-----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, D6PZsqu9F3hT9uOE96yfuKzAzmNUwckYMJBuTNu2FxS9OQdtU6i8iQaZEMdTvTqg ZXzEUzefDm2HAhLPoGhp+w== 0000950144-00-004493.txt : 20000404 0000950144-00-004493.hdr.sgml : 20000404 ACCESSION NUMBER: 0000950144-00-004493 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20000102 FILED AS OF DATE: 20000403 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALEXANDERS J CORP CENTRAL INDEX KEY: 0000103884 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 620854056 STATE OF INCORPORATION: TN FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08766 FILM NUMBER: 592719 BUSINESS ADDRESS: STREET 1: 3401 WEST END AVE STREET 2: P O BOX 24300 CITY: NASHVILLE STATE: TN ZIP: 37203 BUSINESS PHONE: 6152691900 MAIL ADDRESS: STREET 1: 3401 WEST END AVE STREET 2: SUITE 260 CITY: NASHVILLE STATE: TN ZIP: 37203 FORMER COMPANY: FORMER CONFORMED NAME: VOLUNTEER CAPITAL CORP / TN / DATE OF NAME CHANGE: 19920703 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-K 1 J.ALEXANDER'S CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K /X/ Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934. For the fiscal year ended January 2, 2000. 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 J. ALEXANDER'S CORPORATION (Exact name of Registrant as specified in its charter) Tennessee 62-0854056 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) P.O. Box 24300 3401 West End Avenue Nashville, Tennessee 37203 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (615)269-1900 Securities registered pursuant to Section 12(b) of the Act:
Title of Class: Name of each exchange on which registered: - ----------------------------------------------- ------------------------------------------ Common stock, par value $.05 per share. New York Stock Exchange Series A junior preferred stock purchase rights. New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the last sales price on the New York Stock Exchange of such stock as of March 23, 2000, was $17,511,646, assuming that (i) all shares beneficially held by members of the Company's Board of Directors are shares owned by "affiliates," a status which each of the directors individually disclaims and (ii) all shares held by the Trustee of the J. Alexander's Corporation Employee Stock Ownership Plan are shares owned by an "affiliate". The number of shares of the Company's Common Stock, $.05 par value, outstanding at March 23, 2000, was 6,851,950. DOCUMENT INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 2000 Annual Meeting of Shareholders to be held May 16, 2000, are incorporated by reference into Part III. 1 2 PART I ITEM 1. BUSINESS J. Alexander's Corporation (the "Company") operates as a proprietary concept 21 J. Alexander's full-service, casual dining restaurants located in Tennessee, Ohio, Florida, Kansas, Alabama, Michigan, Illinois, Colorado, Texas, Kentucky and Louisiana. J. Alexander's is a traditional restaurant with an American menu that features prime rib of beef; hardwood-grilled steaks, seafood and chicken; pasta; salads and soups; assorted sandwiches, appetizers and desserts; and a full-service bar. Management believes quality food, outstanding service and value are critical to the success of J. Alexander's. Prior to 1997, the Company was also a franchisee of Wendy's International, Inc. ("Wendy's International"). However, in November 1996, the Company sold 52 of its 58 Wendy's Old Fashioned Hamburgers restaurants ("Wendy's Restaurants") to Wendy's International. The six restaurants not acquired by Wendy's International in November 1996 were sold or closed. Unless the context requires otherwise, all references to the Company include J. Alexander's Corporation and its subsidiaries. J. ALEXANDER'S RESTAURANT OPERATIONS General. J. Alexander's is a quality casual dining restaurant with a contemporary American menu. J. Alexander's strategy is to provide a broad range of high-quality menu items that are intended to appeal to a wide range of consumer tastes and which are served by a courteous, friendly and well-trained service staff. The Company believes that quality food, outstanding service and value are critical to the success of J. Alexander's. Each restaurant is generally open from 11:00 a.m. to 11:00 p.m. Monday through Thursday, 11:00 a.m. to 12:00 midnight on Friday and Saturday and 11:00 a.m. to 10:00 p.m. on Sunday. Entrees available at lunch and dinner generally range in price from $6.00 to $23.00. The Company estimates that the current average check per customer, excluding alcoholic beverages, is approximately $15.60. J. Alexander's net sales during fiscal 1999 were $78.5 million, of which alcoholic beverage sales accounted for approximately 14%. The Company opened its first J. Alexander's restaurant in Nashville, Tennessee in May 1991. Since that time, the Company opened two restaurants in 1992, two restaurants in 1994, four restaurants in 1995, five restaurants in 1996, four restaurants in 1997, two restaurants in 1998 and one restaurant during 1999. The Company plans to open an additional J. Alexander's during 2000 in Cincinnati, Ohio. Menu. The J. Alexander's menu is designed to appeal to a wide variety of tastes and features prime rib of beef; hardwood-grilled steaks, seafood and chicken; pasta; salads and soups; and assorted sandwiches, appetizers and desserts. As a part of the Company's commitment to quality, soups, sauces, salsa, salad dressings and desserts are made daily from scratch; steaks, chicken and seafood are grilled over genuine hardwood; all steaks are U.S.D.A. Midwestern, Corn-fed Choice Beef, aged a minimum of 21 days; and imported Italian pasta, topped with fresh grated parmesan cheese, is used. Emphasis on quality is present throughout the entire J. Alexander's menu. Desserts such as chocolate cake and carrot cake are prepared in-house, and each restaurant bakes its featured croissants. Guest Service. Management believes that prompt, courteous and efficient service is an integral part of the J. Alexander's concept. The management staff of each restaurant are referred to as "coaches" and the other employees as "champions". The Company seeks to hire coaches who are committed to the principle that quality products and service are key factors to success in the restaurant industry. Each J. Alexander's restaurant typically employs five fully-trained concept coaches and two kitchen coaches. Many of the coaches have previous experience in full-service restaurants and all complete an intensive J. Alexander's development program, generally lasting for 19 weeks, involving all aspects of restaurant operations. Each J. Alexander's typically employs 45 to 65 service personnel, 25 to 30 kitchen employees, 8 to 10 host persons and 6 to 8 pubkeeps. The Company places significant emphasis on its initial training program. In addition, 2 3 the coaches hold training breakfasts for the service staff to further enhance their product knowledge. Management believes J. Alexander's restaurants have a low table to server ratio, which is designed to provide better, more attentive service. The Company is committed to employee empowerment, and each member of the service staff is authorized to provide complimentary entrees in the event that a guest has an unsatisfactory dining experience or the food quality is not up to the Company's standards. Further, all members of the service staff are trained to know the Company's product specifications and to alert management of any potential problems. Quality Assurance. A key position in each J. Alexander's restaurant is the quality control coordinator. This position is staffed by a coach who inspects each plate of food before it is served to a guest. The Company believes that this product inspection by a member of management is a significant factor in maintaining consistent, high food quality in its restaurants. Another important component of the quality assurance system is the preparation of taste plates. Certain menu items are taste-tested daily by a coach to ensure that only the highest quality food is served in the restaurant. The Company also uses a service evaluation program to monitor service staff performance, food quality and guest satisfaction. Restaurant and Site Selection. The J. Alexander's restaurants built from 1992 through a portion of 1996 have generally been freestanding structures that contain approximately 7,400 square feet and seat approximately 230 people. The exterior of these restaurants typically combines brick, fieldstone and copper with awnings covering the windows and entrance. The restaurants' interiors are designed to provide a comfortable dining experience and feature high ceilings, wooden trusses with exposed pipes and an open kitchen immediately adjacent to the reception area. Consistent with the Company's intent to develop different looks for different markets, the last three restaurants opened in 1996 represented a departure from the "warehouse" style building described above. The J. Alexander's in Troy, Michigan is located inside the prestigious Somerset Collection mall and features a very upscale, contemporary design. The Chattanooga, Tennessee J. Alexander's features a stucco style exterior and includes a number of other unique design features as the result of being converted from another freestanding restaurant building acquired by the Company. Beginning with the Memphis, Tennessee restaurant opened in December 1996, most J. Alexander's restaurants have been built based on a building design intended to provide a high level of curb appeal using exterior craftsman-style architecture with unique natural materials such as stone, stained woods and weathering copper. The Company developed a new building design in conjunction with its entry into the Baton Rouge market during 1998 and utilized a similar building for its restaurant opened in West Bloomfield, Michigan during 1999. This latest building design features interior finishes and materials which reflect the blend of international and Craftsman architecture. Elements such as steel, concrete, stone and glass are subtly incorporated to give a contemporary feel to the space and provide an overall comfortable ambiance. Management estimates that capital expenditures for completion of the Cincinnati, Ohio restaurant which will be located on leased land and opened in 2000 and for other additions and improvements to existing restaurants will total approximately $4 million in 2000. In addition, the Company is actively seeking locations for additional restaurants to be opened in 2001. If a satisfactory location is found and successfully negotiated, any amounts expended in 2000 for this location, including land acquisition if the site were purchased, would be in addition to the amounts discussed above. Excluding the cost of land acquisition, the Company estimates that the cash investment for site preparation and for constructing and equipping a J. Alexander's restaurant is currently approximately $3 million. While the Company prefers to own its sites because of the long-term value of owning these assets, restaurants opened since 1997 have been located on leased land. The cost of land for restaurants opened in 1997 ranged from $800,000 to $1,150,000. The Company is actively seeking to acquire additional sites for new J. Alexander's restaurants primarily in the midwestern and the southeastern areas of the United States. The timing of restaurant openings depends upon the selection and availability of suitable sites and other factors. The Company has no current plans to franchise J. Alexander's restaurants. The Company believes that its ability to select high profile restaurant sites is critical to the success of the J. Alexander's operations. Once a prospective site is identified and preliminary site analysis is performed and evaluated, members of the Company's senior management team visit the proposed location and evaluate the particular site and the surrounding area. The Company analyzes a variety of factors in the site selection process, including local market demographics, the number, type and success of competing restaurants in the immediate and 3 4 surrounding area and accessibility to and visibility from major thoroughfares. The Company also obtains an independent market analysis to verify its own conclusion that a potential restaurant site meets the Company's criteria. In 1997, the Company established site selection criteria calling for higher population densities and higher household incomes than were met by certain of its previous locations. The West Bloomfield, Michigan restaurant opened in 1999 was the first restaurant to be opened under these more stringent criteria. To date, this restaurant has met all of the Company's sales expectations. The Company believes that this change in site selection criteria will further enhance its site selection process. SERVICE MARK The Company has registered the service mark J. Alexander's Restaurant with the United States Patent and Trademark Office and believes that it is of material importance to the Company's business. COMPETITION The restaurant industry is highly competitive. The Company believes that the principal competitive factors within the industry are site location, product quality, service and price; however, menu variety, attractiveness of facilities and customer recognition are also important factors. The Company's restaurants compete not only with numerous other casual dining restaurants with national or regional images, but also with other types of food service operations in the vicinity of each of the Company's restaurants. These include other restaurant chains or franchise operations with greater public recognition, substantially greater financial resources and higher total sales volume than the Company. The restaurant business is often affected by changes in consumer tastes, national, regional or local economic conditions, demographic trends, traffic patterns and the type, number and location of competing restaurants. PERSONNEL As of January 2, 2000, the Company employed approximately 2,050 persons. The Company believes that its employee relations are good. It is not a party to any collective bargaining agreements. GOVERNMENT REGULATION Each of the Company's restaurants is subject to various federal, state and local laws, regulations and administrative practices relating to the sale of food and alcoholic beverages, and sanitation, fire and building codes. Restaurant operating costs are also affected by other governmental actions that are beyond the Company's control, which may include increases in the minimum hourly wage requirements, workers' compensation insurance rates and unemployment and other taxes. Difficulties or failures in obtaining the required licenses or approvals could delay or prevent the opening of a new restaurant. Alcoholic beverage control regulations require each of the Company's J. Alexander's restaurants to apply for and obtain from state authorities a license or permit to sell liquor on the premises and, in some states, to provide service for extended hours and on Sundays. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time. The failure of any restaurant to obtain or retain any required liquor licenses would adversely affect the restaurant's operations. In certain states, the Company may be subject to "dram-shop" statutes, which generally provide a person injured by an intoxicated person the right to recover damages from the establishment which wrongfully served alcoholic beverages to the intoxicated person. Of the eleven states where J. Alexander's operates, ten have dram-shop statutes or recognize a cause of action for damages relating to sales of liquor to obviously intoxicated persons and/or minors. The Company carries liquor liability coverage with an aggregate limit of $2 million and a limit per "common cause" of $1 million as part of its comprehensive general liability insurance. The Americans with Disabilities Act ("ADA") prohibits discrimination on the basis of disability in public accommodations and employment. The ADA became effective as to public accommodations in January 1992 and as to employment in July 1992. Construction and remodeling projects since January 1992 have taken into account the requirements of the ADA. While no further expenditures relating to ADA compliance in existing restaurants are anticipated, the Company could be required to further modify its restaurants' physical facilities to comply with the 4 5 provisions of the ADA. RISK FACTORS In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company is including the following cautionary statements identifying important factors that could cause the Company's actual results to differ materially from those projected in forward looking statements of the Company made by, or on behalf of, the Company. The Company Faces Challenges in Opening New Restaurants. The Company's continued growth depends on its ability to open new J. Alexander's restaurants and to operate them profitably, which will depend on a number of factors, including the selection and availability of suitable locations, the hiring and training of sufficiently skilled management and other personnel and other factors, some of which are beyond the control of the Company. In addition, it has been the Company's experience that new restaurants generate operating losses while they build sales levels to maturity. The Company currently operates twenty-one J. Alexander's restaurants, of which seven have been open for less than three years. Because of the Company's relatively small J. Alexander's restaurant base, an unsuccessful new restaurant could have a more adverse effect on the Company's results of operations than would be the case in a restaurant company with a greater number of restaurants. The Company Faces Intense Competition. The restaurant industry is intensely competitive with respect to price, service, location and food quality, and there are many well-established competitors with substantially greater financial and other resources than the Company. Some of the Company's competitors have been in existence for a substantially longer period than the Company and may be better established in markets where the Company's restaurants are or may be located. The restaurant business is often affected by changes in consumer tastes, national, regional or local economic conditions, demographic trends, traffic patterns and the type, number and location of competing restaurants. The Company May Experience Fluctuations in Quarterly results. The Company's quarterly results of operations are affected by timing of the opening of new J. Alexander's restaurants, and fluctuations in the cost of food, labor, employee benefits, and similar costs over which the Company has limited or no control. The Company's business may also be affected by inflation. In the past, management has attempted to anticipate and avoid material adverse effects on the Company's profitability from increasing costs through its purchasing practices and menu price adjustments, but there can be no assurance that it will be able to do so in the future. Government Regulation and Licensing May Delay New Restaurant Openings or Affect Operations. The restaurant industry is subject to extensive state and local government regulation relating to the sale of food and alcoholic beverages, and sanitation, fire and building codes. Termination of the liquor license for any J. Alexander's restaurant would adversely affect the revenues for the restaurant. Restaurant operating costs are also affected by other government actions that are beyond the Company's control, which may include increases in the minimum hourly wage requirements, workers' compensation insurance rates and unemployment and other taxes. If the Company experiences difficulties in obtaining or fails to obtain required licensing or other regulatory approvals, this delay or failure could delay or prevent the opening of a new J. Alexander's restaurant. The suspension of, or inability to renew, a license could interrupt operations at an existing restaurant, and the inability to retain or renew such licenses would adversely affect the operations of the new restaurants. The Company may be delisted by the New York Stock Exchange. On October 8, 1999, the Company announced, at the request of the New York Stock Exchange (the Exchange), that it currently fell below the newly effective Exchange continued listing standard requiring total market capitalization of at least $50 million and total stockholders' equity of at least $50 million. In response to this situation, the Company submitted a business plan to the Listings and Compliance Committee (the Committee) of the Exchange setting forth the Company's plans for compliance with the newly effective standard. On November 30, 1999, the Company announced that the Committee had reviewed its plan and agreed to continue the Company's listing on the Exchange. The Committee has indicated that it will be monitoring the Company's progress versus its plan on a quarterly basis and has noted that all listed companies are expected to be in compliance with the continued listing standards by February 2001. Should the Exchange delist the Company, management believes an adequate alternative trading market will be available. 5 6 EXECUTIVE OFFICERS OF THE COMPANY The following list includes names and ages of all of the executive officers of the Company indicating all positions and offices with the Company held by each such person and each such person's principal occupations or employment during the past five years. All such persons have been appointed to serve until the next annual appointment of officers and until their successors are appointed, or until their earlier resignation or removal.
Name and Age Background Information - ------------ ---------------------- Ronald E. Farmer, 53 Vice-President of Development since May, 1996; Director of Development from October, 1993 to May, 1996; President of Dinelite Corporation, a franchisee of Po Folks Restaurants, from 1987 to 1993. R. Gregory Lewis, 47 Chief Financial Officer since July 1986; Vice President of Finance and Secretary since August 1984. J. Michael Moore, 40 Vice-President of Human Resources and Administration since November, 1997; Director of Human Resources and Administration from August 1996 to November, 1997; Director of Operations of Pioneer Music Group, a Nashville-based record label, April, 1996 to August, 1996; Director of Operations, J. Alexander's Restaurants, Inc. from March, 1993 to April, 1996. Mark A. Parkey, 37 Vice-President since May, 1999; Controller of the Company since May 1997; Director of Finance from January, 1993 to May, 1997. Lonnie J. Stout II, 53 Chairman since July 1990; Director, President and Chief Executive Officer since May 1986.
ITEM 2. PROPERTIES As of January 2, 2000, the Company had 21 J. Alexander's casual dining restaurants in operation and one J. Alexander's restaurant under construction. The following table gives the locations of, and describes the Company's interest in, the land and buildings used in connection with the above:
Site Leased Site and Building and Building Space Owned by the Owned by the Leased to the Company Company Company Total ------- ------- ------- ----- J. Alexander's Restaurants: Alabama 1 0 0 1 Colorado 1 0 0 1 Florida 2 1 0 3 Illinois 1 0 0 1 Kansas 1 0 0 1 Michigan 1 1 1 3 Ohio 3 2 0 5 Tennessee 3 0 1 4 Texas 0 1 0 1 Kentucky 0 1 0 1 Louisiana 0 1 0 1 -- -- -- -- Total 13 7 2 22 == == == ==
(a) In addition to the above, the Company leases two of its former Wendy's properties which are in turn leased to others. (b) See Item 1. for additional information concerning the Company's restaurants. 6 7 All of the Company's J. Alexander's restaurant lease agreements may be renewed at the end of the initial term (generally 15 to 20 years) for periods of five or more years. Certain of these leases provide for minimum rentals plus additional rent based on a percentage of the restaurant's gross sales in excess of specified amounts. These leases usually require the Company to pay all real estate taxes, insurance premiums and maintenance expenses with respect to the leased premises. Corporate offices for the Company are located in leased office space in Nashville, Tennessee. ITEM 3. LEGAL PROCEEDINGS As of March 23, 2000, the Company was not a party to any pending legal proceedings material to its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of 1999. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The common stock of J. Alexander's Corporation is listed on the New York Stock Exchange under the symbol JAX. The approximate number of record holders of the Company's common stock at March 23, 2000, was 1,600. The following table summarizes the price range of the Company's common stock for each quarter of 1999 and 1998, as reported from price quotations from the New York Stock Exchange:
1999 1998 ---- ---- Low High Low High --- ---- --- ---- 1st Quarter $3 9/16 $4 9/16 $4 7/16 $6 1/16 2nd Quarter 3 1/2 4 9/16 4 5/16 5 5/16 3rd Quarter 2 7/8 3 13/16 2 1/2 4 13/16 4th Quarter 1 5/16 3 1/4 2 1/4 4 5/16
The Company has never paid cash dividends on its common stock. The Company intends to retain earnings to invest in the Company's business. Payment of future dividends will be within the discretion of the Company's Board of Directors and will depend, among other factors, on earnings, capital requirements and the operating and financial condition of the Company. 7 8 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth the selected financial data for each of the years in the five-year period ended January 2, 2000:
Years Ended ----------- JANUARY 2 January 3 December 28 December 29 December 31 (Dollars in thousands, except per share data) 2000 1999(1) 1997 1996 1995 - --------------------------------------------- ---- ----- ---- ---- ---- OPERATIONS Net sales $78,454 74,200 57,138 90,879 79,288 General and administrative expenses $7,124 5,815 5,793 7,100 6,778 Pre-opening expense $264 660 1,580 1,503 658 Net income (loss) $(332) (1,485)(2) (5,991)(3) 7,208(5) 5,016(6) Depreciation and amortization $4,041 4,067 3,138 (4) 4,674 3,644 Cash flow from operations $4,465 4,149 (2,150) 3,393 7,586 Capital expenditures $4,884 4,914 16,619 22,589 20,255 FINANCIAL POSITION Cash and investments $933 1,022 134 12,549 2,739 Property and equipment, net $62,142 61,440 60,573 47,016 46,915 Total assets $65,635 65,120 64,421 66,827 60,140 Long-term obligations $18,128 21,361 20,231 15,930 18,512 Stockholders' equity $37,840 33,731 34,995 40,461 32,975 PER SHARE DATA Basic earnings (loss) per share $(.05) (.27) (1.11) 1.36 .95 Diluted earnings (loss) per share $(.05) (.27) (1.11) 1.26 .92 Stockholders' equity $5.59 6.21 6.45 7.60 6.25 Market price at year end $3.13 4.00 4.81 8.50 9.50 J. ALEXANDER'S RESTAURANT DATA Net sales $78,454 74,200 57,138 42,105 25,594 Weighted average annual sales per unit $3,892 3,809 3,772 3,885 3,980 Units open at year end 21 20 18 14 9
1 Includes 53 weeks of operations, compared to 52 weeks for all other years presented. 2 Includes pre-tax gain of $264 related to the Company's divestiture of its Wendy's restaurants in 1996. 3 Includes an $885 charge to earnings to reflect the cumulative effect of the change in the Company's accounting policy for pre-opening costs to expense them as incurred. Also includes deferred tax expense of $2,393 related to an adjustment of the Company's beginning of the year valuation allowance for deferred taxes in accordance with Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS No. 109) and a pre-tax gain of $669 related to the Company's divestiture of its Wendy's restaurants in 1996. 4 Excludes pre-opening expense which was expensed as incurred effective with the beginning of fiscal 1997. 5 Includes pre-tax gain of $9,400 related to the Company's divestiture of its Wendy's restaurants during 1996. 6 Includes tax benefit of $1,782 related to recognition of deferred tax assets in accordance with SFAS No. 109. 8 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS General J. Alexander's Corporation owns and operates upscale, high-volume, casual dining restaurants which offer a contemporary American menu and place a special emphasis on food quality and professional service. At January 2, 2000, the Company owned and operated 21 J. Alexander's restaurants in 11 states. For fiscal year 1999, the Company's loss before income taxes of $299,000 represented an improvement of almost $1.2 million from the loss before income taxes of $1,485,000 incurred in 1998. This improvement was due primarily to an improvement in operating income of approximately $700,000 and a reduction in interest expense of approximately $400,000. In addition, the Company realized a gain of $166,000 on the early retirement of a portion of its Convertible Debentures purchased to meet sinking fund requirements. The Company's loss of $1,485,000 before income taxes for 1998 compares to a loss in 1997 of $2,421,000 before income taxes and the cumulative effect of a change in accounting principle. The 1997 results include a gain of $669,000 related to the divestiture of the Company's Wendy's operations in 1996. An additional gain of $264,000 was recorded on the divestiture in 1998. The loss before the Wendy's gains, income taxes and cumulative effect adjustment decreased by $1,341,000 in 1998 compared to 1997, as higher restaurant operating income and reduced pre-opening expenses more than offset increased net interest expense and a slight increase in general and administrative expenses during 1998. The Company's net loss of $1,485,000 for 1998 includes no income tax benefit. All of the Company's deferred tax assets, consisting primarily of net operating loss carryforwards and various tax credit carryforwards, were fully reserved through the use of a valuation allowance at the end of both fiscal 1999 and 1998. The Company's net loss of $5,991,000 for 1997 included an increase of $2,393,000 in the valuation allowance for deferred tax assets and an $885,000 charge to reflect the cumulative effect of a change in the Company's accounting principle for pre-opening costs to expense them as incurred. The following table sets forth, for the fiscal years indicated, (i) the percentages which the items in the Company's Consolidated Statements of Operations bear to total net sales, and (ii) other selected operating data:
Fiscal Year 1999 1998 1997 ---- ---- ---- Net sales 100.0% 100.0% 100.0% Costs and expenses: Cost of sales 32.6 34.2 34.1 Restaurant labor and related costs 33.5 33.2 33.0 Depreciation and amortization of restaurant property and equipment 4.7 5.1 5.0 Other operating expenses 18.3 18.4 18.9 ----- ----- ----- Total restaurant operating expenses 89.1 91.0 91.0 General and administrative expenses 9.1 7.8 10.1 Pre-opening expense .3 .9 2.8 Gain on Wendy's disposition -- .4 1.2 ----- ----- ----- Operating income (loss) 1.5 .7 (2.8) Other income (expense): Interest expense, net (2.0) (2.7) (1.5) Gain on purchase of debentures .2 -- -- Other, net (.1) -- -- ----- ----- ----- Total other expense (1.9) (2.7) (1.5) Loss before income taxes (.4) (2.0) (4.2) Income tax provision -- -- (4.7) ----- ----- ----- Loss before cumulative effect of change in (.4) (2.0) (8.9) accounting principle Cumulative effect of change in accounting principle -- -- (1.5) ----- ----- ----- Net loss (.4)% (2.0)% (10.5)% ===== ===== =====
9 10 Restaurants open at end of period 21 20 18 Weighted average weekly sales per restaurant $76,300 $73,200 $72,500
NET SALES Net sales increased by approximately $4.3 million, or 5.7%, to $78.5 million in fiscal year 1999 from $74.2 million in 1998. The $74.2 million of sales recorded in 1998 represents an increase of $17.1 million, or 29.9%, over $57.1 million of sales reported in 1997. The 1999 increase was due to the opening of new restaurants - two in 1998 and one in 1999 - and to an increase of 4.2% in weighted average weekly sales per restaurant. The increase in 1998 was primarily a result of new restaurant openings; average weekly sales per restaurant increased by 1% in 1998. Fiscal 1998 contained 53 weeks of operations compared to 52 weeks for both 1999 and 1997. Same store sales, which include comparable results for all restaurants open for more than 12 months, increased 4.1% to $76,300 per week in 1999 on a base of 20 restaurants. Same store sales for 1998 also averaged $76,300 per week, on a base of 17 restaurants, and increased 4.8% over the $72,800 average for 1997. Management estimates that menu prices were approximately 5% higher in 1999 than in 1998 and also approximately 5% higher in 1998 than 1997. The Company estimates that guest counts on a same store basis increased by approximately 2% in 1998 and declined by approximately 1% in 1999. Near the end of the third quarter of 1999, however, the Company repositioned its menu to place more emphasis on its premium offerings and daily feature items, while de-emphasizing certain lower priced menu items. As a result of these changes and a number of other guest service improvement initiatives begun in 1997, same store sales increased by 8.6% in the fourth quarter of 1999 as compared to the same period in 1998, with guest counts increasing by approximately 2 to 3% during this period. Same store sales increases have remained in this range during the first two months of 2000. RESTAURANT COSTS AND EXPENSES Total restaurant operating expenses decreased to 89.1% for 1999 compared to 91% for both 1998 and 1997, with restaurant operating margins increasing to 10.9% in 1999 from 9% in both 1998 and 1997. The decrease in restaurant operating expenses as a percentage of sales in 1999 was a result of a decrease in these costs and expenses in the same store group of 20 restaurants to 87.8% in 1999 from 90.8% in 1998, with these same store reductions more than offsetting higher costs associated with new restaurants opened during 1998 and 1999. Restaurant operating margins for the same store restaurant group increased to 12.2% in 1999 from 9.2% in 1998. The largest factor contributing to the operating expense decrease in 1999 was the decrease in cost of sales resulting from management's emphasis on increased efficiencies in this area and the menu price increases noted above. Another factor contributing to the improvement was the Company's decision to change the estimated useful life of its buildings from 25 to 30 years and the estimated life of leasehold improvements to include an amortization period based on the lesser of the lease term, generally including renewal options, or the useful life of the asset. The effect of these changes, which were implemented as of January 4, 1999, was to decrease restaurant operating expenses for 1999 by $333,000, or .4% of sales. Restaurant operating expenses for the same store group of 17 restaurants decreased to 87.7% in 1998 from 90.7% in 1997 due to the favorable effect of higher sales volumes, particularly as relates to labor costs and other operating expenses, which include certain components that are relatively fixed in nature. As noted in previous filings, certain of the Company's newer restaurants have not yet reached their targeted level of sales performance and continue to significantly affect its overall financial performance. As an indication of this, the Company's 14 restaurants opened prior to 1997 posted restaurant operating margins of 14.9% for 1999, while averaging weekly sales of $81,000 per restaurant. Restaurant margins for 1999 for the six restaurants opened in 1997 and 1998 were a negative .8% on average weekly sales of $60,000 per restaurant. These six restaurants continue to show good progress, however, and averaged sales of $64,200 per week in the fourth quarter of 1999. The Company's four newest restaurants posted losses at the restaurant level of approximately $1 million for 1999. Management believes that the performance of newer restaurants is attributable primarily to two factors. The first of these factors is the Company's "quiet opening" approach. In order to maximize the quality of guest service and successfully complete the extensive training and support of J. Alexander's staff, there is typically little or no advertising or promotion of new J. Alexander's restaurants. While management believes this approach is the 10 11 best way to build a new restaurant's reputation and to build sales over time, the sometimes lower initial sales volumes combined with higher expenses associated with the emphasis placed on training and quality of operations during the opening months, typically result in the financial performance of newer restaurants trailing that of more mature restaurants. The Company expects newly opened restaurants to experience operating losses in their initial months of operation. Also, the Company believes that certain of its newer restaurants located in mid-size, rather than larger markets will take longer to build to satisfactory sales levels than was originally expected. Management believes that all or virtually all of the Company's restaurants have the potential over time to reach satisfactory sales levels. Beginning in 1998 the Company lowered its new restaurant development plans to allow management to focus intently on improving sales and profits in its existing restaurants while maintaining operational excellence. Also, in 1997 the Company established criteria calling for higher population densities and higher household incomes than were met by certain of its previous locations. The West Bloomfield, Michigan restaurant opened in 1999 was the first restaurant to be opened under these more stringent criteria. To date, the West Bloomfield restaurant has met all of the Company's sales expectations. Management remains optimistic about the prospects for J. Alexander's and continues to believe that the primary issue faced by the Company in maintaining consistent profitability is the improvement of sales in several of its restaurants, and particularly certain of its newer restaurants. It believes that actions taken to date, including guest service initiatives which were implemented two years ago, the menu repositioning implemented in the third quarter of 1999, and the change in development criteria, together with continued emphasis on increasing sales and profits are having and will continue to have a positive impact on the Company's sales and financial performance for 2000 and that the Company will be profitable in 2000. The Company's profit of approximately $400,000 for the fourth quarter of 1999 provides evidence of significant improvements. Further, only two restaurants - one of which was the new West Bloomfield restaurant opened in November - posted restaurant operating losses in the fourth quarter of 1999; losses at those two restaurants totaled approximately $100,000. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses, which include supervisory costs as well as management training costs and all other costs above the restaurant level, increased by $1,309,000, or 22.5%, in 1999 compared to 1998. As a percentage of sales these expenses increased to 9.1% in 1999 from 7.8% in 1998. These increases were due primarily to lower than normal general and administrative expenses in 1998 which were, in turn, principally due to favorable experience under both the Company's workers' compensation program and its self-insured group medical insurance program which allowed the Company to reduce its level of accruals and expense related to those programs for 1998. In addition, increases in management training costs which combined with management relocation and procurement costs comprise approximately 20% of the general and administrative category, contributed to higher general and administrative costs during 1999. General and administrative expenses increased slightly in fiscal 1998 compared to 1997. For the 1998 year favorable experience under the Company's workers' compensation program and under the Company's self-insured group medical insurance program largely offset increases in management training costs and relocation costs for restaurant management personnel. As a percentage of sales, general and administrative expenses decreased to 7.8% in 1998 from 10.1% in 1997 due to higher sales levels achieved. General and administrative expenses for 2000 are expected to remain at approximately the same percentage of sales as 1999. PRE-OPENING EXPENSE In 1997 the Company changed its accounting policy to expense all pre-opening costs as incurred rather than deferring and amortizing them over a period of twelve months from each restaurant's opening. A charge of $885,000 was recorded as of the beginning of 1997 to reflect the cumulative effect of this change. As the Company only opened one restaurant in 1999 and two restaurants in 1998, pre-opening expenses, which are typically approximately $350,000 per restaurant, were significantly less in those years than the $1,580,000 of pre-opening expenses incurred in 1997 when four restaurants were opened. 11 12 OTHER INCOME AND EXPENSE Interest expense decreased by $416,000 in 1999 compared to 1998 due primarily to reductions in the outstanding balance of the Company's convertible subordinated debentures and a reduction in the Company's line of credit after applying proceeds from sales of stock in March and June, 1999, to the outstanding balance on the line. Net interest expense increased by $1,142,000 in 1998 compared to 1997 primarily due to the use of the Company's line of credit to fund a portion of the cost of developing new restaurants. "Other, net" expense of $93,000 for 1999 was the result of expenses associated with the write-off of facilities and equipment replaced in connection with various capital maintenance projects which more than offset miscellaneous income categories. INCOME TAXES Under the provisions of SFAS No. 109 "Accounting for Income Taxes", the Company had gross deferred tax assets of $4,726,000 and $5,324,000 and gross deferred tax liabilities of $616,000 and $929,000 at January 2, 2000 and January 3, 1999, respectively. The deferred tax assets at January 2, 2000 relate primarily to $3,098,000 of net operating loss carryforwards and $3,079,000 of tax credit carryforwards available to reduce future federal income taxes. The recognition of deferred tax assets depends on the likelihood of taxable income in future periods in amounts sufficient to realize the assets. The deferred tax assets must be reduced through use of a valuation allowance to the extent future income is not likely to be generated in such amounts. Due to the loss incurred in 1997 and because the Company operates with a high degree of financial and operating leverage, with a significant portion of operating costs being fixed or semi-fixed in nature, management was unable to conclude that it was more likely than not that its existing deferred tax assets would be realized and in the fourth quarter of 1997 increased the beginning of the year valuation allowance for these assets by $2,393,000. At December 28, 1997, the Company's valuation allowance for deferred tax assets was $3,865,000. During both 1998 and 1999, management was again unable to conclude that it was more likely than not that its existing deferred tax assets would be realized. The valuation allowance related to the Company's deferred tax assets totaled $4,395,000 and $4,110,000 at January 3, 1999 and January 2, 2000, respectively. Approximately $12,200,000 of future taxable income would be needed to realize the Company's tax credit and net operating loss carryforwards at January 2, 2000. These carryforwards expire in the years 2000 through 2019. Approximately $1,400,000 of taxable income would be needed to realize the carryforwards which expire in 2000 and $800,000 to use those which expire in 2001. LIQUIDITY AND CAPITAL RESOURCES The Company's primary need for capital for the past three years has been for the development and maintenance of its J. Alexander's restaurants. In addition, beginning in 1998, the Company has been required to meet an annual sinking fund requirement of $1,875,000 in connection with its outstanding Convertible Subordinated Debentures. The Company has met its capital needs and maintained liquidity primarily by use of cash flow from operations, use of its bank line of credit and through other sources discussed below. Capital expenditures totaled $4,884,000, $4,914,000 and $16,619,000 for 1999, 1998 and 1997, respectively, and were primarily for the development of new J. Alexander's restaurants. For 1997, the Company had negative cash flow from operations totaling $2,150,000. Capital expenditures for 1997 were funded primarily by the proceeds from the sale of the Company's Wendy's operations in 1996 and use of the Company's bank line of credit. Beginning in 1998, capital expenditures were significantly reduced as a result of the Company's lower new restaurant development rate, and cash flow from operations of $4,149,000 represented 84% of the capital expenditures for the year. For 1999, cash flow from operations of $4,465,000 comprised 91% of total capital expenditures for the year. The remaining capital expenditures for 1998 and 1999 along with other needs during both years were funded by use of the Company's line of credit and, for 1999, by the sale of common stock as discussed below. 12 13 For 2000, the Company plans to construct and open one restaurant on leased land in the Cincinnati, Ohio market. Management estimates that the cost to complete the Cincinnati restaurant and for capital maintenance for existing restaurants will be approximately $4 million for 2000. In addition, the Company may incur capital expenditures for the purchase of property and/or construction of restaurants for locations to be opened in fiscal 2001. Any such expenditures are dependent upon the timing and success of management's efforts to locate acceptable sites and are not expected to exceed $2 million. While a working capital deficit of $6,409,000 existed as of January 2, 2000, the Company does not believe this deficit impairs the overall financial condition of the Company. Certain of the Company's expenses, particularly depreciation and amortization, do not require current outlays of cash. Also, requirements for funding accounts receivable and inventories are relatively insignificant; thus virtually all cash generated by operations is available to meet current obligations. As of January 2, 2000, debentures in the principal amount of $902,000 had been purchased by the Company for use toward satisfying the annual sinking fund requirement of $1,875,000 for this issue for 2000. In 1999, the Company's Board of Directors established a loan program designed to enable eligible employees to purchase shares of the Company's common stock. Under the program participants may borrow an amount equal to the full price of common stock purchased. The plan authorizes $1 million in loans to employees. Purchases of stock under the plan totaled $486,000 during 1999, with the remainder of the authorized amount being purchased by February 2000. The employee loans, which are reported as a deduction from stockholders' equity, are payable on December 31, 2006, unless repaid sooner pursuant to terms of the plan. The Company maintains a bank line of credit of $20 million which is expected to be used as needed for funding of capital expenditures and to provide liquidity for meeting working capital or other needs. At January 2, 2000, borrowings outstanding under this line of credit were $8,019,000. In March of 2000, the term of the line of credit was extended by one year through July 1, 2001. The amended line of credit agreement contains covenants which require the Company to achieve specified results of operations and specified levels of senior debt to EBITDA (earnings before interest, taxes, depreciation and amortization) and to maintain certain other financial ratios. The Company was in compliance with these covenants at January 2, 2000 and, based on a current assessment of its business, believes it will continue to comply with these covenants through July 1, 2001. The credit agreement also contains certain limitations on capital expenditures and restaurant development by the Company (generally limiting the Company to the development of two new restaurants per year) and restricts the Company's ability to incur additional debt outside the bank line of credit. The interest rate on borrowings under the line of credit is currently based on LIBOR plus a spread of two to three percent, depending on the ratio of senior debt to EBITDA. The line of credit includes an option to convert outstanding borrowings to a term loan prior to July 1, 2001. In March 1999 the Company developed a plan for raising additional equity capital to further strengthen its financial position and, as part of this plan, completed a private sale of 1,086,266 shares of common stock to Solidus, LLC, an affiliate of one of the directors of the Company, for approximately $4.1 million. In addition, on June 21, 1999, the Company completed a rights offering wherein shareholders of the Company purchased an additional 240,615 shares of common stock at a price of $3.75 per share, which was the same price per share as stock sold in the private sale. The private sale and the rights offering raised total net proceeds to the Company of approximately $4.8 million which were used to repay a portion of the debt outstanding under the Company's bank line of credit. Amounts repaid can be reborrowed in accordance with the terms of the line of credit agreement. The Company believes that raising additional equity capital and repaying a portion of its outstanding debt will benefit the Company by reducing its debt to equity ratio and reducing interest expense and that it will provide greater flexibility to the Company in providing for future financing needs. IMPACT OF ACCOUNTING CHANGES There are no pending accounting pronouncements that, when adopted, are expected to have a material effect on the Company's results of operations or its financial condition. 13 14 IMPACT OF INFLATION AND OTHER FACTORS Virtually all of the Company's costs and expenses are subject to normal inflationary pressures and the Company is continually seeking ways to cope with their impact. By owning a number of its properties, the Company avoids certain increases in occupancy costs. New and replacement assets will likely be acquired at higher costs but this will take place over many years. In general, the Company tries to offset increased costs and expenses through additional improvements in operating efficiencies and by increasing menu prices over time, as permitted by competition and market conditions. IMPACT OF THE YEAR 2000 ISSUE In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. In late 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. Management estimates the total cost associated with the remediation of its system was approximately $200,000. The Company is not aware of any material problems resulting from Year 2000 issues, either with its internal systems or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS The foregoing discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto. All references are to fiscal years unless otherwise noted. The forward-looking statements included in Management's Discussion and Analysis of Financial Condition and Results of Operations relating to certain matters involve risks and uncertainties, including anticipated financial performance, business prospects, anticipated capital expenditures and other similar matters, which reflect management's best judgment based on factors currently known. Actual results and experience could differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements as a result of a number of factors. Forward-looking information provided by the Company pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 should be evaluated in the context of these factors. In addition, the Company disclaims any intent or obligation to update these forward-looking statements. ITEM 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK Disclosure About Interest Rate Risk. The Company is subject to market risk from exposure to changes in interest rates based on its financing and cash management activities. The Company utilizes a mix of both fixed-rate and variable-rate debt to manage its exposures to changes in interest rates. (See Notes E and F to the Consolidated Financial Statements appearing elsewhere herein.) The Company does not expect changes in interest rates to have a material effect on income or cash flows in fiscal 2000, although there can be no assurances that interest rates will not significantly change. Commodity Price Risk. Many of the food products purchased by the Company are affected by commodity pricing and are, therefore, subject to price volatility caused by weather, production problems, delivery difficulties and other factors which are outside the control of the Company. Essential supplies and raw materials are available from several sources and the Company is not dependent upon any single source of supplies or raw materials. The Company's ability to maintain consistent quality throughout its restaurant system depends in part upon its ability to acquire food products and related items from reliable sources. When the supply of certain products is uncertain or prices are expected to rise significantly, the Company may enter into purchase contracts or purchase bulk quantities for future use. The Company has purchase commitments for terms of one year or less for food and supplies with a variety of vendors. Such commitments generally include a pricing schedule for the period covered by the agreements. The Company has established long-term relationships with key beef and seafood vendors and brokers. Adequate alternative sources of supply are believed to exist for substantially all products. While the supply and 14 15 availability of certain products can be volatile, the Company believes that it has the ability to identify and access alternative products as well as the ability to adjust menu prices if needed. Significant items that could be subject to price fluctuations are beef, seafood, produce, pork and dairy products among others. The Company believes that any changes in commodity pricing which cannot be adjusted for by changes in menu pricing or other product delivery strategies would not be material. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX OF FINANCIAL STATEMENTS Page ---- Independent Auditors' Report 16 Consolidated statements of operations - Years ended January 2, 2000, January 3, 1999 and December 28, 1997 17 Consolidated balance sheets - January 2, 2000 and January 3, 1999 18 Consolidated statements of cash flows - Years ended January 2, 2000, January 3, 1999 and December 28, 1997 19 Consolidated statements of stockholders' equity - Years ended January 2, 2000, January 3, 1999 and December 28, 1997 20 Notes to consolidated financial statements 21-30
The following consolidated financial statement schedule of J. Alexander's Corporation and subsidiaries is included in Item 14(d): Schedule II-Valuation and qualifying accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 15 16 Report of Ernst & Young LLP, Independent Auditors The Board of Directors and Stockholders J. Alexander's Corporation We have audited the accompanying consolidated balance sheets of J. Alexander's Corporation and subsidiaries as of January 2, 2000 and January 3, 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three fiscal years in the period ended January 2, 2000. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of J. Alexander's Corporation and subsidiaries at January 2, 2000 and January 3, 1999, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended January 2, 2000 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note A to the financial statements, the Company changed its method of accounting for pre-opening costs in 1997. /s/ Ernst & Young LLP Nashville, Tennessee February 21, 2000, except for the subsequent event described in Note E as to which the date is March 17, 2000 16 17 J. ALEXANDER'S CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended ----------- JANUARY 2 January 3 December 28 2000 1999 1997 ---- ---- ---- Net sales $78,454,000 $74,200,000 $57,138,000 Costs and expenses: Cost of sales 25,568,000 25,410,000 19,480,000 Restaurant labor and related costs 26,289,000 24,663,000 18,871,000 Depreciation and amortization of restaurant property and equipment 3,688,000 3,758,000 2,860,000 Other operating expenses 14,323,000 13,659,000 10,813,000 ----------- ----------- ----------- Total restaurant operating expenses 69,868,000 67,490,000 52,024,000 ----------- ----------- ----------- Income from restaurant operations 8,586,000 6,710,000 5,114,000 General and administrative expenses 7,124,000 5,815,000 5,793,000 Pre-opening expense 264,000 660,000 1,580,000 Gain on Wendy's disposition - 264,000 669,000 ----------- ----------- ----------- Operating income (loss) 1,198,000 499,000 (1,590,000) ----------- ----------- ----------- Other income (expense): Interest expense (1,570,000) (1,986,000) (1,030,000) Interest income - - 186,000 Gain on purchase of Debentures 166,000 - - Other, net (93,000) 2,000 13,000 ----------- ----------- ----------- Total other expense (1,497,000) (1,984,000) (831,000) ----------- ----------- ----------- Loss before income taxes (299,000) (1,485,000) (2,421,000) Income tax provision (33,000) - (2,685,000) ----------- ----------- ----------- Loss before cumulative effect of change in accounting principle (332,000) (1,485,000) (5,106,000) Cumulative effect of change in accounting principle - - (885,000) ----------- ----------- ----------- Net loss $ (332,000) $(1,485,000) $(5,991,000) =========== =========== =========== Basic earnings per share: Loss before accounting change $(.05) $(.27) $(.95) Cumulative effect of change in accounting principle - - (.16) ----- ----- ------ Net loss $(.05) $(.27) $(1.11) ===== ===== ====== Diluted earnings per share: Loss before accounting change $(.05) $(.27) $(.95) Cumulative effect of change in accounting principle - - (.16) ----- ----- ------ Net loss $(.05) $(.27) $(1.11) ===== ===== ======
See notes to consolidated financial statements. 17 18 J. ALEXANDER'S CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JANUARY 2 January 3 2000 1999 ---- ---- ASSETS CURRENT ASSETS Cash and cash equivalents $933,000 $1,022,000 Accounts and notes receivable, including current portion of direct financing leases, net of allowances for possible losses 103,000 77,000 Inventories at lower of cost (first-in, first-out method) or market 703,000 800,000 Prepaid expenses and other current assets 422,000 324,000 -------- ---------- TOTAL CURRENT ASSETS 2,161,000 2,223,000 OTHER ASSETS 844,000 887,000 PROPERTY AND EQUIPMENT, at cost, less allowances for depreciation and amortization 62,142,000 61,440,000 DEFERRED CHARGES, less accumulated amortization of $1,116,000 and $995,000 at January 2, 2000, and January 3, 1999, respectively 488,000 570,000 -------- ---------- $65,635,000 $65,120,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $2,254,000 $2,124,000 Accrued expenses and other current liabilities 3,630,000 3,893,000 Unearned revenue 1,691,000 1,367,000 Current portion of long-term debt and obligations under capital leases 995,000 1,917,000 -------- ---------- Total Current Liabilities 8,570,000 9,301,000 LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES, net of portion classified as current 18,128,000 21,361,000 OTHER LONG-TERM LIABILITIES 1,097,000 727,000 STOCKHOLDERS' EQUITY Common Stock, par value $.05 per share: Authorized 10,000,000 shares; issued and outstanding 6,772,209 and 5,431,335 shares at January 2, 2000, and January 3, 1999, respectively 339,000 272,000 Preferred Stock, no par value: Authorized 1,000,000 shares; none issued -- -- Additional paid-in capital 34,733,000 30,007,000 Retained earnings 3,940,000 4,272,000 -------- ---------- 39,012,000 34,551,000 Note receivable - Employee Stock Ownership Plan (686,000) (820,000) Employee receivables - 1999 Loan Program (486,000) -- -------- ---------- TOTAL STOCKHOLDERS' EQUITY 37,840,000 33,731,000 ---------- ---------- Commitments and Contingencies $65,635,000 $65,120,000 =========== ===========
See notes to consolidated financial statements. 18 19 J. ALEXANDER'S CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended ----------- JANUARY 2 January 3 December 28 2000 1999 1997 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(332,000) $(1,485,000) $(5,991,000) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization of property and equipment 3,919,000 3,936,000 3,004,000 Cumulative effect of change in accounting principle - - 885,000 Amortization of deferred charges 121,000 131,000 134,000 Employee Stock Ownership Plan expense 134,000 123,000 85,000 Gain on Wendy's disposition - (264,000) (669,000) Deferred income tax provision - - 2,393,000 Other, net 274,000 125,000 41,000 Changes in assets and liabilities: (Increase) decrease in accounts and notes receivable (64,000) 502,000 (58,000) (Increase) decrease in inventories 97,000 (111,000) (155,000) (Increase) decrease in prepaid expenses and other current assets (98,000) 63,000 (18,000) Increase in deferred charges (40,000) (27,000) (61,000) Increase in accounts payable 34,000 29,000 242,000 Increase (decrease) in accrued expenses and other current liabilities (274,000) 1,037,000 (2,468,000) Increase in unearned revenue 324,000 15,000 445,000 Increase in other long-term liabilities 370,000 75,000 41,000 ----------- ---------- ------------ Net cash provided (used) by operating activities 4,465,000 4,149,000 (2,150,000) ----------- ---------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (4,788,000) (5,040,000) (17,481,000) Proceeds from sale of Wendy's restaurant operations -- 228,000 625,000 Other, net 82,000 328,000 (17,000) ----------- ---------- ------------ Net cash used by investing activities (4,706,000) (4,484,000) (16,873,000) ----------- ---------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds under bank line of credit agreement 28,640,000 28,961,000 11,614,000 Payments under bank line of credit agreement (29,891,000) (25,914,000) (5,391,000) Payments on long-term debt and obligations under capital leases (2,904,000) (1,922,000) (55,000) Purchase of stock for 1999 Loan Program (486,000) -- -- Sale of stock and exercise of stock options 4,793,000 98,000 440,000 ----------- ---------- ------------ Net cash provided by financing activities 152,000 1,223,000 6,608,000 ----------- ---------- ------------ (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (89,000) 888,000 (12,415,000) Cash and cash equivalents at beginning of year 1,022,000 134,000 12,549,000 ----------- ---------- ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 933,000 $1,022,000 $ 134,000 =========== ========== ============
See notes to consolidated financial statements. 19 20 J. ALEXANDER'S CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Note Receivable- Employee Employee Additional Stock Receivables- Total Outstanding Common Paid-In Retained Ownership 1999 Loan Stockholders' Shares Stock Capital Earnings Plan Program Equity ------ ----- ------- -------- ---- ------- ------ BALANCES AT DECEMBER 29, 1996 5,322,507 $ 266,000 $ 29,475,000 $ 11,748,000 $ (1,028,000) $ -- $ 40,461,000 Exercise of stock options, including tax benefits, and sale of stock under Employee Stock Purchase Plan 99,031 6,000 434,000 -- -- -- 440,000 Reduction of note receivable- Employee Stock Ownership Plan -- -- -- -- 85,000 -- 85,000 Net loss -- -- -- (5,991,000) -- -- (5,991,000) --------- ---------- ------------ ------------ ------------ ---------- ------------ BALANCES AT DECEMBER 28, 1997 5,421,538 272,000 29,909,000 5,757,000 (943,000) -- 34,995,000 Exercise of stock options, including tax benefits 9,797 -- 98,000 -- -- -- 98,000 Reduction of note receivable- Employee Stock Ownership Plan -- -- -- -- 123,000 -- 123,000 Net loss -- -- -- (1,485,000) -- -- (1,485,000) --------- ---------- ------------ ------------ ------------ ---------- ------------ BALANCES AT JANUARY 3, 1999 5,431,335 272,000 30,007,000 4,272,000 (820,000) -- 33,731,000 Stock sold in private trans- action and through rights offering 1,326,881 66,000 4,697,000 -- -- -- 4,763,000 Exercise of stock options 13,993 1,000 29,000 -- -- -- 30,000 Reduction of note receivable- Employee Stock Ownership Plan -- -- -- -- 134,000 -- 134,000 Purchase of stock-1999 Loan Program -- -- -- -- -- (486,000) (486,000) Net loss -- -- -- (332,000) -- -- (332,000) --------- ---------- ------------ ------------ ------------ ---------- ------------ BALANCES AT JANUARY 2,2000 6,772,209 $ 339,000 $ 34,733,000 $ 3,940,000 $ (686,000) $ (486,000) $ 37,840,000 =========== ========== ============ ============ ============ ========== ============
See notes to consolidated financial statements. 20 21 J. ALEXANDER'S CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION: The consolidated financial statements include the accounts of J. Alexander's Corporation and its wholly-owned subsidiaries (the Company). The Company owns and operates 21 J. Alexander's restaurants in eleven states throughout the United States. Prior to 1997, the Company also owned and operated 58 Wendy's Old Fashioned Hamburgers restaurants as a franchisee of Wendy's International, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made in the prior years' consolidated financial statements to conform to the 1999 presentation. FISCAL YEAR: The Company's fiscal year ends on the Sunday closest to December 31 and each quarter typically consists of thirteen weeks. Fiscal 1998 included 53 weeks compared to 52 weeks for fiscal years 1999 and 1997. The fourth quarter of 1998 included 14 weeks. CASH EQUIVALENTS: Cash equivalents consist of highly liquid investments with an original maturity of three months or less when purchased. PROPERTY AND EQUIPMENT: Depreciation and amortization are provided on the straight-line method over the following estimated useful lives: buildings - 30 years, restaurant and other equipment - two to 10 years, and capital leases and leasehold improvements - lesser of life of assets or terms of leases, generally including renewal options. DEFERRED CHARGES: Costs in excess of net assets acquired are being amortized over 40 years using the straight-line method. Debt issue costs are amortized principally by the interest method over the life of the related debt. INCOME TAXES: The Company accounts for income taxes under the liability method required by Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes". SFAS No. 109 requires that deferred tax assets and liabilities be established based on the difference between the financial statement and income tax bases of assets and liabilities measured at tax rates that will be in effect when the differences reverse. EARNINGS PER SHARE: In 1997, the Financial Accounting Standards Board issued SFAS No. 128 "Earnings Per Share". SFAS No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented and, where appropriate, restated to conform to the requirements of SFAS No. 128. REVENUE RECOGNITION: Restaurant revenues are recognized when food and service are provided. Unearned revenue consists of gift certificates sold, but not redeemed. PRE-OPENING COSTS: Effective December 30, 1996, the Company changed its method of accounting for pre-opening costs to expense these costs as incurred and recorded the cumulative effect of this change in accounting principle resulting in an after tax charge of $885,000 ($.16 per share) in fiscal 1997. The impact in fiscal 1997 in addition to the cumulative effect was to increase the net loss by $282,000 ($.05 per share). In 1998, the American Institute of Certified Public Accountants issued a new accounting standard under Statement of Position 98-5 "Reporting on the Costs of Start-Up Activities". The requirements under this standard are consistent with the Company's policy which was adopted December 30, 1996. Thus, adoption of this standard had no impact on the Company's financial statements. 21 22 FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amount reported in the balance sheet for cash and cash equivalents approximates fair value. Long-term debt: The carrying amount of the Company's borrowings with variable interest rates approximates their fair value. The fair value of the Company's convertible subordinated debentures was determined based on quoted market prices (see Note E). Due to the immaterial amounts involved, fair value of other fixed rate long-term debt was estimated to approximate its carrying amount. Contingent liabilities: In connection with the sale of its Mrs. Winner's Chicken & Biscuit restaurant operations and the disposition of its Wendy's restaurant operations, the Company remains secondarily liable for certain real and personal property leases. The Company does not believe it is practicable to estimate the fair value of these contingencies and does not believe any significant loss is likely. DEVELOPMENT COSTS: Certain direct and indirect costs are capitalized as building costs in conjunction with acquiring and developing new J. Alexander's restaurant sites and amortized over the life of the related building. Development costs of $203,000, $292,000 and $307,000 were capitalized during 1999, 1998 and 1997, respectively. SELF-INSURANCE: The Company is generally self-insured, subject to stop-loss limitations, for losses and liabilities related to its group medical plan and, for most of 1997 through 1999, except for the state of Ohio, for workers' compensation claims. Losses are accrued based upon the Company's estimates of the aggregate liability for claims incurred using certain estimation processes applicable to the insurance industry and, where applicable, based on Company experience. ADVERTISING COSTS: The Company charges costs of production and distribution of advertising to expense at the time the costs are incurred. Advertising expense was $70,000, $289,000 and $255,000 in 1999, 1998 and 1997, respectively. STOCK BASED COMPENSATION: The Company accounts for its stock compensation arrangements in accordance with Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" and, accordingly, typically recognizes no compensation expense for such arrangements. USE OF ESTIMATES IN FINANCIAL STATEMENTS: Judgment and estimation are utilized by management in certain areas in the preparation of the Company's financial statements. Some of the more significant areas include the valuation allowance relative to the Company's deferred tax assets and reserves for self-insurance of group medical claims and workers' compensation benefits. Management believes that such estimates have been based on reasonable assumptions and that such reserves are adequate. IMPAIRMENT: SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Accordingly, when indicators of impairment are present with respect to an individual restaurant, the Company periodically evaluates the carrying value of that restaurant's property and equipment and intangibles. COMPREHENSIVE INCOME: In 1998, the Company adopted a new disclosure pronouncement, SFAS No. 130, "Reporting Comprehensive Income". The Company has no items of comprehensive income and, accordingly, adoption of the Statement has had no effect on the consolidated financial statements. BUSINESS SEGMENTS: In 1998, the Company also adopted another new disclosure pronouncement, SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information". SFAS No. 131 requires companies to report selected segment information when certain size tests are met. Management has determined that the Company operates in only one segment. 22 23 NOTE B - SALE OF STOCK On March 22, 1999, the Company completed a private sale of 1,086,266 shares of common stock for approximately $4.1 million to Solidus, LLC ("Solidus"). E. Townes Duncan, a director of the Company, is a minority owner of and manages the investments of Solidus. In addition, on June 21, 1999 the Company completed a rights offering wherein shareholders of the Company purchased an additional 240,615 shares of common stock at a price of $3.75 per share, which was the same price per share as stock sold in the private sale. When combined with the proceeds from the private sale noted above, the rights offering raised net proceeds to the Company of approximately $4.8 million, which was used to repay a portion of the debt outstanding under the Company's revolving credit facility. Amounts repaid can be reborrowed in accordance with the terms of the line of credit agreement. NOTE C - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
YEARS ENDED ----------- JANUARY 2 January 3 December 28 2000 1999 1997 ---- ---- ---- NUMERATOR: Net loss before cumulative effect of change in accounting principle $ (332,000) $(1,485,000) $(5,106,000) Cumulative effect of change in accounting principle - - (885,000) ---------- ----------- ----------- Net loss (numerator for basic earnings per share) (332,000) (1,485,000) (5,991,000) Effect of dilutive securities - - - ---------- ----------- ----------- Net loss after assumed conversions (numerator for diluted earnings per share) $ (332,000) $(1,485,000) $(5,991,000) ---------- ----------- ----------- DENOMINATOR: Weighted average shares (denominator for basic earnings per share) 6,428,000 5,426,000 5,409,000 Effect of dilutive securities -- -- -- ---------- ----------- ----------- Adjusted weighted average shares and assumed conversions (denominator for diluted earnings per share) 6,428,000 5,426,000 5,409,000 ========== ========== =========== Basic earnings per share: Loss before accounting change $ (.05) $ (.27) $ (.95) Cumulative effect of change in accounting principle -- -- (.16) ---------- ----------- ----------- Net loss $ (.05) $ (.27) $ (1.11) ========= =========== =========== Diluted earnings per share: Loss before accounting change $ (.05) $ (.27) $ (.95) Cumulative effect of change in accounting principle -- -- (.16) ---------- ---------- ----------- Net loss $ (.05) $ (.27) $ (1.11) ========= ========== ===========
In situations where the exercise price of outstanding options is greater than the average market price of common shares, such options are excluded from the computation of diluted earnings per share because of their antidilutive impact. Due to net losses in the three years presented, all options outstanding were excluded from the computation of diluted earnings per share. 23 24 NOTE D - PROPERTY AND EQUIPMENT Balances of major classes of property and equipment are as follows:
JANUARY 2 January 3 2000 1999 ---- ---- Land $13,126,000 $13,126,000 Buildings 29,314,000 29,158,000 Buildings under capital leases 276,000 276,000 Leasehold improvements 18,088,000 15,351,000 Restaurant and other equipment 15,556,000 14,519,000 Construction in progress (estimated additional cost to complete at January 2, 2000, $2,255,000) 277,000 63,000 ----------- ----------- 76,637,000 72,493,000 Less allowances for depreciation and amortization (14,495,000) (11,053,000) ----------- ----------- $62,142,000 $61,440,000 =========== ===========
Effective as of January 4, 1999, the Company changed the estimated useful life of its buildings from 25 years to 30 years. Also, the estimated life of leasehold improvements was changed to include an amortization period based on the lesser of the lease term, generally including renewal options, or the useful life of the asset, including the longer 30 year life for structures. The effect of these changes was to decrease the net loss reported for 1999 by $333,000, representing a decrease to the diluted loss per share of $.05 for 1999. NOTE E - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES Long-term debt and obligations under capital leases at January 2, 2000, and January 3, 1999, are summarized below:
JANUARY 2, 2000 January 3, 1999 --------------- --------------- CURRENT LONG-TERM Current Long-Term ------- --------- ------- --------- Convertible Subordinated Debentures, 8.25%, due 2003 $973,000 $10,000,000 $1,875,000 $11,875,000 Bank credit agreement, at variable interest rates ranging from 6.9% to 8.5%, available through July 1, 2001 -- 8,019,000 -- 9,270,000 Obligations under capital leases, 9.75% to 11.50% interest, payable through 2005 22,000 109,000 42,000 216,000 -------- ----------- ---------- ----------- $995,000 $18,128,000 $1,917,000 $21,361,000 ======== =========== ========== ===========
Aggregate maturities of long-term debt, including required sinking fund payments, for the five years succeeding January 2, 2000, are as follows: 2000 - $995,000; 2001 - $9,918,000 (includes line of credit balance); 2002 - $1,902,000; 2003 - $6,281,000; 2004 - $27,000. The Convertible Subordinated Debentures due 2003 are convertible into common stock of the Company at any time prior to maturity at $17.75 per share, subject to adjustment in certain events. At January 2, 2000, 618,197 shares of common stock were reserved for issuance upon conversion of the outstanding debentures. The debentures are redeemable upon not less than 30 days' notice at the option of the Company, in whole or in part, at 100% of the principal amount, together with accrued interest to the redemption date. The effective interest rate on the debentures is 8.68%. The Debenture Indenture requires minimum annual sinking fund payments of $1,875,000 through 2002. The Company maintains an unsecured bank line of credit agreement for up to $20,000,000 of revolving credit for the purpose of financing capital expenditures. Borrowings outstanding under this line of credit totaled $8,019,000 and $9,270,000 at January 2, 2000 and January 3, 1999, respectively. In March 2000, the term of the line of credit was extended by one year through July 1, 2001. The amended credit agreement contains covenants which require the Company to achieve specified results of operation and specified levels of senior debt to EBITDA (earnings before interest, taxes, depreciation and amortization) and to maintain certain other financial ratios. It also contains certain limitations on capital expenditures and restaurant development by the Company (generally limiting the Company to the development of two new restaurants per year) and restricts the Company's ability to incur additional debt outside the bank line of credit. The interest rate on borrowings under the line of credit is based on 24 25 LIBOR plus two to three percent, depending on certain financial ratios achieved by the Company. All amounts outstanding under the line become due on July 1, 2001, unless the Company exercises its option to convert outstanding borrowings to a term loan prior to that time. Cash interest payments amounted to $1,606,000, $2,011,000 and $1,483,000, in 1999, 1998 and 1997, respectively. Interest costs of $48,000, $96,000 and $453,000 were capitalized as part of building and leasehold costs in 1999, 1998, and 1997, respectively. The carrying value and estimated fair value of the Company's Convertible Subordinated Debentures were $10,973,000 and $10,424,000, respectively, at January 2, 2000. NOTE F - LEASES At January 2, 2000, the Company was lessee under both ground leases (the Company leases the land and builds its own buildings) and improved leases (lessor owns the land and buildings) for restaurant locations. These leases are generally operating leases. Real estate lease terms are generally for 15 to 20 years and, in many cases, provide for rent escalations and for one or more five-year renewal options. The Company is generally obligated for the cost of property taxes, insurance and maintenance. Certain real property leases provide for contingent rentals based upon a percentage of sales. In addition, the Company is lessee under other noncancellable operating leases, principally for office space. Accumulated amortization of buildings under capital leases totaled $243,000 at January 2, 2000 and $229,000 at January 3, 1999. Amortization of leased assets is included in depreciation and amortization expense. Total rental expense amounted to:
Years Ended ----------- JANUARY 2 January 3 December 28 2000 1999 1997 ---- ---- ---- Minimum rentals under operating leases $1,768,000 $1,566,000 $1,218,000 Contingent rentals 67,000 69,000 63,000 Less: Sublease rentals (199,000) (260,000) (260,000) ---------- ---------- ---------- $1,636,000 $1,375,000 $1,021,000 ========== ========== ==========
At January 2, 2000, future minimum lease payments under capital leases and noncancellable operating leases (including renewal options) with initial terms of one year or more are as follows:
Capital Operating Leases Leases ------ ------ 2000 $ 35,000 $ 1,570,000 2001 35,000 1,663,000 2002 35,000 1,589,000 2003 35,000 1,621,000 2004 27,000 1,379,000 Thereafter -- 28,417,000 -------- ----------- Total minimum payments 167,000 $36,239,000 -------- =========== Less imputed interest (36,000) -------- Present value of minimum rental payments 131,000 Less current maturities at January 2, 2000 (22,000) -------- Long-term obligations at January 2, 2000 $109,000 ========
Minimum future rentals receivable under subleases for operating leases at January 2, 2000, amounted to $991,000. 25 26 NOTE G - INCOME TAXES At January 2, 2000, the Company had net operating loss carryforwards of $3,098,000 for income tax purposes that expire in the years 2000 through 2018. Tax credit carryforwards (consisting of investment and jobs tax credits which expire in the years 2000 and 2001, FICA tip credits which expire in the years 2009 through 2019 and alternative minimum tax credits which may be carried forward indefinitely) of $3,079,000 are also available to reduce future federal income taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of January 2, 2000, and January 3, 1999, are as follows:
JANUARY 2 January 3 2000 1999 ---- ---- Deferred tax liabilities: Tax over book depreciation $ 114,000 $ 407,000 Other - net 502,000 522,000 ---------- ---------- Total deferred tax liabilities 616,000 929,000 ---------- ---------- Deferred tax assets: Capital/finance leases 3,000 6,000 Deferred compensation accruals 225,000 194,000 Self-insurance accruals 58,000 65,000 Net operating loss carryforwards 1,053,000 1,687,000 Tax credit carryforwards 3,079,000 3,101,000 Other - net 308,000 271,000 ---------- ---------- Total deferred tax assets 4,726,000 5,324,000 Valuation allowance for deferred tax assets (4,110,000) (4,395,000) ---------- ---------- 616,000 929,000 ---------- ---------- Net deferred tax assets $ -- $ -- ========== ==========
SFAS No. 109 establishes procedures to measure deferred tax assets and liabilities and assess whether a valuation allowance relative to existing deferred tax assets is necessary. Since the fourth quarter of 1997, management has concluded that, based upon results of operations during the periods in question and its near-term forecast of future taxable earnings, a valuation allowance was appropriate relative to its deferred tax assets. At January 2, 2000, the Company had no net deferred tax assets and a valuation allowance of $4,110,000. Significant components of the income tax provision (benefit) are as follows:
Years Ended JANUARY 2 January 3 December 28 2000 1999 1997 ---- ---- ---- Currently payable: Federal $31,000 $(94,000) $ 31,000 State 2,000 94,000 261,000 ------- ----------- ---------- Total 33,000 -- 292,000 Deferred -- -- 2,393,000 ------- ----------- ---------- Income tax provision $33,000 $ -- $2,685,000 ======= =========== ==========
The Company's consolidated effective tax rate differed from the federal statutory rate as set forth in the following table: 26 27
Years Ended JANUARY 2 January 3 December 28 2000 1999 1997 ---- ---- ---- Tax benefit computed at federal statutory rate (34%) $(102,000) $(505,000) $(1,124,000) State and local income taxes 1,000 63,000 172,000 Non-deductible expenses 160,000 156,000 98,000 Effect of net operating loss carryforwards and tax credits 259,000 (244,000) (326,000) Valuation of deferred tax assets (285,000) 530,000 3,865,000 ---------- ------------ ---------- Income tax provision $ 33,000 $ -- $2,685,000 ========== ============ ==========
The Company made income tax payments of $180,000 and $1,126,000 in 1999 and 1997, respectively. The Company received net income tax refunds of $814,000 in 1998. NOTE H - STOCK OPTIONS AND BENEFIT PLANS Under the Company's 1994 Employee Stock Incentive Plan, officers and key employees of the Company may be granted options to purchase shares of the Company's common stock. In addition, the 1990 Stock Option Plan for Outside Directors provides for the granting of options to purchase the Company's common stock at the fair market price at the date of the grant to members of the Company's Board of Directors who are not employees. Options to purchase the Company's common stock also remain outstanding under the Company's 1982 Incentive Stock Option Plan and 1985 Stock Option Plan, although the Company no longer has the ability to issue additional shares under these plans. A summary of options under the Company's option plans is as follows:
Weighted Average Exercise Options Shares Option Prices Price - ------- ------ ------------- ----- Outstanding at December 29, 1996 529,287 $1.38- $13.00 $6.83 Issued 326,600 5.69- 8.75 6.79 Exercised (93,419) 1.38- 7.63 4.19 Expired or canceled (97,818) 7.38- 11.69 7.58 ------- --------------- ----- Outstanding at December 28, 1997 664,650 1.38- 13.00 6.75 Issued 355,220 2.75- 4.97 2.79 Exercised (10,000) 2.00 2.00 Expired or canceled (331,050) 4.94- 13.00 7.45 ------- --------------- ----- Outstanding at January 3, 1999 678,820 1.38- 11.69 4.40 Issued 189,000 2.25- 4.06 2.30 Exercised (14,000) 1.75- 3.81 2.13 Expired or canceled (43,300) 3.81- 11.69 4.60 ------- --------------- ----- Outstanding at January 2, 2000 810,520 $1.38- $11.69 $3.95 ======= =============== =====
Options exercisable and shares available for future grant are as follows:
JANUARY 2 January 3 December 28 2000 1999 1997 ---- ---- ---- Options exercisable 344,004 221,171 269,439 Shares available for grant 190,564 123,014 218,384
27 28 The following table summarizes information about stock options outstanding at January 2, 2000:
Options Outstanding Options Exercisable Number Number Outstanding at Weighted Weighted Exercisable at Weighted Range of January 2 Average Remaining Average Exercise January 2 Average Exercise Prices 2000 Contractual Life Price 2000 Exercise Price - --------------- ---- ---------------- ----- ---- -------------- $1.38- $2.25 264,500 6.8 years $2.01 84,500 $1.50 2.75- 2.88 327,520 8.8 years 2.75 107,507 2.75 3.81- 5.69 58,500 7.8 years 5.50 38,666 5.54 7.38- 11.69 160,000 5.3 years 9.02 113,331 8.81 - ------- ------ ------- ----- ------- ----- $1.38- $11.69 810,520 $3.95 344,004 $4.75 ======= ====== ======= ===== ======= =====
Options exercisable at January 3, 1999 and December 28, 1997 had weighted average exercise prices of $5.23 and $6.00, respectively. In 1995, the Financial Accounting Standards Board issued SFAS No. 123 "Accounting for Stock Based Compensation". This standard defines a fair value based method of accounting for an employee stock option or similar equity instrument. This statement gives entities a choice of recognizing related compensation expense by adopting the new fair value method or continuing to measure compensation using the intrinsic value approach under Accounting Principles Board (APB) Opinion No. 25 "Accounting for Stock Issued to Employees", the former standard. The Company has elected to follow APB No. 25 and related Interpretations in accounting for its stock compensation plans because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB No. 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1999, 1998 and 1997, respectively: risk-free interest rates of 5.94%, 4.62% and 6.04%; no annual dividend yield; volatility factors of .4500, .3795 and .3619 based on monthly closing prices since August, 1990; and an expected option life of 10 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
Years Ended JANUARY 2 January 3 December 28 2000 1999 1997 ---- ---- ---- Pro forma net loss $(688,000) $(2,076,000) $(6,503,000) Pro forma loss per share Basic $ (.11) $ (.38) $ (1.20) Diluted $ (.11) $ (.38) $ (1.20)
The weighted average fair value per share for options granted during 1999, 1998 and 1997 was $1.50, $1.61 and $4.09, respectively. 28 29 The Company has an Employee Stock Purchase Plan under which 75,547 shares of the Company's common stock are available for issuance. A total of 15,760 shares were issued under the plan in 1997. No shares were issued under the plan in 1998 or 1999. The Company has a Salary Continuation Plan which provides retirement and death benefits to certain key employees. The expense recognized under this plan was $94,000, $59,000 and $113,000 in 1999, 1998 and 1997, respectively. The Company has a Savings Incentive and Salary Deferral Plan under Section 401(k) of the Internal Revenue Code which allows qualifying employees to defer a portion of their income on a pre-tax basis through contributions to the plan. All Company employees with at least 1,000 hours of service during the twelve month period subsequent to their hire date, or any calendar year thereafter, and who are at least 21 years of age are eligible to participate. For each dollar of participant contributions, up to 3% of each participant's salary, the Company makes a minimum 10% matching contribution to the plan. The Company's matching contribution for 1999 totaled $36,000, or 25% of eligible participant contributions. For 1998 and 1997, the Company recognized expense of $29,000 and $22,000, respectively. In 1999, the Company established the 1999 Loan Program (Loan Program) to allow eligible employees to make purchases of the Company's common stock. Under the terms of the Loan Program, all full-time employees as well as part-time employees who had at least five years of employment with the Company were eligible to borrow amounts ranging from a minimum of $10,000 to a maximum of 100% of their annual salary. Borrowings in excess of the maximum are allowed upon approval by the Compensation Committee or the officers of the Company, as applicable. Such borrowings are to be used exclusively to purchase shares of the Company's common stock and shall accrue interest at the rate of 3% annually from the date of the last purchase of shares under the program until paid in full. Interest is payable quarterly until December 31, 2006 at which time there will be a balloon payment of the unpaid interest and the entire principal amount due. In the event that a participant receives from the Company bonus compensation, 30% of any such bonus is to be applied to the outstanding principal balance of the note. Further, a participant's loan may be declared due and payable upon termination of a participant's employment or failure to make any payment when due, as well as under other circumstances set forth in the program documents. The maximum aggregate amount of loans authorized is $1,000,000. As of January 2, 2000, the Loan Program had purchased 160,300 shares of Company stock at an aggregate purchase price of $486,000. The purchase of stock under the Loan Program has been reported as a reduction from the Company's stockholders' equity. In addition to shares purchased in the manner described above, participants in the Loan Program will receive a stock bonus award on one share of common stock for every 20 shares of common stock purchased under the program. Participants in the Loan Program will also receive an award of one share of restricted common stock for every 20 shares of common stock purchased under the program. Both the stock bonus award and the restricted stock award will be issued pursuant to the Company's 1994 Employee Stock Incentive Plan, with the restricted stock award scheduled to vest at the rate of 20% of the number of shares awarded on each of the second through sixth anniversaries of the date of the last purchase of shares under the Loan Program. For purposes of computing earnings per share, the shares purchased through the Loan Program are included as outstanding shares in the weighted average share calculation. NOTE I - EMPLOYEE STOCK OWNERSHIP PLAN In 1992, the Company established an Employee Stock Ownership Plan (ESOP) which purchased 457,055 shares of Company common stock from the Massey Company, a trust created by the late Jack C. Massey, the Company's former Board Chairman, and the Jack C. Massey Foundation at $3.75 per share for an aggregate purchase price of $1,714,000. The Company funded the ESOP by loaning it an amount equal to the purchase price, with the loan secured by a pledge of the unallocated stock held by the ESOP. The note receivable from the ESOP has been reported as a reduction from the Company's stockholders' equity. The Company has made a contribution to the ESOP each year since the ESOP was established allowing the ESOP to make its scheduled loan repayments to the Company, with the exception of 1996 when no contribution was made. Contributions made to the ESOP resulted in net compensation expense of $135,000, $123,000 and $85,000 for 29 30 1999, 1998 and 1997, respectively, with corresponding reductions in the ESOP note receivable. The terms of the ESOP note, as amended in 1997, call for interest to be paid at an annual rate of 10% and for repayment of the ESOP note's remaining principle in annual amounts ranging from $148,000 to $197,000 over the period 2000 through 2003. All Company employees with at least 1,000 hours of service during the twelve month period subsequent to their hire date, or any calendar year thereafter, and who are at least 21 years of age are eligible to participate. The ESOP generally requires five years of service with the Company in order for an ESOP participant's account to vest. Allocation of stock is made to participants' accounts as the ESOP's loan is repaid and is in proportion to each participant's compensation for each year. Shares allocated under the ESOP were 305,424 and 267,515 at January 2, 2000 and January 3, 1999, respectively. For purposes of computing earnings per share, the shares originally purchased by the ESOP are included as outstanding shares in the weighted average share calculation. NOTE J - SHAREHOLDER RIGHTS PLAN The Company's Board of Directors has adopted a shareholder rights plan to protect the interests of the Company's shareholders if the Company is confronted with coercive or unfair takeover tactics by encouraging third parties interested in acquiring the Company to negotiate with the Board of Directors. The shareholder rights plan is a plan by which the Company has distributed rights ("Rights") to purchase (at the rate of one Right per share of common stock) one-hundredth of a share of no par value Series A Junior Preferred (a "Unit") at an exercise price of $12.00 per Unit. The Rights are attached to the common stock and may be exercised only if a person or group acquires 20% of the outstanding common stock or initiates a tender or exchange offer that would result in such person or group acquiring 10% or more of the outstanding common stock. Upon such an event, the Rights "flip-in" and each holder of a Right will thereafter have the right to receive, upon exercise, common stock having a value equal to two times the exercise price. All Rights beneficially owned by the acquiring person or group triggering the "flip-in" will be null and void. Additionally, if a third party were to take certain action to acquire the Company, such as a merger or other business combination, the Rights would "flip-over" and entitle the holder to acquire shares of the acquiring person with a value of two times the exercise price. The Rights are redeemable by the Company at any time before they become exercisable for $0.01 per Right and expire May 16, 2004. In order to prevent dilution, the exercise price and number of Rights per share of common stock will be adjusted to reflect splits and combinations of, and common stock dividends on, the common stock. During 1999, the shareholder rights plan was amended by altering the definition of "acquiring person" to specify that Solidus, LLC and its affiliates shall not be or become an acquiring person as the result of its acquisition of Company common stock in excess of 20% or more of Company common stock outstanding (See Note B - Sale of Stock). NOTE K - COMMITMENTS AND CONTINGENCIES As a result of the disposition of its Wendy's operations in 1996, the Company remains secondarily liable for certain real property leases with remaining terms of one to sixteen years. The total amount of lease payments remaining on these leases at January 2, 2000 was approximately $4.3 million. In connection with the sale of its Mrs. Winner's Chicken & Biscuit restaurant operations in 1989 and certain previous dispositions, the Company remains secondarily liable for certain real and personal property leases with remaining terms of one to six years. The total amount of lease payments remaining on these leases at January 2, 2000, was approximately $1.8 million. Additionally, in connection with the previous disposition of certain other Wendy's restaurant operations, primarily the southern California Wendy's restaurants in 1982, the Company remains secondarily liable for certain real property leases with remaining terms of one to seven years. The total amount of lease payments remaining on these leases as of January 2, 2000, was approximately $800,000. The Company is a party to legal proceedings incidental to its business. In the opinion of management, the ultimate liability with respect to these actions will not materially affect the operating results or the financial position of the Company. 30 31 NOTE L - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities included the following:
JANUARY 2 January 3 2000 1999 ---- ---- Taxes, other than income taxes $1,584,000 $1,401,000 Salaries and wages 584,000 750,000 Insurance 249,000 493,000 Interest 82,000 191,000 Other 1,131,000 1,058,000 ---------- ---------- $3,630,000 $3,893,000 ========== ==========
31 32 Quarterly Results of Operations The following is a summary of the quarterly results of operations for the years ended January 2, 2000 and January 3, 1999 (dollars in thousands, except per share amounts):
1999 Quarters Ended ------------------- April 4 July 4 October 3 January 2 ------- ------ --------- --------- Net sales $19,208 $18,762 $19,041 $21,443 Net income (loss) 244 (166) (820) 410 Basic earnings per share $ .04 $ (.03) $ (.12) $ .06 Diluted earnings per share $ .04 $ (.03) $ (.12) $ .06
1998 Quarters Ended ------------------- March 29 June 28 September 27 January 3(1) -------- ------- ------------ ----------- Net sales $ 17,512 $ 18,095 $ 18,087 $ 20,506 Net income (loss) (1,104) (365) (383) 367(2) Basic earnings per share $ (.20) $ (.07) $ (.07) $ .07 Diluted earnings per share $ (.20) $ (.07) $ (.07) $ .07
1 Represents a 14-week quarter ending January 3, 1999, compared to 13-week quarters for all other quarters presented. 2 Includes pre-tax gain of $264 related to disposal of Wendy's restaurant operations in 1996. 32 33 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required under this item with respect to directors of the Company is incorporated herein by reference to the "Proposal No. 1: Election of Directors" section and the "Section 16(a) Beneficial Ownership Reporting Compliance" section of the Company's Proxy Statement for the 2000 Annual Meeting of Shareholders to be held May 16, 2000. (See also "Executive Officers of the Company" under Part I of this Form 10-K.) ITEM 11. EXECUTIVE COMPENSATION The information required under this item is incorporated herein by reference to the "Executive Compensation" section of the Company's Proxy Statement for the 2000 Annual Meeting of Shareholders to be held May 16, 2000. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required under this item is incorporated herein by reference to the "Security Ownership of Certain Beneficial Owners and Management" section of the Company's Proxy Statement for the 2000 Annual Meeting of Shareholders to be held May 16, 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required under this item is incorporated herein by reference to the "Certain Relationships and Related Transactions" section of the Company's Proxy Statement for the 2000 Annual Meeting of Shareholders to be held May 16, 2000. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) See Item 8. (a)(2) The information required under Item 14, subsection (a)(2) is set forth in a supplement filed as part of this report beginning on page F-1. (a)(3) Exhibits: (3)(a)(1) Charter (Exhibit 3(a) of the Registrant's Report on Form 10-K for the year ended December 30, 1990, is incorporated herein by reference). (3)(a)(2) Amendment to Charter dated February 7, 1997 (Exhibit (3)(a)(2) of the Registrant's Report on Form 10-K for the year ended December 29, 1996 is incorporated herein by reference). (3)(b) Restated Bylaws as currently in effect. (Exhibit 3(b) of the Registrant's Report on Form 10-K for the year ended January 3, 1999 is incorporated herein by reference). (4)(a) Form of Indenture dated as of May 19, 1983, between the Registrant and First American National Bank of Nashville, Trustee (Exhibit 4 of the Registrant's quarterly report on Form 10-Q for the quarter ended June 30, 1983, is incorporated herein by reference). (4)(b) Rights Agreement dated May 16, 1989, by and between Registrant and NationsBank (formerly Sovran Bank/Central South) including Form of Rights Certificate and Summary of Rights (Exhibit 3 to the Report on Form 8-K dated May 16, 1989, is incorporated herein by reference). 33 34 (4)(c) Amendments to Rights Agreement dated February 22, 1999, by and between the Registrant and SunTrust Bank. (Exhibit 4(c) of the Registrant's Report on Form 10-K for the year ended January 3, 1999 is incorporated herein by reference). (4)(d) Amendment to Rights Agreement dated March 22, 1999, by and between the Registrant and SunTrust Bank. (Exhibit 4(d) of the Registrant's Report on Form 10-k for the year ended January 3, 1999 is incorporated herein by reference). (4)(e) Stock Purchase and Standstill Agreement dated March 22, 1999, by and between the Registrant and Solidus, LLC. (Exhibit 4(e) of the Registrant's Report on Form 10-K for the year ended January 3, 1999 is incorporated herein by reference). (10)(a) Employee Stock Ownership Plan (Exhibit 1 to the Registrant's Report on Form 8-K dated June 25, 1992, is incorporated herein by reference). (10)(b) Employee Stock Ownership Trust Agreement dated June 25, 1992 between Registrant and Third National Bank in Nashville. (Exhibit 2 to the Registrant's Report on Form 8-K dated June 25, 1992, is incorporated herein by reference). (10)(c) Secured Promissory Note dated June 25, 1992 from the Volunteer Capital Corporation Employee Stock Ownership Trust to Registrant (Exhibit 4 to the Registrant's Report on Form 8-K dated June 25, 1992, is incorporated herein by reference). (10)(d) Pledge and Security Agreement dated June 25, 1992, by and between Registrant and Third National Bank in Nashville as the Trustee for the Volunteer Capital Corporation Employee Stock Ownership Trust (Exhibit 5 to the Registrant's Report on Form 8-K dated June 25, 1992, is incorporated herein by reference). (10)(e) $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 10.1 of the Registrant's quarterly report on Form 10-Q for the quarter ended October 1, 1995 is incorporated herein by reference). (10)(f) Asset Purchase Agreement dated October 25, 1996 by and between VCE Restaurants, Inc., Volunteer Capital Corporation and Wendy's International, Inc. (Exhibit 10.1 of the Registrant's quarterly report on Form 10-Q for the quarter ended September 29, 1996 is incorporated herein by reference). (10)(g) Amended and Restated Secured Promissory Note dated November 21, 1997 from the J. Alexander's Corporation Employee Stock Ownership Trust to Registrant. (Exhibit (10)(g) of the Registrant's Report on Form 10-K for the year ended December 28, 1997 is incorporated herein by reference). (10)(h) Amendment to Loan Agreement dated March 27, 1998, by and between J. Alexander's Corporation, J. Alexander's Restaurants, Inc. and NationsBank of Tennessee, N.A. (Exhibit (10)(h) of the Registrant's Report on Form 10-K for the year ended December 28, 1997 is incorporated herein by reference). (10)(i) Line of Credit Note dated March 27, 1998, by and between J. Alexander's Corporation, J. Alexander's Restaurants, Inc. and NationsBank of Tennessee, N.A. (Exhibit (10)(i) of the Registrant's Report on Form 10-K for the year ended December 28, 1997 is incorporated herein by reference). 34 35 EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS (10)(j) Written description of Salary Continuation Plan (description of Salary Continuation Plan included in the Registrant's Proxy Statement for Annual Meeting of Shareholders, May 10, 1994, is incorporated herein by reference). (10)(k) Form of Severance Benefits Agreement between the Registrant and Messrs. Stout and Lewis (Exhibit (10)(j) of the Registrant's Report on Form 10-K for the year ended December 31, 1989, is incorporated herein by reference). (10)(l) 1982 Incentive Stock Option Plan (incorporated by reference to pages B-1 through B-6 of Registration Statement No 2-78140). (10)(m) Amended and restated 1982 Employee Stock Purchase Plan (incorporated by reference from the Registrant's Current Report on Form 8-K filed March 29, 1996). (10)(n) 1985 Stock Option Plan (incorporated by reference to pages 15 through 20 of the Registrant's Proxy Statement for Annual Meeting of Shareholders, May 8, 1985, and Exhibit A to the Registrant's Proxy Statement for Annual Meeting of Shareholders, May 11, 1993). (10)(o) 1990 Stock Option Plan for Outside Directors (Exhibit A of the Registrant's Proxy Statement for Annual Meeting of Shareholders, May 8, 1990, is incorporated herein by reference). (10)(p) 1994 Employee Stock Incentive Plan (incorporated by reference to Exhibit 4(c) of Registration Statement on Form S-8, Registration No. 33-77476). (10)(q) Amendment to 1994 Employee Stock Incentive Plan (Appendix A of the Registrant's Proxy Statement for Annual Meeting of Shareholders, May 20, 1997, is incorporated herein by reference). (10)(r) 1999 Loan Program (incorporated herein by reference to Exhibit A of Registration Statement on Form S-8, Registration No. 333-91431). (10)(s) Amendment to Employee Stock Ownership Plan, dated June 29, 1994. (10)(t) Amendment to Employee Stock Ownership Plan, dated February 17, 1998 (10)(u) Amendment to Employee Stock Ownership Plan, dated December 30, 1998. (10)(v) Second Amendment to Loan Agreement dated March 30, 2000, by and between J. Alexander's Corporation, J. Alexander's Restaurants, Inc. and Bank of America, N.A. (successor to NationsBank of Tennessee, N.A.). (10)(w) Renewal of Line of Credit Note dated March 30, 2000, by and between J. Alexander's Corporation, J. Alexander's Restaurants, Inc. and Bank of America, N.A. (successor to NationsBank of Tennessee, N.A.). (21) List of subsidiaries of Registrant. (23) Consent of Independent Auditors. 35 36 (b) Reports on Form 8-K: On November 23, 1999 the Company filed a Current Report on Form 8-K containing Item 5 describing a press release dated November 19, 1999 (also filed as an exhibit to the Form 8-K), stating that the Company's Board of Directors had declined to pursue discussions with O'Charley's, Inc., regarding the possibility of a merger of the two companies. (c) Exhibits - The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules - The response to this portion of Item 14 is submitted as a separate section of this report. 36 37 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) 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. J. ALEXANDER'S CORPORATION Date: 3/31/00 By: /s/ Lonnie J. Stout II -------- ------------------------------------------------ Lonnie J. Stout II Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name Capacity Date ---- -------- ---- /s/ Lonnie J. Stout II Chairman, President, Chief Executive Officer 3/31/00 - ---------------------- and Director (Principal Executive Officer) Lonnie J. Stout II /s/ R. Gregory Lewis Vice President and Chief Financial Officer 3/31/00 - ---------------------- (Principal Financial Officer) R. Gregory Lewis /s/ Mark A. Parkey Vice President and Controller 3/31/00 - ---------------------- (Principal Accounting Officer) Mark A. Parkey /s/ E. Townes Duncan Director 3/31/00 - ---------------------- E. Townes Duncan /s/ Garland G. Fritts Director 3/31/00 - ---------------------- Garland G. Fritts /s/ John L.M. Tobias Director 3/31/00 - ---------------------- John L.M. Tobias
38 ANNUAL REPORT ON FORM 10-K ITEM 14(a)(2), (c) and (d) FINANCIAL STATEMENT SCHEDULES CERTAIN EXHIBITS FISCAL YEAR ENDED JANUARY 2, 2000 J. ALEXANDER'S CORPORATION AND SUBSIDIARIES NASHVILLE, TENNESSEE F-1 39 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS J. ALEXANDER'S CORPORATION AND SUBSIDIARIES
COL. A COL. B COL. C COL. D COL. E ------ ------ ------ ------ ------ Additions Balance at Charged to Charged to Balance Beginning Costs and Other Accounts Deductions- at End Description of Period Expenses Describe Describe of Period ----------- --------- -------- -------- -------- --------- Year ended January 2, 2000: Valuation allowance for deferred tax assets $4,395,000 $(285,000) $0 $0 $4,110,000 Year ended January 3, 1999: Valuation allowance for deferred tax assets $3,865,000 $530,000 $0 $0 $4,395,000 Year ended December 28, 1997: Valuation allowance for deferred tax assets $0 $3,865,000(1) $0 $0 $3,865,000
(1) Includes a $2,393,000 increase to the beginning of the year valuation allowance reflecting a change in circumstances which resulted in a judgement that a 100% valuation allowance was appropriate as of December 28, 1997. F-2 40 J. ALEXANDER'S CORPORATION EXHIBIT INDEX Reference Number per Item 601 of Regulation S-K Description - -------------- ----------- (10)(s) Amendment to Employee Stock Ownership Plan, dated June 29, 1994. (10)(t) Amendment to Employee Stock Ownership Plan, dated February 17, 1998. (10)(u) Amendment to Employee Stock Ownership Plan, dated December 30, 1998. (10)(v) Second Amendment to Loan Agreement dated March 30, 2000, by and between J. Alexander's Corporation, J. Alexander's Restaurants, Inc. and Bank of America, N.A. (successor to NationsBank of Tennessee, N.A.). (10)(w) Renewal of Line of Credit Note dated March 30, 2000, by and between J. Alexander's Corporation, J. Alexander's Restaurants, Inc. and Bank of America, N.A. (successor to NationsBank of Tennessee, N.A.). (21) List of subsidiaries of Registrant. (23) Consent of Ernst & Young LLP, independent auditors (27) Financial Data Schedule (FOR SEC USE ONLY) EX-10.S 2 AMENDMENT TO EMPOLYEE STOCK OWNERSHIP 6/29/94 1 EXHIBIT 10(s) SECOND AMENDMENT TO VOLUNTEER CAPITAL CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN WHEREAS, effective as of January 1, 1992, Volunteer Capital Corporation, a Tennessee corporation ("Company"), adopted the Volunteer Capital Corporation Employee Stock Ownership Plan ("Plan") which was subsequently amended effective as of January 1, 1992; and WHEREAS, certain technical changes to the Plan are required in order to maintain the Plan in compliance with the Internal Revenue Code as amended by the Unemployment Compensation Amendments of 1992 and the Omnibus Reconciliation Act of 1993; and WHEREAS, in connection with the Company's request for a determination letter, the Internal Revenue Service has suggested that the Plan be amended in certain respects. NOW, THEREFORE, effective on January 1, 1992, except as otherwise indicated, the Company amends its Plan in the following respects: 1. Section 2.1(f) is amended to provide as follows: (f) Affiliated Company: Any corporation which is a member of a controlled group of corporations of which an Adopting Company is a member, or any unincorporated trade or business which is under the common control of or with any Adopting Company, or any affiliated service group of which an Adopting Company is a member, which are required to be aggregated with Employer under Section 414(b), (c), (m) or (o) of the Code. 2 2. Effective January 1, 1994, Section 2.1(r) is amended to provide as follows: (r) Compensation: The total of all amounts paid for employment by the Employer to or for the benefit of a Participant during the Plan Year (as shown on the Form W-2 filed for federal income tax purposes), such as salary, bonus, wage, commission, and overtime payments. Compensation shall not include any of the following (even if includible in gross income): (i) reimbursements or other expense allowances and moving expenses (including indemnity payments for loss on sale of an Employee's home); (ii) fringe benefits (cash and non-cash), deferred compensation and welfare benefits; and (iii) salary reduction contributions or other elective deferrals under the Flexible Benefit Plan or any other plan pursuant to Section 125 of the Code. Notwithstanding the foregoing, Compensation shall include any salary reduction or other elective deferrals to the Savings Incentive Plan or any other plan pursuant to Section 401(k) of the Code. Compensation in excess of the first $200,000 (as adjusted from time to time pursuant to Section 415(d) of the Code) for any Employee shall not be taken into account. Effective for Plan Years commencing after December 31, 1993, Compensation in excess of the first $150,000 (as adjusted from time to time pursuant to Section 401(a)(17)(B) of the Code) for any Employee shall not be taken into account. For purposes of this limit, the compensation of each Family Member (restricted to the spouse or lineal descendant under the age of 19) of a Participant who is a 5-Percent Owner or who is a Highly Compensated Employee and one of the ten most highly paid employees for the Plan Year shall be combined with the Compensation of such 5-Percent Owner or Highly Compensated Employee. 3. Section 2.1(bbb) is amended to provide as follows: (bbb) Year of Eligibility Service: A twelve consecutive-month period in which an Employee has completed 1,000 Hours of Service. The initial computation period shall be measured from the date employment commenced and subsequent computation periods shall be based on the Plan Year beginning with the Plan 2 3 Year which includes the first anniversary of the date employment commenced. In the case of an Employee who, under the Plan, does not have any nonforfeitable right to an accrued benefit, Years of Eligibility Service before any period of consecutive one-year Breaks in Service shall not be taken into account if the number of consecutive Breaks in Service equals or exceeds the greater of five (5) or the number of such Years of Eligibility Service prior to the period of consecutive Breaks in Service. Years of Eligibility Service prior to January 1, 1992 shall be taken into account. 4. Section 2.1(ccc) is amended to provide as follows: (ccc) Year of Vesting Service. A Plan Year in which an Employee has completed 1,000 Hours of Service, except: (1) In the case of any Employee who has five consecutive one-year Breaks in Service, Years of Vesting Service after such consecutive Breaks in Service shall not be taken into account for purposes of determining the nonforfeitable percentage of his Account as it existed prior to the period of consecutive Breaks in Service. (2) In the case of an Employee who, under the Plan, does not have any nonforfeitable right to an accrued benefit, Years of Vesting Service before any period of consecutive one-year Breaks in Service shall not be taken into account if the number of consecutive Breaks in Service equals or exceeds the greater of five (5) or the number of such Years of Vesting Service prior to the period of consecutive Breaks in Service. Years of Vesting Service prior to January 1, 1987, shall be excluded without exception. Years of Vesting Service as of December 31, 1991 shall be determined based on the number of calendar years commencing on January 1, 1987 and anniversaries thereof during which the Employee was credited with at least one Hour of Service. Such determination shall be made in accordance with paragraphs 1 and 2 of this Section 2.1(ccc). For all Employees, regardless of their hire date, all Years of Vesting Service commencing on or after January 1, 1992, shall be determined under the 3 4 foregoing rules of this Section 2.1(ccc) excluding this last paragraph. 5. Effective January 1, 1993, Section 2.1 (ddd) is added to provide as follows: (ddd) Direct Rollover: A Direct Rollover is a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. 6. Effective January 1, 1993, Section 2.1 (eee) is added to provide as follows: (eee) Distributee: A Distributee includes a Participant and Former Participant. In addition, the Participant's surviving spouse and the Participant's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are Distributees with regard to the interest of the spouse or former spouse. 7. Effective January 1, 1993, Section 2.1 (fff) is added to provide as follows: (fff) Eligible Retirement Plan: Any of the following: (i) an individual retirement account as described in Code Section 408(a), (ii) an individual retirement annuity as described in Code Section 408(b), (iii) an annuity plan as described in Code Section 403(a), or (iv) a qualified trust as describe in Code Section 401(a) which is exempt from tax under Code Section 501(a) and which accepts Eligible Rollover Distributions; provided, however, that in the case of an Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. 8. Effective January 1, 1993, Section 2.1 (ggg) is added to provide as follows: (ggg) Eligible Rollover Distribution: Any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include any of the following: 4 5 (i) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) over the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated Beneficiary, (ii) a distribution over a period certain of ten years or more, (iii) a distribution to the extent such distribution is required under Code Section 401(a)(9) for Participants who have attained age 70-1/2, or (iv) the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Employer securities). 9. Section 4.3(b) is amended to provide as follows: (b) After termination of employment with Employer and with all Affiliated Companies (other than for disability, normal retirement, early retirement, delayed retirement, or death), but no later than the end of the Plan Year following the Plan Year in which such termination occurs, the Participant shall be entitled to receive a "cash out" of such Participant's "vested benefit" as determined pursuant to Section 6.8 provided that such "vested benefit" is not greater than $10,000. Distribution of a vested benefit greater than $10,000 shall occur at the time provided in the last paragraph of this Section 4.3(b). Such cash out of the vested benefit shall not be made in the absence of written consent thereto by the Participant if the vested benefit (as determined pursuant to Section 6.8) attributable to Employer contributions is greater than $3,500. For the sole purpose of determining whether the vested benefit is less than $3,500 or $10,000, as the case may be, Company Stock in the Participant's Company Stock Sub-Account shall be valued at its market value on the first trading date of the Plan Year during which the distribution is scheduled to occur. A Participant having a vested benefit of zero shall be deemed to have been cashed out hereunder on the date of his termination of employment. Upon such a deemed payment, the Participant's nonvested Account balance shall become a Forfeiture upon the date of the cash out. Such Forfeiture shall then be allocated to the Accounts of other Participants as provided in Section 5.2. A Participant having a vested benefit of zero who is deemed to receive a cash out upon termination of employment, and who later resumes employment covered under the Plan before the last day of the Plan Year in which the Participant incurs five (5) 5 6 consecutive Breaks in Service commencing after the deemed distribution, shall have restored the Participant's previous balance in his Account at the time of the cash out, with no adjustment for Income or other earnings, and all Years of Service, whether before or after the cash-out date, shall be counted for purposes of determining the Participant's vested percentage in the restored Account balance. The number of shares in Company Stock restored to his Company Stock Sub-Account shall be the number of shares which can be purchased, based on the market value per share on the date of the deemed repayment, for a sum equal to the market value of the shares in the Participant's Company Stock Sub-Account on the date of the deemed cash out. Forfeitures which have become available for allocation during the Plan Year in which a deemed repayment occurs shall first be allocated to the extent required to restore the Participant's previously nonvested Account balance in full, and any remaining Forfeitures shall be allocated as provided in Section 5.2. If available Forfeitures are insufficient to restore the Participant's previously nonvested Account balance, the difference shall be provided by a special Employer contribution. The foregoing special contribution and allocation of Forfeitures shall not be considered as part of the annual Addition for that Participant in connection with the limitations of Section 5.3 hereof. If a distribution is not made at the time specified in the first paragraph of this Section 4.3(b) because the Participant's vested benefit is greater than $10,000, as determined by reference to the market value of the Company Stock on the first trading date of the Plan Year during which the distribution would have been made if the vested benefit had been less than $10,000, the Participant shall be entitled to elect to receive a distribution of his vested benefit during the third Plan Year following the Plan Year during which he terminated employment with Employer and with all Affiliated Companies. 10. Section 5.2(e) is amended to provide as follows: (e) Financed Shares. Company Stock acquired by the Trust through an Acquisition Loan ("Financed Shares") shall be held in the Loan Suspense Account, and the total number of shares to be allocated each Plan Year to the Company Stock Sub-Accounts of Participants shall be determined by multiplying the total number of shares purchased with the Acquisition Loan (or, in years subsequent to such purchase, the number of Financed Shares held in the Loan Suspense Account immediately preceding the date of such allocation) by a fraction, the numerator of which is the total amount of principal and interest payments made on the Acquisition Loan by the Trust for the Plan Year and the denominator of which is the sum of the numerator plus the 6 7 principal and interest payments to be made for all future Plan Years on the Acquisition Loan. In the discretion of the Committee, the number of shares to be allocated shall be determined solely with reference to principal payments in the above formula if (1) the loan provides for payments of principal and interest at a cumulative rate that is not less rapid at any time than level annual payment of such amounts for ten (10) years, (2) the disregarded interest is determined to be interest under standard loan amortization tables, and (3) the term of the loan does not exceed ten (10) years, whether initially or by reason of renewal, extension or refinancing of the Acquisition Loan. Financed Shares thus released from the Loan Suspense Account shall be allocated to the Company Stock Sub-Accounts of those Participants entitled to share in such allocation under Section 5.2(a) in the following manner: (1) First, with respect to Financed Shares released by reason of Employer contributions used to repay the Acquisition Loan, in the manner provided in Section 5.2(a); and (2) Second, with respect to Financed Shares released by reason of the application of dividends on Company Stock, in accordance with the provisions of Section 5.2(g). If an interim Valuation Date is selected pursuant to Section 6.14, the foregoing allocation rules shall be applied for the period commencing on January 1 of that Plan Year and ending on the interim Valuation Date, taking into account only principal and interest paid on the Acquisition Loan and Compensation of Participants during that period. A similar allocation shall be made for the period commencing on the interim Valuation Date and ending on December 31 of that Plan Year, taking into account only principal and interest paid on the Acquisition Loan and Compensation of Participants during that period. 11. Section 5.2(g)(3) is amended to provide as follows: (3) No allocation of cash dividends on Company Stock, and no allocation of Financed Shares released from the Loan Suspense Account by reason of such dividends, shall be made to the Account of a Participant for a Plan Year to the extent the Participant receives during that Plan Year a distribution of Company Stock with regard to which the dividends were paid. Any such cash dividends or Financed Shares released from the Loan Suspense Account by reason of such dividends shall be allocated as Income in accordance with Section 5.2(f). 7 8 12. Section 5.3 is amended to provide as follows: 5.3 Maximum Additions: The "annual addition" for any Participant shall not exceed the amount determined hereunder. For any Participant, annual addition shall mean, for this Plan, the Additions for that Participant, and for any other plan in which the Participant participates, annual addition shall mean the sum of employer contributions, employee contributions and forfeitures allocated on behalf of the Participant for a Plan Year, which is defined to be the limitation year. The determination of the annual addition shall be made as if all defined contribution plans of the Employer and any Affiliated Company were one plan and any participant contributions to defined benefit plans will be treated as contributions to defined contribution plans. Notwithstanding anything contained herein to the contrary, the total annual Additions made to the Account of a Participant for any Plan Year shall not exceed the lesser of the "defined contribution plan dollar limitation" or 25 percent (25%) of the Participant's Section 415 Compensation for such Plan Year. The "defined contribution plan dollar limitation" shall be the greater of (i) $30,000 or (ii) one-fourth of the defined benefit dollar limitation set forth in Section 415(b)(1) of the Code as in effect for the Plan Year. If, in any year, as the result of the allocation of Forfeitures, a reasonable error in estimating a Participant's compensation, or other limited facts and circumstances, the Additions would exceed the limitation for any Participant, such excess shall be reallocated to eligible Participants as a Forfeiture for the Plan Year. If such reallocated Additions cause the limitation to be exceeded for all Participants, such excess shall be held in a suspense account. The amounts in such suspense account shall be allocated as of each Valuation Date until the account is exhausted, the allocation to be analogous to that provided in Section 5.2(a). Income shall not be allocated to such suspense account. If a suspense account is in existence at any time during a particular Plan Year, other than the first Plan Year for which the suspense account is created, all amounts in the suspense account must be allocated and reallocated to Participants' Accounts (subject to the limitations of Section 415 of the Code) before any Employer contributions which would constitute Additions may be made for that Plan Year. In addition to this Plan, the Employer maintains the Savings Incentive Plan with a limitation year corresponding to the Plan Year. If a Participant is also a participant in the Savings Incentive Plan, the limitation upon the annual additions which may otherwise be credited to his Savings Incentive Plan account shall be first reduced by the total Additions, for the Plan Year 8 9 credited to such Participant's Account under this Plan, and the Additions to this Plan shall not be reduced by reason of any annual additions to the Savings Incentive Plan. 13. Section 5.4 is amended to provide as follows: 5.4 Allocation of Top-Heavy Special Contribution to Provide Minimum Benefits: For Top-Heavy Plan Years, the Employer contributions made pursuant to Section 4.1 and the special contribution described in Section 4.4 shall first be allocated to the Account of each Non-Key Employee in an amount sufficient to provide the Minimum Benefit described by the following test. The sum of Employer contributions and Forfeitures allocated during the Plan Year to the Account maintained for each Participant who is a Non-Key Employee shall be at least as great as a percentage of such Non-Key Employee's Section 415 Compensation. Such percentage shall be equivalent to the highest ratio for a Key Employee for that Plan Year of (i) the sum of Employer contributions and Forfeitures allocated to the Account of the Key Employee, to (ii) the compensation of the Key Employee (restricted to $200,000, or $150,000 after January 1, 1994, as adjusted from time to time pursuant to Section 401(a)(17) of the Code); provided, however, that the percentage shall not exceed three percent (3%). This Minimum Benefit shall be provided in every Top-Heavy Plan Year to all Participants who are Non-Key Employees and who have not terminated employment with Employer at the end of the Plan Year. The Provisions of this Section 5.4 shall not apply, and no Employer special contribution pursuant to Section 4.4 shall be required, for any Non-Key Employee to the extent that such Non- Key Employee is a participant in the Savings Incentive Plan or another defined contribution plan included with this Plan in a Required or Permissive Aggregation Group (as those terms are defined in Section 13.2(c) and (d)) and the Employer has provided an allocation of the minimum benefit applicable to top-heavy plans in such other defined contribution plan. 14. Section 6.1 is amended to provide as follows: 6.1 Time for Distribution: Distribution of benefits to a Participant or Beneficiary shall occur at the date specified in whichever is applicable of paragraphs (a), (b) or (c), subject to the override provisions of paragraphs (d), (e), (f) and (g) of this Section 6.1: 9 10 (a) Retirement. Distribution shall occur no later than the end of the 60-day period after the close of the Plan Year in which a Participant retires on or after his Early Retirement Date or his Normal Retirement Date. (b) Death or Disability. Distribution shall occur no later than the end of the 60-day period after the close of the Plan Year in which occurs a Participant's Disability Benefit Date or in which a Participant terminates employment with the Employer (or a Former Participant's employment with an Affiliated Company) by reason of his death. (c) Other Termination. If the Participant's employment with Employer and with all Affiliated Companies is terminated other than for disability, normal retirement, early retirement, delayed retirement or death, distribution shall occur at the time provided in Section 4.3(b) for a "cash out" of such Participant's benefits. (d) Administrative Extension. In the event that due to administrative delays it is not possible for the Committee to calculate the value of the benefit to be distributed to a Participant pursuant to paragraph (a), (b) or (c) above, then distribution shall be deferred until such calculation can be made, but may not be deferred for a longer time than is prescribed in applicable regulations under ERISA or the Code. (e) Age 70 1/2. Distribution shall occur not later than the April 1 next following the calendar year in which a Participant attains age 70 1/2, whether or not the Participant remains in the employ of the Employer or an Affiliated Company. (f) Option to Delay. Except for a distribution on account of a Participant's death, no distribution whose value exceeds $3,500 shall be made prior to the Participant's Normal Retirement Date without the written consent of the Participant. If the Participant fails to consent to such distribution within 90 days of notification by the Committee that the distribution is to be made, then distribution shall be deferred until the earlier of the Participant's death, or Normal Retirement Date. (g) Normal Retirement Date Override. Subject to any election described in paragraph (f), distribution to a Participant whose termination of employment has occurred shall commence no later than 60 days after the end of the Plan Year in which occurs his Normal Retirement Date. The foregoing paragraphs (d), (e), (f) and (g) are applicable notwithstanding anything to the contrary contained in paragraphs (a), (b) and (c). 10 11 The Plan shall give written notice to a Participant or Beneficiary, eligible for a distribution of benefits pursuant to this Section 6.1. Such notice shall be given to an eligible Participant or Beneficiary no less than 30 days but no more than 90 days prior to the proposed date of distribution. Distribution of such benefits, in excess of $3,500, during this period shall comply with the requirements of Section 4.3(b). However, if the distribution is one to which Sections 401(a)(11) and 417 of the Code do not apply, such distribution may commence less than 30 days after such notice provided that the Committee clearly informs the Participant or Beneficiary that he has a right to a period of at least 30 days after receiving such notice to consider the decision of whether or not to elect a distribution and that the Participant or Beneficiary, after receiving such notice, affirmatively elects a distribution. 15. Section 6.8(b) is amended to provide as follows: (b) For a Plan Year for which the Plan is a Top-Heavy Plan, the percentage shall be as follows:
Percentage of Years of Vesting Service Account ------------------------ ------------- fewer than 3 0% 3 or more 100%
16. Effective January 1, 1993, Section 6.15 is added to provide as follows: 6.15 Direct Rollover: With respect to distributions made after December 31, 1992, notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Section 6.15, a Distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. The Plan provisions otherwise applicable to distributions continue to apply to this direct Rollover option. The Distributee shall, in the time and manner prescribed by the Committee, specify the amount to be directly transferred and the Eligible Retirement Plan to receive the transfer. Any portion of a distribution which is not transferred shall be distributed to the Distributee in the form specified in Section 6.11. 17. Effective January 1, 1993, Section 9.9 is added to provide the following: 11 12 9.9 No Restrictions on Financed Shares. Except as required by the securities laws or other applicable laws, no Company Stock originally acquired as Financed Shares shall be subject to a put, call or other option, or buy-sell, right of first refusal, or similar arrangement while held by and when distributed from the Plan, whether or not the Plan is then an employee stock ownership plan as described in Section 4975(e)(7) of the Code. IN WITNESS WHEREOF, Volunteer Capital Corporation has caused this amendment to be executed this 29th day of June, 1994, effective as of the dates indicated herein, by its duly authorized officers. VOLUNTEER CAPITAL CORPORATION By:/s/ R. Gregory Lewis -------------------------- Title:Vice-President-Finance Attest: /s/ Ruth Ann Tidwell - ------------------------------ 12 EX-10.T 3 AMENDMENT TO EMPOLYEE STOCK OWNERSHIP 2/17/98 1 EXHIBIT 10(t) THIRD AMENDMENT TO J. ALEXANDER'S CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN WHEREAS, effective as of January 1, 1992, Volunteer Capital Corporation, a Tennessee corporation, now J. Alexander's Corporation ("Company"), adopted the Volunteer Capital Corporation Employee Stock Ownership Plan, which was subsequently renamed the J. Alexander's Corporation Employee Stock Ownership Plan ("Plan"); and WHEREAS, the Company desires to amend the Plan (i) to remove the requirement that a participant must wait until at least age 60 to receive his benefits if he does not elect a distribution at the customary time after termination of employment, (ii) to remove to the extent permitted by law the requirement that distributions commence at age 70 1/2 even though the participant has not retired, (iii) to increase the limit for an involuntary cashout to $5,000, (iv) to reflect the change in the name of the Plan, and (v) to make certain other technical changes required by changes in federal tax law. NOW, THEREFORE, effective on January 1, 1997, except as otherwise indicated, the Company amends its Plan in the following respects: 1. Effective January 1, 1998, Section 2.1(r) is amended to provide as follows: (r) Compensation. The total of all amounts paid for employment by the Employer to or for the benefit of a Participant during the Plan Year (as shown on the Form W-2 filed for federal income tax purposes), such as salary, bonus, wage, commission, and overtime payments. Compensation shall not include any of the following (even if includible in gross income): (i) reimbursements or other expense allowances and moving expenses (including indemnity payments for loss on sale of an Employee's home); and (ii) fringe benefits (cash and non-cash), deferred compensation and welfare benefits. 2 Notwithstanding the foregoing, Compensation shall include any salary reduction or other elective deferrals to the Savings Incentive Plan or any other plan pursuant to Section 401(k) of the Code and salary reduction contributions or other elective deferrals under the Flexible Benefit Plan or any other plan pursuant to Section 125 of the Code. Compensation in excess of the first $150,000 (as adjusted from time to time pursuant to Section 401(a)(17)(B) of the Code) for any Employee shall not be taken into account. 2. Section 2.1(o) is amended to provide as follows: (o) Company. J. Alexander's Corporation, a Tennessee corporation, and any successor, purchaser, or transferee of the operating assets and business of J. Alexander's Corporation, which elects to continue the Plan. 3. Effective January 1, 1998, Section 2.1(z) is deleted. 4. Section 2.1(dd) is amended to provide as follows: (dd) Flexible Benefits Plan: J. Alexander's Corporation Flexible Benefits Plan, a cafeteria plan pursuant to Section 125 of the Code, as amended from time to time. 5. Section 2.1(gg) is amended to provide as follows: (gg) Highly Compensated Employee: A Highly Compensated Employee is any Employee who: (1) was a 5-Percent Owner at any time during the Plan Year or the preceding Plan Year; or (2) received Section 415 Compensation from the Employer in excess of $80,000 for the preceding plan Year and, if elected by the Employer for a Plan Year in accordance with Section 414(q)(1)(B)(ii) of the Code, was in the top-paid group of employees of the Employer for the preceding Plan Year. In making the above determination, Section 415 Compensation shall include salary reductions or elective deferrals under the Savings Incentive Plan or any other plan pursuant to Section 401(k) of the Code and salary reductions or elective deferrals under the Flexible Benefits Plan or other plan pursuant to Section 125 of the Code. The $80,000 amount is indexed and shall be adjusted pursuant to Treasury Regulations. 2 3 6. Section 2.1(jj) is amended to provide as follows: (jj) Key Employee: Any Employee or former Employee (and his Beneficiaries) who, at any time during the Plan Year which includes the Determine Date, or any of the preceding four (4) Plan Years, is - (a) An officer of any Affiliated Company having annual Section 415 Compensation grater than 50 percent of the limitation in effect under Section 415(b)(1)(A) of the Code for any such Plan Year; (b) One of the ten Employees having annual Section 415 Compensation greater than the limitation in effect under Section 415(c)(1)(A) of the Code and owning (or considered as owning within the meaning of Section 318 of the Code) both more than a one-half percent (0.5%) interest and the largest percentage ownership interests in any of the Affiliated Companies; (c) A 5-percent Owner; or (d) A 1-percent Owner (defined as any person who would be a 5-percent Owner if "one percent (1%) " were substituted for "five percent (5%)" each place it appears in Section 2.1(cc) having annual Section 415 Compensation of more than $150,000. For purposes of this definition, Section 415 Compensation shall include elective deferrals under Sections 125 and 402(a)(8) of the Code. For purposes of determining the number of officers taken into account pursuant to Treasury Regulation ss.1.416-1, employees described in Section 414(q)(5) of the Code shall be excluded. 7. Section 2.1(tt) is amended to provide as follows: (tt) Savings Incentive Plan: J. Alexander's Corporation Savings Incentive and Salary Deferral Plan, a profit sharing and 401(k) plan originally established effective January 1, 1985, as amended from time to time. 8. Effective January 1, 1998, Section 2.1(uu) is amended to provide as follows: (uu) Section 415 Compensation: The total "wages" paid for employment by the Employer (and all Affiliated Companies) to or for the benefit of a Participant during the Plan Year (as shown on the Form W-2 filed for federal income tax purposes). For purposes of this determination, "wages" shall mean wages as defined in withholding at the source, and all other payments of compensation to the Employee by the Employer for which the Employer is required to furnish the Employee a written statement under Sections 6041(d) and 6051(a)(3) of the Code, but determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the 3 4 services performed, and excluding from wages amounts paid or reimbursed by the Employer for moving expenses incurred by an Employee to the extent that at the time of the payment it is reasonable to believe that these amounts are deductible by the Employee under Section 217 of the Code. Section 415 Compensation shall include salary reductions or elective deferrals under the Savings Incentive Plan or any other plan pursuant to Section 401(k) of the Code and salary reductions or other elective deferrals under the Flexible Benefits Plan or any other plan pursuant to Section 125 of the Code. 9. Effective January 1, 1998, the first paragraph of Section 4.3(b) is amended to provide as follows: (b) After termination of employment with Employer and with all Affiliated Companies (other than for disability, normal retirement, early retirement, delayed retirement, or death), but no later than the end of the Plan Year following the Plan Year in which such termination occurs, the Participant shall be entitled to receive a "cashout" of such Participant's "vested benefit" as determined pursuant to Section 6.8 provided that such "vested benefit" is not greater than $10,000. Distribution of a vested benefit greater than $10,000 shall occur at the time provided in the last paragraph of this Section 4.3(b). Such cash out of the vested benefit shall not be made in the absence of written consent thereto by the Participant if the vested benefit (as determined pursuant to Section 6.8) attributable to Employer contributions is greater than $5,000. For the sole purpose of determining whether the vested benefit is less than $5,000 or $10,000, as the case may be, Company Stock in the Participant's Company Stock Sub-Account shall be valued at its market value on the first trading date of the Plan Year during which the distribution is scheduled to occur. A Participant having a vested benefit of zero shall be deemed to have been cashed out hereunder on the date of his termination of employment. Upon such a payment (or deemed payment) of the Participant's entire vested benefit, his nonvested Account balance shall become a Forfeiture upon the date of the cash out. Such Forfeiture shall then be allocated to the Accounts of other Participants as provided in Section 5.2. 10. The first paragraph in Section 5.3 is amended to provide as follows: 5.3 Maximum Additions. Notwithstanding anything contained herein to the contrary, the total Additions made to the Account of a Participant for any Plan Year shall not exceed the lesser of $30,000 (as adjusted from time to time pursuant to Section 415(d) of the Code) or 25 percent (25%) of the Participant's Section 415 Compensation for such Plan Year. 11. Section 6.1 is amended to provide as follows: (e) Age 70 1/2: Except for a 5-Percent Owner, distribution shall commence not later than the April 1 next following the later of the calendar year in which a Participant attains age 70 1/2 or retires; provided, however, that a Participant who was born before July 1, 1928, may elect to have his distribution commence not later than the April 1 next following 4 5 the calendar year in which such Participant attains age 70 1/2 whether or not he remains in the employ of the Employer. For a 5-Percent Owner, distribution shall commence not later than the April 1 next following the calendar year in which such Participant attains age 70 1/2 whether or not he remains in the employ of the Employer. A Participant receiving distributions pursuant to this Section 6.1(e) as of January 1, 1997, who has not retired and who is not a 5-Percent Owner, may elect to cease receiving such distributions until the April 1 next following the calendar year in which such Participant retires. Such distribution of a Participant's benefits shall be made in accordance with the following requirements and shall otherwise comply with Section 401(a)(9) of the Code and the Treasury Regulations thereunder (including Regulation Section 1.401(a)(9)-2). In accordance with Section 401(a)(9) of the Code and the Treasury Regulations thereunder, for purposes of determining the maximum period over which distributions must be made under Section 401(a)(9) of the Code, a Participant (or his spouse, if applicable) may elect whether or not life expectancy will be recalculated as permitted under Section 401(a)(9)(D) of the Code; provided, however, that such election must be made no later than the first required distribution date under Section 401(a)(9) of the Code, after which such election shall be irrevocable. Absent such an election, life expectancies shall be recalculated. 12. Effective January 1, 1998, Section 6.1(f) is amended to provide as follows: (f) Option to Delay. Except for a distribution on account of a Participant's death, no distribution whose value exceeds $5,000 shall be made prior to the Participant's Normal Retirement Date without the written consent of the Participant. IN WITNESS WHEREOF, J. Alexander's Corporation has caused this amendment to be executed this 17th day of February, 1998, effective as of the dates indicted herein, by its duly authorized officers. J. ALEXANDER'S CORPORATION By: /s/ J. Michael Moore ------------------------------------------- Title: Vice President of Administration and Human Resources Attest: /s/ Ruth Ann Tidwell - --------------------------- 5 EX-10.U 4 AMENDMENT TO EMPLOYEE OWNERSHIP 12/30/98 1 EXHIBIT 10(u) FOURTH AMENDMENT TO J. ALEXANDER'S CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN WHEREAS, effective as of January 1, 1992, Volunteer Capital Corporation, a Tennessee corporation, now J. Alexander's Corporation (the "Company"), adopted the Volunteer Capital Corporation Employee Stock Ownership Plan, which was subsequently renamed the J. Alexander's Corporation Employee Stock Ownership Plan (the "Plan"); and WHEREAS, the Company desires to amend the Plan to make certain technical changes required by changes in the federal tax law; and WHEREAS, the Company desires to remove for each participant in the Plan (a "Participant") who is not a corporate officer of the Company the limitation that a Participant with a vested benefit greater than $10,000 who terminates employment must wait until the third plan year following the plan year of termination to elect to receive a distribution; and WHEREAS, the Company desires to permit the Plan to pay a third-party (instead of to the Participant or Beneficiary) such portion of a Participant's benefit under the terms of the Plan as shall be specified by a judgment or settlement issued or entered into with respect to such a participant having been convicted of a crime involving the Plan or subject to a civil judgment or settlement between the Secretary of Labor and the Participant in connection with a violation of the fiduciary provisions of ERISA. NOW, THEREFORE, effective on January 1, 1998, except as otherwise indicated, the Company amends its Plan in the following respects: 1. Effective January 1, 1997, Section 2.1(gg) is amended to provide as follows: (gg) Highly Compensated Employee: A Highly Compensated Employee for the purposes of determinations regarding the current Plan Year is any Employee who: 2 (1) was a 5-Percent Owner at any time during the Plan Year or the preceding Plan Year; or (2) received Section 415 Compensation (as adjusted below) from the Employer in excess of $80,000 for the preceding Plan Year and, if elected by the Employer for a Plan Year in accordance with Section 414(q)(1)(B)(ii) of the Code, was in the top-paid group of the Employer for the preceding Plan Year. The "top-paid group" referred to in the preceding sentence consists of the 20% most highly compensated employees of the Employer ranked on the basis of compensation received during the next prior Plan Year. For the purposes of determining the number of employees in the "top-paid group" referred to in the preceding sentence, employees described in Code Section 414(q)(5) and Q&A 9(b) of Section 1.414(q)-1T of the Treasury Regulations are excluded. In making the above determination, "Section 415 Compensation" shall include salary reductions or elective deferrals under the Savings Incentive Plan or any other plan pursuant to Section 401(k) of the Code and salary reductions or elective deferrals under the Flexible Benefits Plan or other plan pursuant to Section 125 of the Code. The $80,000 amount is indexed and shall be adjusted pursuant to Treasury Regulations. Furthermore, solely for purposes of this Section 2.1(gg), "Employer" shall include any Affiliated Company. 2. Effective January 1, 1997, Section 2.1(qq) is amended to provide as follows: (qq) Plan: J. Alexander's Corporation Employee Stock Ownership Plan, as set forth herein and amended from time to time. 3. Section 2.1(uu) is amended to provide as follows: (uu) Section 415 Compensation: The total "wages" paid for employment by the Employer (and all Affiliated Companies) to or for the benefit of a Participant during the Plan Year (as shown on the Form W-2 filed for federal income tax purposes). For purposes of this determination, "wages" shall mean wages as defined in withholding at the source, and all other payments of compensation to the Employee by the Employer for which the Employer is required to furnish the Employee a written statement under Sections 6041(d) and 6051(a)(3) of the Code, but determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed, and excluding from wages amounts paid or reimbursed by the Employer for moving expenses incurred by an Employee to the extent that at the time of the payment it is reasonable to believe that these amounts are deductible by the Employee under Section 217 of the Code. The term "Section 415 Compensation" shall include salary reductions or elective deferrals, as defined in Section 402(g)(3) of the Code, under the Savings Incentive Plan or any other plan pursuant to Section 401(k) of the Code and any amount which is contributed or deferred by the Employer at the election of the Employee and which is not includable in the gross income of the Employee by reason of Section 127 or 457 of the Code. 2 3 4. The first paragraph of Section 4.3(b) is amended to provide as follows: (b) After termination of employment with Employer and with all Affiliated Companies (other than for disability, normal retirement, early retirement, delayed retirement, or death), but no later than the end of the Plan Year following the Plan Year in which such termination occurs, the Participant shall be entitled to receive a "cashout" of such Participant's "vested benefit" as determined pursuant to Section 6.8; provided, however, that corporate officers of the Company may receive the cashout referred to in this Section 4.3(b) only if such "vested benefit" is not greater than $10,000. Distribution to a corporate officer of the Company of a vested benefit greater than $10,000 shall occur at the time provided in the last paragraph of this Section 4.3(b). Such cash out of the vested benefit shall not be made in the absence of written consent thereto by the Participant if the vested benefit (as determined pursuant to Section 6.8) attributable to Employer contributions is greater than $5,000. For the sole purpose of determining whether the vested benefit is less than $5,000 or $10,000, as the case may be, Company Stock in the Participant's Company Stock Sub-Account shall be valued at its market value on the first trading date of the Plan Year during which the distribution is scheduled to occur. A Participant having a vested benefit of zero shall be deemed to have been cashed out hereunder on the date of his termination of employment. Upon such a payment (or deemed payment) of the Participant's entire vested benefit, his nonvested Account balance shall become a Forfeiture upon the date of the cash out. Such Forfeiture shall then be allocated to the Accounts of other Participants as provided in Section 5.2. 5. The last paragraph of Section 4.3(b) is amended to provide as follows: If a distribution is not made at the time specified in the first paragraph of this Section 4.3(b) because the Participant is a corporate officer of the Company and such Participant's vested benefit is greater than $10,000, as determined by reference to the market value of the Company Stock on the first trading date of the Plan Year during which the distribution would have been made if such Participant's vested benefit had been less than $10,000, such Participant shall be entitled to elect to receive a distribution of his vested benefit during the third Plan Year following the Plan Year during which he terminated employment with the Employer and with all Affiliated Companies. 6. Effective January 1, 1997, Section 9.6 is amended to provide as follows: 9.6 Leased Employees: Notwithstanding any other provisions of the Plan, for purposes of determining the number or identity of Highly Compensated Employees and for purposes of the pension requirements of Section 414(n)(3) of the Code, the employees of the Employer shall include "leased employees." The term "leased employees" means any persons who are not employees of the Employer and who (i) provide services to the Employer pursuant to an agreement between the Employer and any other person, (ii) perform such services for the employer on a substantially full-time basis for a period of at least one calendar year, and (iii) perform such services under the primary direction or control by the Employer. 3 4 7. Effective October 13, 1996, as to affected Employees who are reemployed on or after December 12, 1994, Section 9.9 is added to provide as follows: 9.9 Qualified Military Service: Notwithstanding any provision of this Plan to the contrary, contributions, benefits, and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code. 8. Section 9.10 is added to provide as follows: 9.10 Certain Judgments, Orders, Decrees and Settlements: Effective for judgments, orders and decrees issued, and settlements entered into, on or after August 5, 1997, the Plan shall be permitted to pay a third-party (instead of to the Participant or Beneficiary) such portion of the Participant's benefit under the Plan as shall be specified by such a judgment, order or decree issued, or settlement entered into, in connection with: (a) the Participant's conviction for a crime involving the Plan; or (b) a civil judgment (or consent or decree) entered by a court in an action brought in connection with a violation of the fiduciary provisions of ERISA; or (c) a settlement agreement between the Secretary of Labor and the Participant in connection with a violation of the fiduciary provisions of ERISA. To be effective, the court order establishing such liability must require that the Participant's benefit under the Plan be applied to satisfy such liability. If the Participant is married at the time, his benefit under the Plan is offset to satisfy the liability. Spousal consent to such offset is required unless the spouse is also required to pay an amount to the Plan in the judgment, order, decree or settlement, or the judgment, order, decree or settlement provides a fifty percent (50%) survivor annuity for the spouse. IN WITNESS WHEREOF, J. Alexander's Corporation has caused this amendment to be executed this 30th day of December, 1998, effective as of the dates indicted herein, by its duly authorized officers. J. ALEXANDER'S CORPORATION By: /s/ J. Michael Moore ------------------------------------------ Title: Vice President of Human Resources and Administration Attest: /s/ Janice M. Jackson - -------------------------------- 4 EX-10.V 5 SECOND AMENDMENT TO LOAN AGREEMENT 1 EXHIBIT 10(v) SECOND AMENDMENT TO LOAN AGREEMENT THIS SECOND AMENDMENT TO LOAN AGREEMENT ("Second Amendment") entered into this 30th day of March, 2000, by and among J. ALEXANDER'S CORPORATION (f/k/a VOLUNTEER CAPITAL CORPORATION), J. ALEXANDER'S RESTAURANTS, INC. (f/k/a TOTAL QUALITY MANAGEMENT, INC.), Tennessee corporations (collectively referred to as the "Borrower"), and BANK OF AMERICA, N.A., SUCCESSOR TO NATIONSBANK, N.A., SUCCESSOR TO NATIONSBANK OF TENNESSEE, N.A., a national banking association ("Lender"). WITNESSETH WHEREAS, Borrower and Lender entered into that certain Loan Agreement dated June 30, 1995, as amended by that Amendment to Loan Agreement dated March 27, 1998 ("Loan Agreement") and that Line of Credit Note dated June 30, 1995 in the maximum principal amount of Thirty Million and 00/100 Dollars ($30,000,000.00), as amended and restated by that Line of Credit Note dated March 27, 1998 in the maximum principal amount of Twenty Million and 00/100 Dollars ($20,000,000.00), and as further amended and restated by that Renewal Line of Credit Note of even date herewith in the amount of Twenty Million and 00/100 Dollars ($20,000,000.00) ("Line of Credit Note"); and WHEREAS, Volunteer Capital Corporation has changed its name to J. Alexander's Corporation and Total Quality Management, Inc. has changed its name to J. Alexander's Restaurants, Inc.; and WHEREAS, Borrower and Lender desire to amend the Loan Agreement as provided herein; and NOW, THEREFORE, for the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Sections 1.b. & c. of the Loan Agreement shall be deleted in their entirety and in lieu thereof shall read the following: b. Interest Rate. From the date hereof until the stated maturity of the Note, interest shall accrue at the LIBOR Rate plus a spread of 2.0%, 2.25%, 2.5% or 3.0% depending on the Senior Debt Coverage Ratio ("SDCR") as further provided herein. If the SDCR is less than or equal to 2.75 but greater than 2.5, the LIBOR spread will be 3.0%; if the SDCR is less than or equal to 2.5 but greater than 2.25, the LIBOR spread will be 2.5%; if the SDCR is less than or equal to 2.25 but greater than 2.0, the LIBOR spread will be 2.25%; if the SDCR is less than or equal to 2.0, the LIBOR spread will be 2.0%: 1 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 Senior Debt Coverage Ratio, ("SDCR") is defined as Senior Funded Debt (as defined herein) divided by EBITDA, all measured on a trailing four-quarter basis. Senior 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, but Senior Funded Debt does not include any subordinated or convertible debt. iii. For purposes hereof, the "LIBOR Rate" shall mean the rate of interest based on the Eurodollar Daily Floating Rate. The Eurodollar Daily Floating Rate is a floating rate of interest and will change on and as of the date of a change in the Eurodollar Daily Floating Rate. The period of time during which the Eurodollar Daily Floating Rate shall be applicable shall be a Eurodollar Daily Floating Rate Interest Period. "Eurodollar Daily Floating Rate" shall mean the fluctuating rate of interest equal to the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the one month London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) on the second preceding Business Day, as adjusted from time to time in Bank's sole discretion for then applicable reserve requirements, deposit insurance assessment rates and other regulatory costs. If for any reason such rate is not available, the term "Eurodollar Daily Floating Rate" shall mean the fluctuating rate of interest equal to the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the one month London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) on the second preceding Business Day, as adjusted from time to time in Bank's sole discretion for then applicable reserve requirements, deposit insurance assessment rates and other regulatory costs; provided, however, if more than one rate is specified on Telerate Page 3750 or on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all rates on that page. 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) 2 3 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: 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: 3 4 (1) Interest. Interest on the outstanding principal balance under the Line of Credit shall be paid in arrears on the first (1st) day of each month beginning on April 1, 2000. (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 $20,000,000. (4) All Amounts Due. All remaining principal, interest and expenses outstanding under the Line of Credit shall become due July 1, 2001, 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, 2008. (5) Conversion to Term Loan. Subject to the provisions contained herein, Borrower 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, 2001. The written election must be delivered to Payee at least thirty (30) days prior to the conversion date. After receipt of the election, Payee has sole discretion to determine what collateral will be required of Maker to provide security for the term loan. Payee will notify Maker whether or in what manner the term loan shall be securitized within fifteen (15) days after receiving the election. Upon conversion, 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 Bank of America, N.A. 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 to be determined by Payee at the time of receiving the written election. Maker shall specify the interest rate option (Prime Rate, LIBOR Rate or fixed) to be used in the conversion election. 2. Section 30.l of the Loan Agreement is hereby deleted in its entirety and in lieu thereof shall read as follows: l. Capital Expenditures. Make capital expenditures (including capitalized leases) during fiscal year 2000 and during each fiscal year thereafter exceeding, in the aggregate, $10,000,000.00 per fiscal year. 4 5 3. Section 31.e of the Loan Agreement is hereby deleted in its entirety and in lieu thereof shall read as follows: e. Profit/Loss. For any 2 consecutive fiscal quarters, Borrower's cumulative pretax loss shall not exceed $250,000, and Borrower's pretax profit shall exceed $500,000 for the fiscal year ending December 31, 2000 and each fiscal year thereafter. 4. Except as amended in this Second Amendment, the provisions contained in the Loan Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this document through authorized agents on the day and date first above written. BANK OF AMERICA, N.A., SUCCESSOR TO NATIONSBANK, N.A., SUCCESSOR TO NATIONSBANK OF TENNESSEE, N.A. By: /s/ William H. Diehl ------------------------------------------- Title: Senior Vice President ---------------------------------------- J. ALEXANDER'S CORPORATION (f/k/a VOLUNTEER CAPITAL CORPORATION) By: /s/ R. Gregory Lewis ------------------------------------------- Title: Vice President and Chief Financial Officer ---------------------------------------- J. ALEXANDER'S RESTAURANTS, INC. (f/k/a TOTAL QUALITY MANAGEMENT, INC.) By: /s/ R. Gregory Lewis ------------------------------------------- Title: Vice President - Finance ---------------------------------------- 5 EX-10.W 6 RENEWAL OF LINE OF CREDIT NOTE 1 EXHIBIT 10(w) RENEWAL LINE OF CREDIT NOTE $20,000,000.00 Nashville, Tennessee March 30, 2000 FOR VALUE RECEIVED, J. ALEXANDER'S CORPORATION (f/k/a VOLUNTEER CAPITAL CORPORATION) and J. ALEXANDER'S RESTAURANTS, INC. (f/k/a TOTAL QUALITY MANAGEMENT, INC.), Tennessee corporations (the "Maker"), jointly and severally promise to pay to the order of BANK OF AMERICA, N.A., SUCCESSOR TO NATIONSBANK, N.A., SUCCESSOR TO NATIONSBANK OF TENNESSEE, N.A. ("Payee" or "Bank of America"), the sum of Twenty Million and No/100 Dollars ($20,000,000.00), or as much thereof as may be outstanding from time to time, together with interest thereon as set forth below. This Note is an amendment and restatement of that certain Line of Credit Note dated March 27, 1998 from Maker to Payee in the amount of Twenty Million and No/100 Dollars ($20,000,000.00). Advances under this Note shall be governed by that certain Loan Agreement dated August 29, 1995, as amended by that Amendment to Loan Agreement dated March 27, 1998, and as further amended by that Second Amendment to Loan Agreement of even date herewith ("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 Twenty Million and No/100 Dollars ($20,000,000.00). From the date hereof until the stated maturity of this Note, interest shall accrue at the LIBOR Rate plus a spread of 2.0%, 2.25%, 2.5% or 3.0% depending on the Senior Debt Coverage Ratio ("SDCR") as further provided in the Loan Agreement. From the date hereof until the stated maturity of this Note, a non-usage fee of either .25%, .35% or .50% based upon the daily average unused amount and based on the SDCR will be paid quarterly in arrears. If the SDCR is less than or equal to 2.75 but greater than 2.5, the fee will be .50%; if the SDCR is less than or equal to 2.5 but greater than 2.25, the fee will be .35%; if the SDCR is less than or equal to 2.25, the fee will be .25%. Interest in arrears shall be due and payable on the first (1st) day of each month beginning on April 1, 2000. All remaining principal and interest shall become due on July 1, 2001 under the three year revolver, or July 1, 2008 if the option to convert to an additional seven (7) year term loan is exercised. Subject to the provisions contained herein, 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, 2001. The written election must be delivered to Payee at least thirty (30) days prior to the conversion date. After receipt of the election, Payee has sole discretion to determine what collateral will be required of Maker to provide security for the term loan. Payee will notify Maker whether or in what manner the 1 2 term loan shall be securitized within fifteen (15) days after receiving the election. Upon conversion, 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 Bank of America Prime Rate, as it may change from time to time or the LIBOR Rate discussed above or at a fixed rate to be determined by Payee at the time of receiving the written election. 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 "Bank of America Prime Rate" shall mean the fluctuating rate of interest established by Bank of America from time to time as its "Prime Rate", whether or not such rate shall be otherwise published. Such Prime Rate is established by Bank of America as an index or base rate and may or may not at any time be the best or lowest rate charged by Bank of America 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 Bank of America, during the term hereof, shall abolish or abandon the practice of establishing a Prime Rate, or should the same become unascertainable, Bank of America 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 interest based on the Eurodollar Daily Floating Rate. The Eurodollar Daily Floating Rate is a floating rate of interest and will change on and as of the date of a change in the Eurodollar Daily Floating Rate. The period of time during which the Eurodollar Daily Floating Rate shall be applicable shall be a Eurodollar Daily Floating Rate Interest Period. "Eurodollar Daily Floating Rate" shall mean the fluctuating rate of interest equal to the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the one month London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) on the second preceding Business Day, as adjusted from time to time in Bank's sole discretion for then applicable reserve requirements, deposit insurance assessment rates and other regulatory costs. If for any reason such rate is not available, the term "Eurodollar Daily Floating Rate" shall mean the fluctuating rate of interest equal to the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the one month London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) on the second preceding Business Day, as adjusted from time to time in Bank's sole discretion for then applicable reserve requirements, deposit insurance assessment rates and other regulatory costs; provided, however, if more than one rate is specified on Telerate Page 3750 or on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all rates on that page. 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 of Maker to Holder, to be presently due and payable, and Holder may enforce any remedies available to Holder under any documents securing or evidencing debts of Maker to Holder. Holder 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 3 4 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 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. 4 5 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 Bank of America 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 Bank of America 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. Bank of America 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 Bank of America'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. Words used herein indicating gender or number shall be read as context may require. J. ALEXANDER'S CORPORATION (f/k/a VOLUNTEER CAPITAL CORPORATION) By: /s/ R. Gregory Lewis --------------------------------------------- Title: Vice President and Chief Financial Officer ------------------------------------------- J. ALEXANDER'S RESTAURANTS, INC. (f/k/a TOTAL QUALITY MANAGEMENT, INC.) By: /s/ R. Gregory Lewis --------------------------------------------- Title: Vice President - Finance ------------------------------------------- 5 EX-21 7 LIST OF SUBSIDIARIES 1 EXHIBIT 21 SUBSIDIARIES OF J. ALEXANDER'S CORPORATION
STATE OF NAME UNDER WHICH SUBSIDIARY INCORPORATION BUSINESS IS DONE - ---------- ------------- ---------------- J. Alexander's Restaurants, Inc. Tennessee J. Alexander's Restaurant J. Alexander's Restaurants of Kansas, Inc. Kansas J. Alexander's Restaurant J. Alexander's Restaurants of Texas, Inc. Texas J. Alexander's Restaurant
EX-23 8 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23 Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in the following J. Alexander's Corporation Registration Statements: a. Form S-8 Registration Statement (No. 333-91431) pertaining to the J. Alexander's Corporation 1999 Loan Program, filed on November 22, 1999; b. Form S-8 Registration Statement (No. 333-49393) pertaining to the 1994 Employee Stock Incentive Plan, filed on April 3, 1998; c. Form S-8 Registration Statement (No. 33-77478) pertaining to the 1985 Stock Option Plan, filed on May 25, 1994; d. Form S-8 Registration Statement (No. 33-77476) pertaining to the 1994 Employee Stock Incentive Plan, filed on April 6, 1994; e. Form S-8 Registration Statement (No. 33-39870) pertaining to the 1990 Stock Option Plan for Outside Directors, filed on April 9, 1991; f. Form S-8 Registration Statement (No. 33-4483) pertaining to the 1985 Stock Option Plan, filed on April 1, 1986; g. Form S-8 Registration Statement (No. 2-78140) pertaining to the 1982 Incentive Stock Option Plan, filed on June 25, 1982; and h. Form S-8 Registration Statement (No. 2-78139) pertaining to the 1982 Employee Stock Purchase Plan, filed on June 25, 1982; of our report dated February 21, 2000, except for the subsequent event described in Note E as to which the date is March 17, 2000, with respect to the consolidated financial statements and schedule of J. Alexander's Corporation included in the Annual Report (Form 10-K) for the year ended January 2, 2000. /s/ Ernst & Young LLP Nashville, Tennessee March 30, 2000 EX-27 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED JANUARY 2, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JAN-02-2000 JAN-04-1999 JAN-02-2000 933 0 103 0 703 2,161 76,637 14,495 65,635 8,570 18,128 0 0 339 37,501 65,635 78,454 78,454 25,568 51,857 18,011 0 1,570 (299) 33 (332) 0 0 0 (332) (.05) (.05)
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