine months and third quarter of 1995 compared to the same periods in 1994, due to the net effect of decreased investment balances resulting primarily from the development of new restaurants and increased interest rates. Expenses associated with the write-off of restaurant facilities and equipment that have been replaced in connection with various remodeling projects are reflected in "Other, net". INCOME TAXES Under the provisions of Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes," the Company has significant deferred tax assets relating primarily to net operating loss carryforwards and tax credit carryforwards available to reduce future federal income taxes. Realization of the deferred tax assets is dependent principally on future earnings from existing and new restaurants. Accordingly, a valuation allowance reflecting the uncertainties associated with future earnings has been established. Failure to achieve forecasted taxable income could affect the ultimate realization of the net deferred tax assets. Because of various uncertainties associated with the restaurant industry, there can be no assurance that there could not be factors in the future which would result in a decline in taxable income. The Company will continue to evaluate the realizability of its net deferred tax assets quarterly and will make adjustments to the valuation allowance if deemed appropriate. As a result of utilization of its net operating loss carryforwards, the Company did not provide for or pay federal or state income taxes that approximate statutory rates during the first nine months and third quarter of 1995 or the corresponding periods of 1994. -11- 12 LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities represents a primary source of liquidity for the Company and is also expected to be a resource for meeting future capital needs. The Company's cash flow from operations totaled $5,704,000 during the first nine months of 1995, up $1,404,000 from the corresponding period in 1994. In addition, the Company had cash and marketable securities of $8,431,000 on hand at October 1, 1995. Working capital at October 1, 1995 totaled $2,603,000 compared to $13,316,000 at October 2, 1994, the decrease primarily reflecting the Company's capital expenditures for new restaurants during the last year. The Company's primary investing activity has historically been capital expenditures for the development and maintenance of its restaurants. Capital expenditures totaled $12,685,000 during the first nine months of 1995. In the Wendy's division, capital expenditures for the first three quarters of 1995 totaled $2,916,000 which related primarily to the three new restaurants opened during 1995, and also included selected facilities upgrades and miscellaneous equipment replacments. Capital expenditures for J. Alexander's restaurants were $9,687,000 and consisted primarily of completion of the restaurant in Ft. Lauderdale, Florida, acquisition of property and completion of the restaurant in Hoover, Alabama, acquisition of property and construction costs of restaurants in Overland Park, Kansas and Lyndhurst, Ohio, and construction costs of the restaurant in Toledo, Ohio (a ground lease). Management expects the primary needs for capital resources in the future will be for the development of new J. Alexander's and Wendy's restaurants and for the maintenance of existing restaurants. Management may also consider acquisitions of additional Wendy's restaurants and restaurants similar to J. Alexander's and use of the Company's capital resources to enhance shareholder value in other ways. The Company will open a total of four J. Alexander's restaurants in 1995. The Company's sixth J. Alexander's restaurant opened February 13, 1995, in Ft. Lauderdale, Florida, its seventh restaurant opened August 28, 1995, in Hoover, Alabama (a suburb of Birmingham), and its eighth restaurant opened November 13, 1995, in Toledo, Ohio. J. Alexander's restaurants are also under construction in Overland Park, Kansas (a suburb of Kansas City) and Lyndhurst, Ohio (a suburb of Cleveland). The Overland Park restaurant will open in December, 1995, and the Lyndhurst restaurant is scheduled to open in the spring of 1996. The initial cost of developing the J. Alexander's prototype restaurants has ranged from approximately $2,300,000 to $3,900,000, excluding pre-opening costs. While the cost of land has been a significant variable in development cost, costs related to site preparation and buildings have also varied considerably. Management is presently evaluating alternatives to the current J. Alexander's building design in order to reduce total unit investment costs. Management estimates that pre-opening costs will be approximately $250,000 for each restaurant. Additionally, the Company plans to continue developing new Wendy's restaurants at an estimated cost of $900,000 to $1,000,000 each. The initial capital investment required for opening a new J. Alexander's or Wendy's restaurant will be significantly lower than indicated above, however, when property is leased rather than purchased. Finally, it is expected that because of their age, $2,000,000 or more of capital expenditures will be required in both 1995 and 1996 to maintain and improve the Company's existing Wendy's restaurants. -12- 13 The Company does not have significant capital needs for purposes other than restaurant development. Maturities of long-term debt through 1997 are relatively small because the Company has previously purchased in the market a sufficient amount of its convertible subordinated debentures to meet sinking fund requirements on that issue through that date. Further, since requirements for funding accounts receivable and inventories are relatively small, the Company does not have significant working capital needs. For these reasons, the Company expects that funds on hand combined with cash flow from operations will be available primarily to fund its development and capital expenditure plans and should be adequate to do so for the remainder of 1995. The Company obtained a $30 million line of credit during the third quarter of 1995 which it expects to use to fund a portion of its restaurant development program beginning in 1996. -13- 14 PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: Exhibit (10.1) $30,000,000 Loan Agreement dated August 29, 1995 by and between Volunteer Capital Corporation, VCE Restaurants, Inc., Total Quality Management, Inc. and NationsBank of Tennessee, N.A. Exhibit (10.2) $30,000,000 Line of Credit note dated August 29, 1995 by and between Volunteer Capital Corporation, VCE Restaurants, Inc., Total Quality Management, Inc. and NationsBank of Tennessee, N.A. Exhibit (11) Computation of Earnings Per Share is filed with Part I of this Form 10-Q. Exhibit (27) Financial Data Schedule (for SEC use only) (b) No reports on Form 8-K were filed for the quarter ended October 1, 1995.
-14- 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VOLUNTEER CAPITAL CORPORATION /s/Lonnie J. Stout II ----------------------------------------------- Chairman, President and Chief Executive Officer /s/R. Gregory Lewis ----------------------------------------------- R. Gregory Lewis Vice-President and Chief Financial Officer Date: November 14, 1995 -15- 16 VOLUNTEER CAPITAL CORPORATION AND SUBSIDIARIES INDEX TO EXHIBITS
Exhibit No. - ----------- (10.1) $30,000,000 Loan Agreement dated August 29, 1995 by and between Volunteer Capital Corporation, VCE Restaurants, Inc., Total Quality Management, Inc. and NationsBank of Tennessee, N.A. (10.2) $30,000,000 Line of Credit note dated August 29, 1995 by and between Volunteer Capital Corporation, VCE Restaurants, Inc., Total Quality Management, Inc. and NationsBank of Tennessee, N.A. (11) Computation of Earnings per Share (27) Financial Data Schedules (for SEC use only)
-16- EX-10.1 2 LOAN AGREEMENT 1 EXHIBIT 10.1 LOAN AGREEMENT This Loan Agreement ("Agreement") entered into the 29th day of August, 1995, by and between VOLUNTEER CAPITAL CORPORATION, VCE RESTAURANTS, INC. AND TOTAL QUALITY MANAGEMENT, INC., Tennessee corporations (collectively referred to as the "Borrower"), and NATIONSBANK OF TENNESSEE, N.A. ("Lender"), a national banking association. W I T N E S S E T H WHEREAS, to evidence the indebtedness owed by Borrower to Lender, Borrower executed and delivered to Lender a promissory note, being a Line of Credit Note having an original maximum principal amount of $30,000,000 dated August 29, 1995; and WHEREAS, Lender and Borrower hereby enter into a comprehensive agreement setting forth the terms and conditions of Borrower's line of credit and term loan; NOW, THEREFORE, as an inducement to cause Lender to extend credit to Borrower, and for other valuable consideration, the receipt and sufficiency of which are acknowledged, it is agreed as follows: 1. Line of Credit. Concurrently with the execution of this Agreement, Lender shall make a Line of Credit (the "Line of Credit") available to Borrower under the following terms: a. Amount. The principal indebtedness of Borrower to Lender under the Line of Credit shall not exceed Thirty Million and No/100 Dollars ($30,000,000). b. Interest Rate. The principal amount outstanding under the Line of Credit shall bear interest at Borrower's option at either (i) the Lender's Prime Rate, as it may change from time to time, or (ii) Lender's LIBOR Rate for 30, 60, 90, or 180-day periods (a "LIBOR Period") plus a spread of 1.5% or 2.5%, depending on the then Fixed Charge Coverage Ratio ("FCC"). Where the FCC Ratio is greater than or equal to 1.20, the LIBOR spread will be 1.5%; where the FCC Ratio is greater than or equal to 1.1, the LIBOR spread will be 2.5%; and where the FCC Ratio is less than 1.1, the Borrower will be in default. As more particularly described below, Borrower may elect that a portion of the outstanding principal balance of the Line of Credit bear interest at the Prime Rate and that a portion bear interest at a LIBOR Rate plus the spread described above. 2 i. As used in this Agreement, Lender's "Prime Rate" is the fluctuating rate of interest established by Lender from time to time as its "Prime Rate", whether or not such rate shall be otherwise published. Such Prime Rate is established by Lender as an index or base rate and may or may not at any time be the best or lowest rate charged by Lender on any loan. If at any time or from time to time the Prime Rate increases or decreases, then the rate of interest hereunder shall be correspondingly increased or decreased effective on the day on which any such increase or decrease of the Prime Rate changes, unless otherwise herein provided. In the event that Lender, during the term hereof, shall abolish or abandon the practice of establishing a Prime Rate, or should the same become unascertainable, Lender shall designate a reasonably comparable reference rate which shall be deemed to be the Prime Rate. ii. For purposes hereof, the Fixed Charge Coverage Ratio, ("FCC") is defined as: (net income plus depreciation and amortization plus rent and lease payments plus interest expense plus non-cash taxes minus cash dividends) divided by (current maturities of long term debts (calculated as set forth below) plus rent and lease payments plus interest expense), all measured on a trailing four-quarter basis. Current maturities of long-term debt shall be calculated by totaling all of the Funded Debt, as defined in Section 31(b), (including subordinated and convertible debt) plus capital leases (excluding payables and accruals) and dividing by seven years. iii. For purposes hereof, the "LIBOR Rate" shall mean the rate per annum announced by Lender as its LIBOR Rate for a period equal to the length of such LIBOR Period as adjusted, without duplication, to reflect Lender's reserve requirements, all as calculated and announced from time to time by Lender, whose announcement shall be binding absent manifest error. To elect the LIBOR Rate for a LIBOR Period, Borrower shall deliver a written election to Lender at least two (2) business days in advance of the effective date of such election, which notice shall specify which LIBOR Period is selected and the amount of the Line of Credit that is to bear interest based upon the LIBOR Rate. Interest hereunder shall be calculated based upon a 360-day year and actual days elapsed. If the adoption of or change in any applicable legal requirement or any change in the interpretation or administration thereof by any governmental authority or compliance by the Lender with any request or directive (whether or not having the force of law) from any central bank or other governmental authority, shall at any time as a result of any portion of the principal balance of this Note being maintained on the LIBOR Rate: 2 3 A. Subject the Lender to any tax (including without limitation any United States Interest Equalization Tax), levy, impost, duty, charge, fee (collectively "Taxes"), other than income and franchise taxes of the United States and its political subdivisions; or B. Change the basis of taxation on payments due from the Borrower to the Lender under any LIBOR Rate Borrowing (otherwise than by a change in the rate of taxation of the overall net income of the Lender); or C. Impose, modify, increase or make applicable any reserve requirement, special deposit requirement or similar requirement (including, but not limited to, state law requirements and Regulation D) against assets held by the Lender, or against deposits or accounts in or for the account of the Lender, or against any loans made by the Lender, or against any other funds, obligations or other property owned or held by Lender; or D. Impose on the Lender any other condition regarding any LIBOR Rate Borrowing; and the result of any of the foregoing is to increase the cost to the Lender of agreeing to make or of making, renewing or maintaining such borrowing on the basis of the LIBOR Rate, or reduce the amount of principal or interest received by the Lender, then, upon demand by the Lender, the Borrower shall pay to the Lender, from time to time as specified by the Lender, additional amounts which shall reasonably compensate the Lender for such increased cost or reduced amount relating to LIBOR Rate Borrowings outstanding after Lender's demand. The Lender's reasonable determination of the amount of any such increased cost, increased reserve requirement or reduced amount shall be conclusive and binding, absent manifest error. (iv) In no event shall the interest rate charged on the Line of Credit exceed the maximum rate allowed under applicable law. Any amounts paid in excess of the maximum lawful rate shall be applied to reduce the principal amount of Borrower's obligations to Lender or shall be refunded to Borrower, at Lender's election. After maturity (by acceleration or otherwise), the principal amount under the Line of Credit shall bear interest at the rate of interest in effect immediately before maturity plus three percent (3%). c. Payments. Payment of all obligations arising under the Line of Credit shall be made as follows: (1) Interest. Interest on the outstanding principal balance under the Line of Credit shall be paid 3 4 in arrears on the first (1st) day of each month beginning on August 1, 1995 except, in the case of a LIBOR Rate Borrowing at Borrower's option, interest shall be payable monthly as set forth above or at the end of the applicable LIBOR Period. (2) Voluntary Prepayment. Voluntary prepayments of principal or accrued interest may be made, in whole or in part, at any time without penalty. (3) Mandatory Prepayment. Borrower must immediately prepay any amount by which the principal balance of the Line of Credit exceeds $30,000,000. (4) All Amounts Due. All remaining principal, interest and expenses outstanding under the Line of Credit shall become due July 1, 1998, unless the borrower exercises its option to extend for a seven (7) year term, in which case all remaining principle, interest and expenses outstanding under the Line of Credit shall become due July 1, 2005. (5) Conversion to Term Loan. At any time prior to July 1, 1998 so long as Borrower is not then in default, Borrower may elect to convert this Line of Credit to a Term Loan. The election must in writing and must be delivered to Lender at least fifteen (15) days prior to the conversion date. There will be a one-quarter (1/4) of one percent (1%) conversion fee payable on the then outstanding unpaid principal balance. The principal balance of the Term Note will be repaid in 84 equal monthly installments of principal with the first payment due on the 30th day following the conversion date. Interest will accrue at the NationsBank Prime Rate or LIBOR Rate as provided above or at a fixed rate equal to 200 basis points in excess of the then rate on treasury securities having a like maturity as the Term Loan. The election as to which method of interest accrual (prime, LIBOR or fixed) will be used in the Term Note must be stated in the conversion notice to the Lender which method of interest accrual (either Prime Rate, LIBOR Rate or fixed) will be used. d. Use of Proceeds. Advances under the Line of Credit shall be used by Borrower to pay or reimburse itself for capital expenditures. At no time will the total amount advanced under the Line of Credit exceed the cumulative amount of capital expenditures made by Borrower from and after the date of this Agreement. e. Revolving Loans; Disbursements. During the term of this Agreement, Borrower may from time to time request, repay and reborrow advances under the Line of Credit, provided that 4 5 the total principal amount outstanding under the Line of Credit shall not at any time exceed $30,000,000 and that no event of default or any event which with the giving of notice, the passage of time, or both, would constitute an event of default, then exists hereunder. Disbursements shall be made as follows: (1) Disbursement Requests. Lender may honor requests for advances made on Borrower's behalf by Borrower's CFO, CEO or other officer designated by Borrower, whether such request is made in person, by telephone, or in writing. Lender may require that requests for advances be submitted in writing, and may also require that Borrower submit with such requests written warranties or other reasonable assurances acceptable to Lender showing that Borrower is not then in default hereunder and is otherwise entitled to receive the requested advance. (2) Funding. As long as Borrower meets the conditions for funding stated herein, Lender shall fund advances requested under the Line of Credit within one (1) business day of the actual receipt of Borrower's request by Lender. All funds shall be disbursed directly into an account maintained by Borrower with Lender. Borrower agrees that if Lender elects to fund any requested advance(s) sooner after requested than is required of Lender hereunder, Lender may nevertheless use the entire response period allowed hereunder upon receipt of any subsequent request, at Lender's sole option. (3) Conditions to Funding. Lender shall not be obligated to make any advance under the Line of Credit unless all of the following conditions are satisfied as of the time of the request and of funding. A. All of the Loan Documents provided for herein (or otherwise requested by Lender pursuant to the "Further Assurance" provision hereof) to evidence and secure the Line of Credit must have been executed and delivered to Lender. B. All warranties made in the Loan Documents must be true as of the dates of the advance request and as of the date of funding thereof except those that by their terms speak of a particular date (the submission of a request for advance by Borrower shall be deemed a reaffirmation of such warranties as of the date of the request). 5 6 C. All covenants made in the Loan Documents must have been complied with as of the dates of the advance request and funding thereof. D. Borrower must not otherwise be in default hereunder and no condition shall exist which, with the giving of notice, the passing of time, or both, would constitute a default hereunder. (4) Advance Not Waiver. Lender's making of any advance under the Line of Credit that it is not obligated to make under Paragraph 1(e)(3) above shall not be construed as a waiver of Lender's right to withhold future advances, declare a default, or otherwise demand strict compliance with this Agreement. (5) Draws by Debit Memorandum. Lender may, without prior notice, draw amounts available under the Line of Credit to pay any obligation of Borrower to Lender that is not timely paid. (6) LIBOR Rate Election. No more than five (5) LIBOR Rate Borrowings may be outstanding at any time. Each LIBOR Rate draw must be at least One Million and 00/100 Dollars ($1,000,000) and, if greater, shall be in $250,000 increments. 2. Loan Documents. Concurrently with the execution hereof, Borrower shall deliver to Lender the following documents in form and substance acceptable to Lender (the "Loan Documents"): (a) This Agreement; (b) Line of Credit Note made by Borrower in the principal amount of $30,000,000 payable to the order of Lender ("Line of Credit Note"); (c) Certificate of Borrower's Good Standing under Tennessee law issued by the Tennessee Secretary of State; (d) Certified copy of Resolution of Borrower's Board of Directors authorizing a named officer of Borrower to enter into this Agreement and to execute all related documents on Borrower's behalf; and (e) Legal Opinion executed by Borrower's counsel addressing such matters as Lender shall require. 3. Capacity. Borrower warrants that it is and shall remain a duly organized Tennessee corporation in good standing under the laws of Tennessee, and that Borrower is and shall remain duly qualified to do business in each state other than Tennessee in 6 7 which the failure to qualify would result in a material adverse impact on Borrower or Borrower's business. Borrower warrants that its execution of and performance under this Agreement and all related documents are permitted under and will not violate any provision of Borrower's Charter or By-Laws or any agreement to which Borrower is a party or any law, rule, ordinance, regulation or Court Order to which Borrower is subject. Borrower further warrants that the execution of all necessary resolutions and other prerequisites of corporate action have been duly performed so that the individual executing this Agreement and related documents on behalf of Borrower is duly authorized to bind Borrower by his signature. 4. No Subsidiaries. Except as set forth in Schedule 4, Borrower warrants that it presently has no subsidiaries or interests in any partnership or other business entity, and Borrower covenants that it will not hereafter acquire stock of any other corporation or acquire an equity interest in any other business entity in excess of One Million and No/Dollars ($1,000,000) without the prior written approval of Lender. 5. Corporate Records. Borrower covenants to maintain current corporate minute books and stock ledgers and agrees to allow Lender to inspect the same at any time. 6. Accounting. Borrower warrants that Borrower's accounting complies with all generally acceptable accounting principles ("GAAP") and covenants that it will continue to apply GAAP throughout the life of the loan. 7. ERISA. Borrower has not incurred and shall not incur a material accumulated funding deficiency within the meaning of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and has not incurred any material liability to the Pension Benefit Guaranty Corporation established under ERISA (or any successor thereto under ERISA) in connection with any retirement plan, and no reportable event has occurred and is continuing or shall occur with respect to any such plans. 8. Books, Records and Property. Borrower covenants to maintain financial books and records in a manner that will allow financial statements to be prepared in accordance with GAAP, consistently applied, and shall allow Lender to inspect such records at any time. Borrower warrants that its consolidated audited annual and unaudited quarterly financial statements properly reflect the financial condition of Borrower in all material respects (subject to year-end adjustments not known to Borrower in the case of quarterly statements) and that no material adverse change has occurred since the date of the most recent financial information. Lender has full authority to inspect all Borrower's property at any reasonable time. 7 8 9. Insurance. In addition to any specific insurance requirements contained herein or in any other document pertaining to the Line of Credit, Borrower agrees to generally maintain adequate insurance against casualty and liability losses in accordance with customary practices in Borrower's field of enterprise (provided that Borrower does not carry employee practices liability or directors and officers liability insurance). Borrower agrees to provide Lender with proof of the existence of such insurance upon demand. 10. Chief Executive Office. Borrower warrants that the address designated herein to which notices are to be sent to Borrower is Borrower's chief executive office. Borrower agrees to notify Lender in writing of any change thereof and agrees that the same shall not in any event be moved outside Davidson or Williamson County, Tennessee, without Lender's prior written consent. 11. No Defaults Under Other Agreements. Borrower warrants that neither Borrower nor, to the best of Borrower's knowledge, information, and belief, any other party thereto is presently in default under or in breach of any material contract or agreement to which Borrower is a party, and no condition presently exists which, with the giving of notice, the passing of time, or both, would cause such a default or breach. 12. Disclosure of Litigation. Borrower warrants that Borrower is not presently a party to any pending litigation, arbitration or administrative proceeding or the subject of any investigation involving a single amount in controversy in excess of $100,000.00 or in the aggregate in excess of $500,000.00; that there is no litigation, arbitration or administrative proceeding or investigation either threatened or likely to be instituted in which Borrower will be a party involving a single amount in controversy in excess of $100,000.00 or in the aggregate in excess of $500,000.00; that Borrower is not subject to any outstanding court or administrative order; and that, to the best of Borrower's knowledge, information and belief, no facts exist which give rise to claims by third parties against Borrower involving a single amount in controversy in excess of $100,000.00 or in the aggregate in excess of $500,000.00 which have not yet been asserted. Borrower covenants to give Lender prompt written notice of any litigation, arbitration, administrative proceeding or investigation that may hereafter be instituted or threatened in which Borrower would be a party, whether or not Borrower's liability under such proceeding would be covered by insurance involving a single amount in controversy in excess of $100,000.00 or in the aggregate in excess of $500,000.00. 13. Financial Statements. a. Warranties. Borrower warrants that Borrower's consolidated quarterly and annual financial statements 8 9 delivered to Lender in connection with the Line of Credit have been prepared in accordance with generally accepted accounting principles, consistently applied, and are true, accurate and complete in every material respect. Without limiting the foregoing, Borrower warrants that such financial statements disclose all known material contingent liabilities as well as material direct liabilities. Borrower acknowledges that Lender has advanced (or shall advance) the Line of Credit in reliance upon such financial statements, and Borrower warrants that no material adverse change has occurred in the financial condition of Borrower as set forth in the most recent financial statements. Borrower warrants that Borrower has good and absolute title to the assets disclosed on Borrower's balance sheet disclosed to Lender, subject only to liens, security interest and other encumbrances securing liabilities listed thereon and, in the case of real estate, easements and other minor encumbrances that do not affect Borrower's use thereof. b. Reporting Requirements. Borrower covenants to furnish Lender annual audited financial statements and annual budget and cash flow projections for the upcoming year within ninety (90) days of the close of the preceding fiscal year. Each audit must be performed by Ernst & Young or another certified public accountant reasonably acceptable to Lender, at Borrower's expense. In addition, Borrower covenants to furnish to Lender, on or before the forty-fifth (45th) day following the end of each fiscal quarter, income statements, cash flow statements and balance sheets together with an officer's certificate executed by the chief financial officer of Borrower certifying compliance with the financial covenants set forth herein and further stating that, to the best of his knowledge, information and belief, no default exists hereunder as of the date of the certification. Borrower also covenants to furnish to Lender, upon demand, copies of Borrower's tax returns and additional financial information in form and substance acceptable to Lender. 14. Notice of Changes in Financial Condition and Defaults. Borrower covenants to give Lender prompt written notice of (i) the creation or discovery of any material additional contingent liability or the occurrence of any other material adverse change in the financial condition of Borrower, and (ii) the occurrence of any event, or presence of any condition, which constitutes a default hereunder or which with the giving of notice, the passing of time, or both, would constitute a default. Borrower represents that its fiscal year ends on the Sunday closest to December 31, and Borrower covenants that it will not change its fiscal year without obtaining the prior written consent of Lender. 9 10 15. No Unpaid Taxes. Except for taxes that Borrower is disputing in compliance with the last sentence of this Section 15, Borrower warrants that Borrower is not presently delinquent in the payment of any taxes imposed by any governmental authority or in the filing of the tax return and that Borrower is not involved in a dispute with any taxing authority over tax amounts due. Borrower covenants that all future taxes due from Borrower shall be timely paid and that all tax returns required of Borrower shall be timely filed. If Borrower contests in good faith the amount of any tax that is due and owing, Borrower shall adequately reserve for taxes in accordance with GAAP. 16. No Untrue or Misleading Representations. Borrower warrants that no information, exhibit or report furnished to Lender nor any statement or representation made by Borrower to Lender in connection with the Unsecured Indebtedness contains any untrue statement of material fact or omits to state a material fact necessary to make the foregoing not misleading. 17. Compliance with Law. Borrower warrants that Borrower's business activities are conducted substantially in accordance with all material applicable laws and regulations, including, but not limited to OSHA, EPA, Pension Guarantee Board, and ERISA. Borrower covenants that such activities shall continue to be so conducted. 18. Insurance. Borrower warrants that it has proper casualty and business interruption insurance and will maintain such insurance throughout the life of the loan. 19. Assistance in Litigation. Borrower covenants to, upon request, cooperatively participate in any proceeding in which Borrower is not an adverse party to Lender and which concerns Lender's rights regarding the Line of Credit or any collateral securing its payment. 20. Name. Borrower warrants that during the past five (5) years, Borrower has not been known under or done business under any name other than the name used by Borrower in executing this Agreement and under the J. Alexander's and Wendy's Old Fashion Hamburgers trade names. Borrower agrees to give Lender at least fifteen (15) days prior written notice before Borrower begins using any name other than that used in executing this Agreement. 21. Negative Pledge. Except for liens existing on the date of this Agreement, which liens are described on the attached Exhibit 21, any liens permitted under Section 30(b) hereof and easements or minor encumbrances relating to real estate, Borrower covenants and agrees that it will not suffer, permit or grant any lien, security interest, deed of trust, mortgage, deed to secured debt, pledge, assignment or other collateral assignment of any of its assets in favor of any party other than Lender without the prior written consent of Lender. 10 11 22. Expenses. Upon demand, Borrower will advance to Lender or, at Lender's option, reimburse Lender for, the following expenses: a. Taxes. All taxes (other than income taxes) that Lender may be required to pay because of the Line of Credit; b. Administration. All expenses that Lender may incur in connection with the preparation, execution, or enforcement of this Agreement or of any other document pertaining to the Line of Credit; c. Costs of Collection. All court costs and other costs of collecting any debt, overdraft or other obligation included in the Line of Credit; d. Litigation. All costs arising from any litigation, investigation, or administrative proceeding (whether or not Lender is a party thereto) that Lender may incur as a result of the Line of Credit or as a result of Lender's association with Borrower, including, but not limited to, expenses incurred by Lender in connection with a case or proceeding involving Borrower under any chapter of the Bankruptcy Code or any successor statue thereto; e. Attorneys Fees. Reasonable attorneys' fees incurred in connection with any of the foregoing. If Lender pays any of the foregoing expenses, they shall become a part of the Line of Credit and shall bear interest at the rate of interest then in effect. This paragraph shall remain in full effect regardless of the full payment of the Line of Credit, the purported termination of this Agreement, the delivery of the executed original of this Agreement to Borrower, or the content or accuracy of any representation made by Borrower to Lender; provided, however, Lender may terminate this Paragraph by executing and delivering to Borrower a written instrument of termination specifically referring to this Paragraph. 23. Further Assurances. Borrower covenants to execute such other assignments, security agreements, financing statements, and other documents that Lender may reasonably deem necessary to further evidence the obligations provided for herein. 11 12 24. Default Certificates. Borrower covenants to deliver to Lender, within five (5) business days after request, the certificate of Borrower or of Borrower's appropriate representative (as specified by Lender) stating whether, to the best of the person's knowledge, information, and belief and after due investigation, a default exists under this Agreement. The certificate shall describe with particularity any default and shall address with particularity any circumstances or subjects described by Lender in its request. Borrower covenants that it will promptly forward to Lender a copy of any notice of default Borrower receives from any party with which Borrower has a contract, where the amount of such contract exceeds $100,000. 25. Recitals. Borrower warrants and agrees that the recitals set forth at the beginning of this Agreement are true. 26. No Burdensome Agreements. Borrower warrants that Borrower is not a party to any contract or agreement and is not subject to any contingent liability that does or may impair Borrower's ability to perform under the terms of this Agreement. Borrower further warrants that the execution and performance of this Agreement will not cause a default, acceleration or other event under any other contract or agreement to which Borrower or any property of Borrower is subject, and will not result in the imposition of any charge, penalty, lien or other encumbrance against any of Borrower's property except in favor of Lender. 27. Legal and Binding Agreement. Borrower warrants that the execution and performance of this Agreement will not violate any judicial or administrative order or governmental law or regulation, and that this Agreement is valid, binding and enforceable in every respect according to its terms, subject to bankruptcy and other laws affecting the rights of creditors generally. 28. No Consent Required. Borrower warrants that Borrower's execution, delivery and performance of this Agreement do not require the consent of or the giving of notice to any third party including, but not limited to, any other lender, governmental body or regulatory authority. 29. No Default. Borrower warrants that, as of the execution of this Agreement, no default exits hereunder and no condition exists which, with the giving of notice, the passing of time, or both, would constitute such a default. 30. Negative Covenants. Without Lender's prior written consent, Borrower shall not do any of the following: a. Other Debt. Incur, create, assume or permit to exist any indebtedness for borrowed money except: (1) Indebtedness to Lender. 12 13 (2) Debts existing as of the execution hereof and disclosed in the financial statements delivered to Lender and any modifications, renewals or extensions thereof. (3) Unsecured debts on open account incurred in the ordinary course of business. (4) Ten Million ($10,000,000) of debt to be used for capital expenditures of Wendy's or J. Alexander's to be allocated in one-third (1/3) increments during calendar years 1995, 1996 and 1997, on a cumulative basis. b. Pledge or Mortgage of Assets. Pledge or mortgage any of its existing, or future acquired assets to any other party, except: (1) liens that exist on the date hereof, together with renewals, extensions and modification thereof; and (2) land, building or equipment which has a fair-market value not to exceed $10,000,000 in the aggregate may be pledged, from time to time, to secure some or all of the indebtedness permitted under Section 30(a)(4). c. Stock Transactions. Redeem or agree to redeem any stock, subordinated debt, warrants, or debt securities convertible into stock, other than redemptions of up to 1,000 shares of Borrower's common stock at its then fair-market value in any fiscal year and now-scheduled payments to the sinking fund or to make an early redemption of subordinated debt up to $1,875,000 prior to July 1, 1998. d. Reorganization. Enter into any agreement to merge, consolidate, or otherwise reorganize or recapitalize; provided, however, this shall not apply to any transaction where Borrower is the surviving corporation and the fair market value of the assets acquired does not exceed $1 million. e. Disposition of Assets. Sell, lease, or otherwise transfer more than $1,000,000 of its assets in any transaction which is not in the ordinary course of business. f. Acquisition of Assets. Acquire assets or an interest in any entity having a value of more than $1,000,000 in any transaction which is not in the ordinary course of business or for the development of new J. Alexander's or Wendy's Restaurants. g. Store Openings. Open more than ten (10) J. Alexander stores in any one calendar year, open more than 13 14 twelve (12) new J. Alexander stores from January 1, 1995 through December 31, 1996, open more than twenty (20) new J. Alexander stores for the period from January 1, 1995 through December 31, 1997 and open more than 25 new J. Alexander stores for the period from January 1, 1995 through July 1, 1998. i. Guaranties. Guarantee any obligations of any other business or individual, except through the endorsement of items tendered to Borrower as payment in the ordinary course of business. j. Action Outside Ordinary Course. Take any other material action outside the ordinary course of its business. k. Creation of New Subsidiaries. Acquire an interest in any subsidiary corporation which has assets of $10,000 or more unless, concurrent with the acquisition of such ownership interest, the new subsidiary executes the Line of Credit Note and becomes a party to this Agreement. 31. Financial Covenants. Borrower shall maintain the following financial requirements as determined by GAAP on a consolidated basis (unless otherwise noted): a. Total Liabilities. Borrower's total liabilities to net worth shall be the ratio of less than or equal to 1.2:1.0 through December 31, 1995; less than or equal to 1.50:1.0 through December 31, 1996; less than or equal to 1.75:1.0 through December 31, 1997; and less than or equal to 2.0:1.0 through July 31, 1998. b. Funded Debt. The ratio of Funded Debt to Net Fixed Assets shall be no greater than .7 to 1.0 at all times. Funded Debt means all long-term debt, the current portion of long-term debt, obligations under Leases (both long-term and current), any notes payable or other borrowed money and any subordinated or convertible debt. Net Fixed Assets means all tangible property (real and personal), equipment and improvements of the Borrower, net of accumulated depreciation and amortization, which would appear as such on a consolidated balance sheet of the Borrower prepared at such time in accordance with generally-accepted accounting principles. c. Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio measured on a trailing four fiscal-quarters basis shall be at least 1.1 to 1.0 at all times. d. Grant of Security. If Borrower elects to convert to a Term Loan and thereafter if the Fixed Charge Coverage Ratio 14 15 measured on a trailing four-quarters basis falls below 1.2 to 1.0, Borrower shall provide to Bank, at Lender's request, security for the then outstanding balance of the Term Loan. Borrower agrees to grant a lien to Bank in all of Borrower's assets, with the loan-to-value ratio being no more than 70%. The cost of obtaining current appraisals shall be borne by Borrower. Should the ratio of the then outstanding balance of the Line of Credit to the then Fair Market Value of the assets be less than 70%, Borrower shall make a payment to Lender of the difference, which amount shall be a permanent reduction of the Term Loan to be applied in inverse order of the maturity. The liens in favor of Bank will be evidenced by deeds of trust, mortgages, deeds to secure debt, security interests and other collateral documents in form and content satisfactory to Bank. All costs and expense of granting the liens to Bank, including, but not limited to, costs of appraisals, environmental assessments, title searches, surveys, title insurance premiums, indebtedness tax and counsel fees to Bank shall be borne by Lender. All liens must attach and be perfected within 45 days of the date of Lender's request. 32. Environmental Matters a. Definitions (1) "Environmental Laws" means the Environmental Protection Act, the Resource Conservation and Recovery Act of 1976, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Hazardous Materials Transportation Act and any other federal, state or municipal law, rule or regulation relating to air emissions, water discharge, noise emissions, solid or liquid waste disposal, hazardous or toxic waste or materials, or other environmental or health matters. (2) "Hazardous Materials" means those substances included from time to time within the definition of hazardous substances, hazardous materials, toxic substances, or solid waste under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended, 42 U.S.C. Section 9601 et seq.; the Resource Conversation and Recovery Act of 1976, 42 U.S.C. Section 1801 et seq., and in the regulations promulgated pursuant to such acts and laws; and such other substances that are or become regulated under any applicable local, state or federal law or regulation addressing environmental hazards. 15 16 b. Environmental Law Compliance. Borrower warrants and covenants that the conduct of Borrower's business operations does not and will not violate, in any material respect, any federal laws, rules, or ordinance for environmental protection, regulations of the Environmental Protection Agency and any applicable local or state law, rule, regulation, or rule of common law and any judicial interpretation thereof relating primarily to the environmental or Hazardous Materials and Borrower will not use or permit any other party to use any Hazardous Materials at any of Borrower's places of business or at any other property owned by Borrower except such materials as are incidental to Borrower's normal course of business, maintenance and repairs and which are handled in material compliance with all applicable environmental laws. Borrower agrees to permit Lender, its agents, contractors, and employees to enter and inspect any of Borrower's places of business or any other property of Borrower at any reasonable times upon five (5) days prior notice for the purpose of conducting an environmental investigation and audit (including taking physical samples) to insure that Borrower is complying with this covenant and Borrower shall reimburse Lender on demand for the costs of any such environmental investigation and audit, provided Borrower shall pay the cost only if it reasonably appears that Borrower is not complying with this covenant. Borrower shall provide Lender, its agents, contractors, employees, and representatives with access to and copies of any and all data and documents relating to or dealing with any Hazardous Materials used, generated, manufactured, stored or disposed of by Borrower's business operations within five (5) days of the request thereof. c. Notification of Environmental Claims. Borrower shall immediately advise Lender in writing of (i) any and all enforcement, cleanup, remedial, removal, or other governmental or regulatory actions instituted, completed, or threatened pursuant to any applicable federal, state, or local laws, ordinances or regulations relating to any Hazardous Materials affecting Borrower's business operations; and (ii) all claims made or threatened by any third party against Borrower relating to damages, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials. Borrower shall immediately notify Lender of any remedial action taken by Borrower with respect to Borrower's business operations. d. Indemnification. Borrower shall indemnify, defend, and hold Lender and its successors and assigns harmless from and against any and all claims, demands, suits, losses, damages, assessments, fines, penalties, costs, or other expenses (including reasonable attorneys' fees and court costs) arising from or in any way related to any of the transactions contemplated hereby, including but not limited to 16 17 actual or threatened damage to the environment, agency costs of investigation, personal injury or death, or property damage, due to a release or alleged release of Hazardous Materials, arising from Borrower's business operations, any other property owned by Borrower or in the surface or ground water arising from Borrower's business operations, or gaseous emissions arising from Borrower's business operations or any other condition existing from Borrower's business operations resulting from the use or existence of Hazardous Materials, whether such claim proves to be true or false. Borrower further agrees that its indemnity obligations shall include, but are not limited to, liability for damages resulting from the personal injury or death of an employee of the Borrower, regardless of whether the Borrower has paid the employee under the workmen's compensation laws of any state or other similar federal or state legislation for the protection of employees. The term "property damage" as used in this paragraph includes, but is not limited to, damage to any real or personal property of the Borrower, the Lender, and of any third parties. The Borrower's obligations under this paragraph shall survive the repayment of the Loan and any deed in lieu of foreclosure or foreclosure of any Deed of Trust, Security Agreement, or Mortgage securing the Loan. 33. Default Defined. The occurrence of any one or more of the following events shall constitute a default under this Agreement: a. Monetary Default. The failure of Borrower to timely pay any amount due Lender under the Line of Credit or under any other obligation to Lender if such failure continues for ten (10) days after notice of nonpayment from Bank to Borrower provided, however, that should Bank give Borrower a notice of nonpayment, then for the 12-month period following such notice of nonpayment, Bank shall not be required to give Borrower notice of nonpayment and Borrower will be in default if it fails to make a monetary payment within ten (10) days of the due date. b. Breach of Covenant. The failure of Borrower or any other party to perform or observe any obligation or covenant made with respect to the Line of Credit or contained within this Agreement or any other Loan Document; provided, except for the provisions of Sections 30 and 31, Borrower shall have a cure period of thirty (30) days after Borrower has actual knowledge or notice of the failure by Borrower to perform. c. Breach of Warranty. Lender's discovery that any representation of warranty in connection with this Agreement or the Line of Credit or any other Loan Document was materially false when made. 17 18 d. Default Under Other Document. Subject to applicable cure periods, the occurrence of a default under the terms of any document evidencing, securing, or otherwise pertaining to the Line of Credit, including, without limitation, the Loan Documents. e. Voluntary Bankruptcy. The Borrower shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing. f. Involuntary Bankruptcy. An involuntary case or other proceeding shall be commenced against the Borrower seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) days; or an order for relief shall be entered against the Borrower under the bankruptcy laws as now or hereafter in effect. 34. Remedies Upon Default. Lender may exercise any or all of the following remedies: a. Remedies. Lender may exercise any right that it may have at law or equity, including an action to collect the Line of Credit Loan or the Term Loan and to foreclose under any deeds of trust and security agreements or other collateral documents securing repayment thereof. All obligations of Bank to advance or readvance under the Line of Credit will terminate. b. Application of Proceeds. All amounts received by Lender for Borrower's account by exercise of its remedies hereunder shall be applied as follows: First, to the payment of all reasonable expenses incurred by Lender in exercising its rights hereunder, including reasonable attorney's fees, and any other expenses due Lender from Borrower; Second, to the payment of all interest included in the Line of Credit or Term Loan, in such order as Lender may elect; Third, to the payment of all principal included in the Line of Credit or 18 19 Term Loan, in such order as Lender may elect; and Fourth, surplus to Borrower or other party entitled thereto. 35. Resolution of Disputes. a. Arbitration. Any controversy or claim between or among the parties to the Loan Documents or any related agreements or instruments, including any claim based on or arising from an alleged tort, shall be determined by binding arbitration in accordance with the Federal Arbitration Act (or if not applicable, the applicable state law), the Rules of Practice and Procedure for the arbitration of commercial disputes of Judicial Arbitration and Mediation Services, Inc. (J.A.M.S.), and the "special rules" set forth below. In the event of any inconsistency, the special rules shall control. Judgment upon any arbitration award may be entered in any court having jurisdiction. Any party to the Loan Documents may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim to which this agreement applies in any court having jurisdiction over such action. b. Special Rules. The arbitration shall be conducted in Nashville, Tennessee and administered by J.A.M.S. who will appoint an arbitrator; if J.A.M.S. is unable or legally precluded from administering the arbitration, then the American Arbitration Association will serve. All arbitration hearings will be commenced within 90 days of the demand for arbitration; further, the arbitrator shall only, upon a showing of cause, be permitted to extend the commencement of such hearing for up to an additional 60 days. c. Reservations of Rights. Nothing in foregoing arbitration shall be deemed to (i) limit the applicability of any otherwise applicable statutes of limitation or repose and any waivers contained in the Loan Documents; or (ii) be a waiver by NationsBank of the protection afforded to it by 12 U.S.C. Sec. 91 or any substantially equivalent state law; or (iii) limit the rights of NationsBank under the Loan Documents (a) to exercise self help remedies such as (but not limited to) set-off, or (b) to foreclose against any real or personal property collateral, or (c) to obtain from a court provisional or ancillary remedies such as (but not limited to) injunctive relief, possession of collateral or the appointment of a receiver. NationsBank may exercise such self help rights, foreclose upon such property, or obtain such provisional or ancillary remedies before, during or after the pendency of any arbitration proceeding brought pursuant to the Loan Documents. At NationsBank's option, foreclosure under a deed of trust or mortgage may be accomplished by any of the following: the exercise of a power of sale under the deed of trust or mortgage, or by judicial sale under the deed of trust or 19 20 mortgage, or by judicial foreclosure. Neither this exercise or self help remedies nor the institution or maintenance of an action for foreclosure or provisional or ancillary remedies shall constitute a waiver of the right of any party, including the claimant in any such action, to arbitrate the merits of the controversy or claim occasioning resort to such remedies. 36. Not Partners; No Third Party Beneficiaries. Nothing contained herein or in any related document shall be deemed to render Lender a partner of Borrower for any purpose. This Agreement has been executed for the sole benefit of Lender, and no third party is authorized to rely upon Lender's rights hereunder or to rely upon an assumption that Lender has or will exercise its rights under this Agreement or under any document referred to herein. 37. Regulation U. Borrower warrants that none of the proceeds of the loan evidenced by the Note will be used to purchase or carry "margin stock," as defined in Regulation U issued by the Federal Reserve Board. 38. Business Days. If any payment date under the Unsecured Indebtedness fails on a day that is not a business day of Lender, or if the last day of any notice period falls on such a day, the payment shall be due and the notice period shall end on the next succeeding Lender business day. 39. Notices. Any communications concerning this Agreement or the credit described herein shall be addressed as follows: As to Borrower: Volunteer Capital Corporation Attention: R. Gregory Lewis 3401 West End Avenue Suite 260 Nashville, TN 37203 With a Copy to: T. Andrew Smith BASS, BERRY & SIMS First American Center, Suite 2700 Nashville, Tennessee 37238 As to Lender: NationsBank of Tennessee, N.A. Attention: William H. Diehl, Vice President One NationsBank Plaza Nashville, Tennessee 37239 20 21 With a copy to: Neal & Harwell Attn: James R. Kelley 2000 First Union Tower, 150 4th Avenue North Nashville, Tennessee 37219 Communications to be given to Lender shall only be effective when set forth in writing and actually received by an officer of Lender at the address indicated above. Communications to be given to Borrower shall be effective when actually or constructively received by Borrower or two (2) days after when set forth in writing and mailed or delivered to Borrower's address stated above. Any party may change its address for receipt of notices by submitting the change in writing to the other party. 41. Participations. Lender may, from time to time, in its sole discretion, and without notice to Borrower, sell participations in any credit subject hereto to such other investors or financial institutions as it may elect. Such participants will have no direct relationship with Borrower and will have no right with respect to waivers or amendments or default declarations. Lender may from time to time disclose to any participant or prospective participant such information as Lender may have regarding the financial condition, operations, and prospects of Borrower, but Lender shall take reasonable precautions to require such participant or prospective participant to keep such information confidential. Lender agrees that it will not assign or participate more than 33% of the interest in the Line of Credit Note and the Agreement. 42. Incorporation of Exhibits. All Exhibits referred to in this Agreement are incorporated herein by this reference. 43. Indulgence Not Waiver. Lender's indulgence in the existence of a default hereunder or any other departure from the terms of this Agreement shall not prejudice Lender's rights to declare a default or otherwise demand strict compliance with this Agreement. 44. Cumulative Remedies. The remedies provided Lender in this Agreement are not exclusive of any other remedies that may be available to Lender under any other document or at law or equity. 45. Amendment and Waiver in Writing. No provision of this Agreement can be amended or waived, except by a statement in writing signed by the party against which enforcement of the amendment or waiver is sought. 46. Assignment. This Agreement shall be binding upon and inure to the benefit of the respective heirs, successors and assigns of Borrower and Lender, except that Borrower shall not 21 22 assign any rights or delegate any obligations arising hereunder without the prior written consent of Lender. Any attempted assignment or delegation by Borrower without the required prior consent shall be void. 47. Entire Agreement. This Agreement and the other written agreements between Borrower and Lender represent the entire agreement between the parties concerning the subject matter hereof, and all oral discussions and prior agreements are merged herein. Provided, if there is a conflict between this Agreement and any other documents executed contemporaneously herewith with respect to the Unsecured Indebtedness, the provision most favorable to Lender shall control. 48. Severability. Should any provision of this Agreement be invalid or unenforceable for any reason, the remaining provisions hereof shall remain in full effect. 49. Time of Essence. Time is of the essence of this Agreement, and all dates and time periods specified herein shall be strictly observed, except that Lender may permit specific deviations therefrom by its written consent. 50. Applicable Law. The validity, construction and enforcement of this Agreement and all other documents executed with respect to the Unsecured Indebtedness shall be determined according to the laws of Tennessee applicable to contracts executed and performed entirely within that state, in which state this Agreement has been executed and delivered. 51. Gender and Number. Words used herein indicating gender or number shall be read as context may require. 52. Captions Not Controlling. Captions and headings have been included in this Agreement for the convenience of the parties, and shall not be construed as affecting the content of the respective paragraphs. 22 23 Executed the date first written above. THE UNDERSIGNED ACKNOWLEDGE A THOROUGH UNDERSTANDING OF THE TERMS OF THIS AGREEMENT AND AGREE TO BE BOUND THEREBY: NATIONSBANK OF TENNESSEE, N.A. By: /s/ William H. Diehl -------------------------------- Title: Vice President ----------------------------- VOLUNTEER CAPITAL CORPORATION By: /s/ R. Gregory Lewis -------------------------------- Its: Vice President and Chief Financial Officer ------------------------------- VCE RESTAURANTS, INC. By: /s/ R. Gregory Lewis -------------------------------- Its: Secretary ------------------------------- TOTAL QUALITY MANAGEMENT, INC. By: /s/ R. Gregory Lewis -------------------------------- Its: Secretary ------------------------------- 23 EX-10.2 3 LINE OF CREDIT NOTE 1 EXHIBIT 10.2 LINE OF CREDIT NOTE $30,000,000.00 Nashville, Tennessee August 29, 1995 FOR VALUE RECEIVED, VOLUNTEER CAPITAL CORPORATION, VCE RESTAURANTS, INC. AND TOTAL QUALITY MANAGEMENT, INC., Tennessee corporations, (collectively the "Maker") jointly and severally promise to pay to the order of NATIONSBANK OF TENNESSEE, N.A. ("Payee" or "NationsBank"), the sum of Thirty Million and No/100 Dollars ($30,000,000.00), or as much thereof as may be outstanding from time to time, together with interest thereon as set forth below. Advances under this Note shall be governed by that certain Loan Agreement dated June 30, 1995 ("Loan Agreement"). Subject to the provisions of the Loan Agreement, Maker may borrow, repay and reborrow and there is no limit on the number of advances against this Note as long as the total unpaid principal balance at any time outstanding does not exceed Thirty Million and No/100 Dollars ($30,000,000.00). Interest shall accrue at either (i) the NationsBank Prime Rate, as it may change from time to time; or (ii) upon Maker's written election, for any given period of 30, 60, 90, or 180 days (a "LIBOR Period") the LIBOR Rate plus a spread of either 1.5% or 2.5% depending on the Fixed Charge Coverage Ratio ("FCCR") as further provided in the Loan Agreement. A non-usage fee of either .25% or .50% based upon the daily average unused amount and based on the FCCR will be paid quarterly in arrears. If the FCCR is greater than or equal to 1.20, the fee will be .25%. If the FCCR is less than 1.20, the fee will be .50%. Interest in arrears shall be due and payable on the first (1st) day of each month beginning in August 1, 1995, except in the case of a LIBOR Rate Borrowing, at Maker's option, interest shall be payable monthly as set forth above or at the end of the LIBOR Period. All remaining principal and interest shall become due on July 1, 1998 under the three year revolver, or July 1, 2005 if the option to convert to an additional seven (7) year term loan is exercised. Should Maker elect in writing to use the LIBOR Rate Option for a LIBOR Period, the following restrictions will apply. No more than five (5) LIBOR Rate Borrowings may be outstanding at any time. The borrowings will be in minimum amounts of One Million and 00/100 Dollars ($1,000,000.00) each or greater amounts in Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) increments. 2 Maker has the option to convert this Line of Credit Note to a Term Note. Providing that Borrower is not then in default hereunder, Borrower may make a written election to convert the Line of Credit Note to a Term Note any time prior to July 1, 1998. The written election must be delivered to Payee at least fifteen (15) days prior to the conversion date. There will be a conversion fee equal to one-quarter (1/4) of one percent (1%) of the then outstanding principal balance. The unpaid principal balance will then be repayable in eighty-four (84) equal monthly installments of principal with the first principal payment due thirty (30) days following the conversion date. Interest will continue to be paid monthly at the same time as the principal payment is due. Interest shall accrue on the Term Note at the NationsBank Prime Rate, as it may change from time to time or the LIBOR Rate discussed above (subject to the restriction on the number of LIBOR borrowings discussed above) or at a fixed rate equal to the rate for treasury securities having a comparable maturity plus 200 basis points. Maker shall specify the interest rate option (Prime Rate, LIBOR Rate or fixed) to be used in the conversion election. As used herein, the term "NationsBank Prime Rate" shall mean the fluctuating rate of interest established by NationsBank from time to time as its "Prime Rate", whether or not such rate shall be otherwise published. Such Prime Rate is established by NationsBank as an index or base rate and may or may not at any time be the best or lowest rate charged by NationsBank on any loan. If at any time or from time to time the Prime Rate increases or decreases, then the rate of interest hereunder shall be correspondingly increased or decreased effective on the day on which any such increase or decrease of the Prime Rate changes, unless otherwise herein provided. In the event that NationsBank, during the term hereof, shall abolish or abandon the practice of establishing a Prime Rate, or should the same become unascertainable, NationsBank shall designate a comparable reference rate which shall be deemed to be the Prime Rate for purposes hereof. For purposes hereof, the "LIBOR Rate" shall mean the rate per annum announced by NationsBank as its LIBOR Rate for a period equal to the length of such LIBOR Period and in an amount comparable to the then aggregate unpaid principal balance hereunder (or will be outstanding by the commencement of the LIBOR Period requested by Maker) as adjusted to reflect NationsBank's reserve requirements, all as calculated and announced from time to time by Payee, whose announcement shall be binding absent manifest error. Interest hereunder shall be calculated based upon a 360 day year and actual days elapsed. The interest rate required hereby shall not exceed the maximum rate permissible under applicable law, and any amounts paid in excess of such rate shall be applied to reduce the principal amount hereof or shall be refunded to Maker, at the option of the holder of this Note. 2 3 All amounts due under this Note are payable at par in lawful money of the United States of America, at the principal place of business of Payee in Nashville, Tennessee, or at such other address as the Payee or other holder hereof (herein "Holder") may direct. Any payment not made within fifteen (15) days of its due date will be subject to assessment of a late charge equal to five percent (5%) of such payment. Holder's right to impose a late charge does not evidence a grace period for the making of payments hereunder. The occurrence of any of the following shall constitute an event of default under this Note: (a) the failure of Maker to timely pay any amount due Holder under this Note or any other obligation to Holder if such failure continues for ten (10) days after notice of nonpayment from Holder to Maker provided, however, that should Holder give Maker a notice of nonpayment, then for the twelve month period following such notice of nonpayment, Holder shall not be required to give Maker notice of nonpayment and Maker will be in default if it fails to make a monetary payment within ten (10) days of the due date; (b) the institution of proceedings by Maker under any state insolvency law or under any federal bankruptcy law; (c) the institution of proceedings against Maker under any state insolvency law or under any federal bankruptcy law, if such proceedings are not dismissed within sixty (60) days; (d) Maker's becoming insolvent or generally failing to pay its debts as they become due; (e) the discovery by Holder that Maker has made a material misrepresentation of financial condition in any written statement made to any present or previous Holder which remains uncured for thirty (30) days; (f) the instigation of legal proceedings against Maker for the violation of a material criminal statute; (g) the issuance of an attachment against property of Maker unless removed, by bond or otherwise, within ten (10) days; (h) the entry of a judgment against Maker that remains unsatisfied for thirty (30) days after execution may first issue; (i) Maker's liquidation or cessation of business; (j) the occurrence of a default under the terms of any loan agreement, security agreement, deed of trust, or similar document to which Maker is a party or to which any property securing this Note is subject which results in the acceleration of an indebtedness of One Hundred Thousand and 00/100 Dollars ($100,000.00) or more; or (k) the occurrence of any of the foregoing with regard to any surety, guarantor, endorser, or other person or entity primarily or secondarily liable for the payment of the indebtedness evidenced by this Note. Upon the occurrence of an event of default, as defined above, Holder may, at its option and without notice, terminate any obligation to advance funds under this Note, declare all principal and interest provided for under this Note, and any other obligations available to Holder under any documents securing or evidencing debts of Maker to Holder. Holder 3 4 may waive any default before or after it occurs and may restore this Note in full effect without impairing the right to declare it due for a subsequent default, this right being a continuing one. Upon default, at Holder's election, the remaining unpaid principal balance of the indebtedness evidenced hereby and all expenses due Holder shall bear interest at the interest rate in effect immediately before the default plus three percent (3%). All amounts received for payment of this Note shall be first applied to any expenses due Holder under this Note or under any other documents evidencing or securing obligations of Maker to Holder, then to accrued interest, and finally to the reduction of principal. Prepayment of principal or accrued interest may be made, in whole or in part, at any time without penalty. Any prepayment(s) shall reduce the final payment(s) and shall not reduce or defer installments next due. This Note may be freely transferred by Holder. Maker and all sureties, guarantors, endorsers and other parties to this instrument hereby consent to any and all renewals, waivers, modifications, or extensions of time (of any duration) that may be granted by Holder with respect to this Note and severally waive demand, presentment, protest, notice of dishonor, and all other notices that might otherwise be required by law. All parties hereto waive the defense of impairment of collateral and all other defenses of suretyship. Maker's performance under this Note is unsecured. There will be a negative pledge on existing unencumbered assets, as further described in the Loan Agreement. Maker and all sureties, guarantors, endorsers and other parties hereto agree to pay reasonable attorneys' fees and all court and other costs that Holder may incur in the course of efforts to collect the debt evidenced hereby or to protect Holder's interest in any collateral securing the same. The validity and construction of this Note shall be determined according to the laws of Tennessee applicable to contracts executed and performed within that state. If any provision of this Note should for any reason be invalid or unenforceable, the remaining provisions hereof shall remain in full effect. The provisions of this Note may be amended or waived only by instrument in writing signed by the Holder and Maker and attached to this Note. Any controversy or claim between or among the parties to this Note or any related loan or collateral agreements or instruments (collectively, "Loan Documents"), including any claim based on or arising from an alleged tort, shall be determined by binding 4 5 arbitration in accordance with the Federal Arbitration Act (or if not applicable, the applicable state law), the Rules of Practice and Procedure for the arbitration of commercial disputes of Judicial Arbitration and Mediation Services, Inc. (J.A.M.S.), and the "special rules" set forth below. In the event of any inconsistency, the special rules shall control. Judgment upon any arbitration award may be entered in any court having jurisdiction. Any party to the Loan Documents may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim to which this agreement applies in any court having jurisdiction over such action. The following "Special Rules" shall apply. The arbitration shall be conducted in Nashville, Tennessee and administered by J.A.M.S. who will appoint an arbitrator; if J.A.M.S. is unable or legally precluded from administering the arbitration, then the American Arbitration Association will serve. All arbitration hearings will be commenced within 90 days of the demand for arbitration; further, the arbitrator shall only, upon a showing of cause, be permitted to extend the commencement of such hearing for up to an additional 60 days. Nothing in foregoing arbitration shall be deemed to (i) limit the applicability of any otherwise applicable statutes of limitation or repose and any waivers contained in the Loan Documents; or (ii) be a waiver by NationsBank of the protection afforded to it by 12 U.S.C. Sec. 91 or any substantially equivalent state law; or (iii) limit the rights of NationsBank under the Loan Documents (a) to exercise self help remedies such as (but not limited to) set-off, or (b) to foreclose against any real or personal property collateral, or (c) to obtain from a court provisional or ancillary remedies such as (but not limited to) injunctive relief, possession of collateral or the appointment of a receiver. NationsBank may exercise such self help rights, foreclose upon such property, or obtain such provisional or ancillary remedies before, during or after the pendency of any arbitration proceeding brought pursuant to the Loan Documents. At NationsBank's option, foreclosure under a deed of trust or mortgage may be accomplished by any of the following: the exercise of a power of sale under the deed of trust or mortgage, or by judicial sale under the deed of trust or mortgage, or by judicial foreclosure. Neither this exercise or self help remedies nor the institution or maintenance of an action for foreclosure or provisional or ancillary remedies shall constitute a waiver of the right of any party, including the claimant in any such action, to arbitrate the merits of the controversy or claim occasioning resort to such remedies. 5 6 Words used herein indicating gender or number shall be read as context may require. VOLUNTEER CAPITAL CORPORATION By: /s/ R. Gregory Lewis -------------------------------- Title: Vice President ----------------------------- VCE RESTAURANTS, INC. By: /s/ R. Gregory Lewis -------------------------------- Its: Secretary ------------------------------- TOTAL QUALITY MANAGEMENT, INC. By: /s/ R. Gregory Lewis -------------------------------- Its: Secretary ------------------------------- 6 EX-11 4 COMPUTATION OF EARNINGS PER SHARE 1 Volunteer Capital Corporation and Subsidiaries EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
Nine Months Ended Quarter Ended -------------------- -------------------- OCTOBER 1 October 2 OCTOBER 1 October 2 1995 1994 1995 1994 ---- ---- ---- ---- Earnings per common and dilutive common equivalent share Net income . . . . . . . . . . . . . . . . . . . . . . $2,585,000 $2,054,000 $ 984,000 $ 819,000 ========== ========== ========== =========== Adjustment of shares outstanding: Actual weighted average shares outstanding . . . . . 5,252,000 5,171,000 5,260,000 5,230,000 Net additional shares issuable, based on the treasury stock method . . . . . . . . . . . . . . . . . . . 172,000 211,000 210,000 153,000 ---------- ---------- ---------- ---------- Adjusted shares outstanding . . . . . . . . . . . . 5,424,000 5,382,000 5,470,000 5,383,000 Per share amount . . . . . . . . . . . . . . . . . . . $ .48 $ .38 $ .18 $ .15 ========== ========== ========== =========== Earnings per common share, assuming full dilution Net income . . . . . . . . . . . . . . . . . . . . . . $2,585,000 $2,054,000 $ 984,000 $ 819,000 ========== ========== ========== ========== Adjustment of shares outstanding: Actual weighted average shares outstanding . . . . . 5,252,000 5,171,000 5,260,000 5,230,000 Net additional shares issuable, based on the treasury stock method . . . . . . . . . . . . . . . . . . . 227,000 211,000 249,000 153,000 ---------- ---------- ---------- ---------- Adjusted shares outstanding . . . . . . . . . . . . 5,479,000 5,382,000 5,509,000 5,383,000 ========== ========== ========== ========== Per share amount . . . . . . . . . . . . . . . . . . . $ .47 $ .38 $ .18 $ .15 ========== ========== ========== ==========
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. EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTH PERIOD ENDED OCTOBER 1, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1995 JAN-02-1995 OCT-01-1995 7,925 0 111 0 714 9,910 60,391 20,264 56,314 7,307 18,593 263 0 0 29,709 56,314 58,655 58,655 20,383 37,528 14,665 0 1,082 2,753 168 2,585 0 0 0 2,585 .48 .47
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