-----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, UxlJKq4LXzoTPcacFwvK+PrE1uv7ZCr3FzywWCl9vGfi2odTavUA1vBYScr7uWlq SvEoUcmiLWSDHUxwNprmHA== 0000950144-99-006011.txt : 19990517 0000950144-99-006011.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950144-99-006011 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990103 FILED AS OF DATE: 19990514 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/A SEC ACT: SEC FILE NUMBER: 001-08766 FILM NUMBER: 99622876 BUSINESS ADDRESS: STREET 1: 3401 WEST END AVE STREET 2: P O BOX 24300 CITY: NASHVILLE STATE: TN ZIP: 37202 BUSINESS PHONE: 6152691900 MAIL ADDRESS: STREET 1: 3401 WEST END AVE STREET 2: SUITE 260 CITY: NASHVILLE STATE: TN ZIP: 37202 FORMER COMPANY: FORMER CONFORMED NAME: 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/A 1 J ALEXANDERS CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A AMENDMENT NO. 1 X Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934. For the fiscal year ended January 3, 1999. 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 22, 1999, was $16,565,644, 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 22, 1999, was 6,517,601. 2 PART I ITEM 1. BUSINESS J. Alexander's Corporation (the "Company") operates as a proprietary concept 20 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 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. Sunday through Thursday and 11:00 a.m. to 12:00 midnight on Friday and Saturday. Entrees available at lunch and dinner generally range in price from $5.95 to $21.95. The Company estimates that the average check per customer, excluding alcoholic beverages, is approximately $14.35. J. Alexander's net sales during fiscal 1998 were $74.2 million, of which alcoholic beverage sales accounted for approximately 15%. 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 and two restaurants in 1998. The Company plans to open an additional J. Alexander's during 1999 in West Bloomfield, Michigan, and is finalizing its plans for a restaurant in Cincinnati, Ohio, with construction expected to start in the fall of 1999. 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. 2 3 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 has approximately 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, 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 lower cost building in conjunction with its entry into the Baton Rouge market during 1998 and plans to utilize a similar building for its restaurant to be constructed in West Bloomfield, Michigan during 1999. The design of the new building 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 1999 for the West Bloomfield, Michigan restaurant which will be located on leased land and opened in 1999; for partial completion of the planned Cincinnati, Ohio restaurant (also to be located on leased land) for which construction is expected to begin in the fall of 1999 and will be completed in 2000; and for other additions and improvements to existing restaurants will total approximately $4.5 million. In addition, the Company is actively seeking a location for an additional restaurant to be opened in 2000. If a satisfactory location is found and successfully negotiated, any amounts expended in 1999 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 $2.6 million to $2.9 million. In general, the Company prefers to own its sites because of the long-term value of owning these assets. While both of the restaurants opened in 1998 were located on leased land, the cost of land for restaurants opened in 1997 ranged from $800,000 to $1,150,000. 3 4 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 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. The Company believes that this site selection strategy results in quality restaurant locations. 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 3, 1999, the Company employed approximately 1,900 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 4 5 establishment which wrongfully served alcoholic beverages to the intoxicated person. Of the 11 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. In addition, the Company's excess liability or "umbrella" policy provides aggregate and per occurrence coverage of $25 million above those limits. 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 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 J. Alexander's restaurants, of which six have been open for less than two 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. 5 6 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 Not be in Compliance with New York Stock Exchange Rules. On March 23, 1999, the Company announced a proposed rights offering to current shareholders, entitling all holders of record of the Company's common stock on April 5, 1999 to receive a distribution of one nontransferable right for each share of common stock held, with each right entitling the holder to purchase 0.2 share of common stock for $3.75 per share. The Company also announced the sale to Solidus, LLC of 1,086,266 shares of common stock at $3.75 per share. No shareholder approval is required under Tennessee corporate law or federal securities laws for the Company's sale of common stock to Solidus, LLC or for the Rights Offering. It is possible that the New York Stock Exchange may assert that shareholder approval is required under its guidelines or that the Company is otherwise not in compliance with New York Stock Exchange requirements relating to market capitalization or operating results. It is possible that the New York Stock Exchange may consider whether to delist the Company's common stock. If the New York Stock Exchange delists the Company's common stock, the Company would apply for listing of the common stock for trading on the Nasdaq Stock Market's National Market or Small Cap Market. The Company May Encounter Problems With Year 2000 Compliance. The term "Year 2000" issue is a general term used to describe the various problems that may result from the improper processing of dates and date-sensitive calculations by computers and other machinery as the year 2000 is approached and reached. The Company's key financial, informational and operational systems have been assessed for Year 2000 compliance, and detailed plans have been developed to address system modifications required by September 30, 1999. These systems include information technology systems ("IT"). The Company has assessed its major IT vendors and technology providers and is in the process of testing its systems to determine Year 2000 compliance. In addition, the Company is in the process of assessing its non-IT systems that utilize embedded technology, such as microcontrollers, and reviewing them for Year 2000 compliance. Because the Company's testing phase is not yet substantially in process, and accordingly it has not fully assessed its risk from potential Year 2000 failures, the Company has not yet developed detailed contingency plans specific to Year 2000 events for any specific area of business. To operate its business, the Company relies upon government agencies, utility companies, providers of telecommunication services, suppliers, and other third party service providers ("Material Relationships"), over which it can assert little control. The Company's ability to conduct its core business is dependent upon the ability of these Material Relationships to rectify their Year 2000 issues to the extent they affect the Company. If the telecommunications carriers, public utilities and other Material Relationships do not appropriately rectify their Year 2000 issues, the Company's ability to conduct its core business may be materially impacted, which could result in a material adverse effect on the Company's financial condition. The Company has begun an assessment of all material relationships to determine risk and assist in the development of contingency plans. This effort is to be completed by June 30, 1999. The Company is unable to estimate the costs that it may incur as a result of Year 2000 problems suffered by the parties with which it deals, such as Material Relationships, and there can be no assurance that the Company will successfully address the Year 2000 problems present in its own systems. ITEM 2. PROPERTIES As of January 3, 1999, the Company had 20 J. Alexander's casual dining restaurants in operation. 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 0 1 2 Ohio 3 1 0 4 Tennessee 3 0 1 4
6 7 Texas 0 1 0 1 Kentucky 0 1 0 1 Louisiana 0 1 0 1 -- -- -- -- Total 13 5 2 20 == == == ==
(a) In addition to the above, the Company leases five 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. 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 18, 1999, 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 1998. 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 January 3, 1999, was 1,650. The following table summarizes the price range of the Company's common stock for each quarter of 1998 and 1997, as reported from price quotations from the New York Stock Exchange:
1998 1997 ---- ---- Low High Low High --- ---- --- ---- 1st Quarter $4 7/16 $6 1/16 $8 $9 7/8 2nd Quarter 4 5/16 5 5/16 7 5/8 9 3rd Quarter 2 1/2 4 13/16 6 3/4 8 1/4 4th Quarter 2 1/4 4 5/16 4 5/16 7 1/4
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 3, 1999:
Years Ended ----------- JANUARY 3 December 28 December 29 December 31 January 1 (Dollars in thousands, except per share data) 1999(1) 1997 1996 1995 1995 - ---------------------------------------------------------------------------------------------------------------- OPERATIONS Net sales $74,200 57,138 90,879 79,288 65,695 Income from restaurant operations $ 6,710 5,114 12,216 11,711 10,375 General and administrative expenses $ 5,815 5,793 7,100 6,778 6,249 Pre-opening expense $ 660 1,580 1,503 658 342 Net income (loss) $(1,485)(2) (5,991)(3) 7,208(5) 5,016(6) 4,830(7) Depreciation and amortization $ 4,067 3,138 (4) 4,674 3,644 2,760 Cash flow from operations $ 4,149 (2,150) 3,393 7,586 5,706 Capital expenditures $ 4,914 16,619 22,589 20,255 11,276 FINANCIAL POSITION Cash and investments $ 1,022 134 12,549 2,739 16,312 Property and equipment, net $61,440 60,573 47,016 46,915 29,776 Total assets $65,120 64,421 66,827 60,140 53,306 Long-term obligations $21,361 20,231 15,930 18,512 18,847 Stockholders' equity $33,731 34,995 40,461 32,975 27,304 PER SHARE DATA Basic earnings (loss) per share $ (.27) (1.11) 1.36 .95 .93 Diluted earnings (loss) per share $ (.27) (1.11) 1.26 .92 .90 Stockholders' equity $ 6.21 6.45 7.60 6.25 5.21 Market price at year end $ 4.00 4.81 8.50 9.50 6.00 J. ALEXANDER'S RESTAURANT DATA Net sales $74,200 57,138 42,105 25,594 14,704 Weighted average annual sales per restaurant $ 3,809 3,772 3,885 3,980 3,735 Units open at year end 20 18 14 9 5
(1) Includes 53 weeks of operations, compared to 52 weeks for all other years presented. (2) Includes a 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. (7) Includes tax benefit of $2,100 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 For fiscal 1998, J. Alexander's Corporation incurred a loss before income taxes of $1,485,000. This 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 as further discussed below. 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, and all of the Company's deferred tax assets, consisting primarily of net operating loss carryforwards and various tax credit carryforwards, are fully reserved at January 3, 1999. The Company's 1997 loss of $2,421,000 before income taxes and the cumulative effect of a change in accounting principle compares to income before income taxes of $11,451,000 in 1996. The 1996 results included a gain from the divestiture of the Wendy's division of $9,400,000. Income before Wendy's gains, income taxes and the cumulative effect adjustment decreased by $5,141,000 in 1997 compared to 1996, as a nominal increase in 1997 in restaurant operating income from J. Alexander's restaurants combined with decreases in general and administrative expenses and in net interest expense were not adequate to offset the loss of restaurant operating income resulting from the Wendy's divestiture. 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. During the fourth quarter of 1996, the Company sold substantially all of the assets of its franchised Wendy's Old Fashioned Hamburgers restaurant operations to Wendy's International, Inc. for $28.3 million in cash plus the assumption of capitalized lease obligations and long-term debt totaling approximately $2.5 million. The sale to Wendy's International, Inc. included 52 Wendy's restaurants and the Company's remaining six Wendy's restaurants were sold or closed. Management reached the decision to sell the Wendy's operations because it believed that focusing all of the Company's capital and resources exclusively on its casual dining business offered the greatest potential for long-term return for its shareholders. However, as a result of the divestiture, sales and income from restaurant operations were significantly reduced in 1997 and 1998 and the divestiture is expected to continue to have a negative impact on earnings until the lost revenue and operating income from the Wendy's operations can be replaced by the successful development and operation of J. Alexander's restaurants. During 1996 the Company's Wendy's restaurants generated restaurant operating income of $7,170,000 on sales of $48,774,000 through November 21 of that year. J. Alexander's Restaurant Operations The Company operated 20 J. Alexander's restaurants at January 3, 1999, compared with 18 at December 28, 1997, and 14 at December 29, 1996. Results of the J. Alexander's restaurant operations before allocation of general and administrative expenses, pre-opening expense and net interest expense were as follows:
Years Ended ----------- (Dollars in thousands) JANUARY 3, 1999 December 28, 1997 December 29, 1996 --------------- ----------------- ----------------- AMOUNT % OF SALES Amount % of Sales Amount % of Sales ------ ---------- ------ ---------- ------ ---------- (53 WEEKS) (52 weeks) (52 weeks) Net sales $74,200 100.0% $57,138 100.0% $42,105 100.0% Restaurant costs and expenses: Cost of sales 25,410 34.2 19,480 34.1 14,711 34.9 Labor and related costs 24,663 33.2 18,871 33.0 13,152 31.2 Depreciation and amortization of restaurant property and equipment 3,758 5.1 2,860 5.0 1,884 4.5 Other operating expenses 13,659 18.4 10,813 18.9 7,312 17.4 ------- ----- ------- ----- ------- ----- 67,490 91.0 52,024 91.0 37,059 88.0 ------- ----- ------- ----- ------- ----- Restaurant operating income $ 6,710 9.0% $ 5,114 9.0% $ 5,046 12.0% ======= ===== ======= ===== ======= =====
Total sales from J. Alexander's restaurants increased in both 1998 and 1997 compared to the prior years, primarily as a result of new restaurant openings. Also fiscal 1998 contained 53 weeks of operations compared to 52 weeks for both 1997 and 1996. Average weekly sales per restaurant increased 1.0% to $73,200 in 1998 from $72,500 in 1997, while 1997's average sales represented a decrease of 2.8% from $74,600 in 1996. Restaurant costs and expenses remained constant at 91.0% of sales in 1998 and 1997 as all expense categories for the same store restaurant group improved and offset higher costs associated with the two new restaurants opened in 1998. Restaurant costs and expenses as a percentage of sales increased in 1997 as compared to 88.0% in 1996 largely due to the effects of new restaurant openings. Cost of sales, which includes food and alcoholic beverage costs, decreased as a percentage of sales from 1996 to 1997 due primarily to management's 9 10 emphasis on cost controls in this area. Also, this expense category is less sensitive to the effect of lower sales volumes than the other categories which have large fixed components. Same store sales and restaurant operating income, which include comparable results for all restaurants open for more than twelve months, increased in both 1998 and 1997 as compared to the prior years. Same store sales for 1998 averaged $76,300 per week on a base of 17 restaurants, a 4.8% increase over $72,800 for 1997. The increase in same store sales during 1998 is attributed to three separate menu price increases of approximately 3% each which were implemented in the months of March, May and July of 1998 as well as an increase of approximately 2% in guest counts. Operating margins as a percentage of sales for this group of restaurants improved to 12.3% in 1998 from 9.3% 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 which are relatively fixed. Same store sales for 1997 on a base of thirteen restaurants increased by 1.2% to an average of $75,700 per week from $74,800 in 1996. For this same group of restaurants, restaurant operating income as a percentage of sales increased to 12.9% from 12.3%. J. Alexander's overall financial performance has been significantly affected by the number of new restaurants opened during the last four years during which time the number of restaurants increased from five to 20. 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 restaurant openings. Management believes that this "quiet opening" approach enhances guest experiences and contributes significantly to increases in sales over a long period of time. However, because this approach often results in slow sales growth until a new restaurant's reputation grows and because of the expenses associated with the Company's emphasis on training and quality of operations during the opening months of operation, the financial performance of newer restaurants typically trails that of more mature restaurants and the Company expects newly opened restaurants to experience operating losses in their initial months of operation. In addition, some of the Company's newer restaurants have not experienced the increases in sales expected by management, thus compounding the effect of these new restaurants on financial performance. To illustrate the effects of new restaurants on results of operations, losses incurred at the restaurant level in the year of opening totaled approximately $500,000 for the two restaurants opened in 1998, $900,000 for the four restaurants opened in 1997 and $300,000 for the five restaurants opened in 1996. Results in the Company's restaurants generally improve significantly after their first full year of operation. Because the breakeven point for a J. Alexander's restaurant is relatively high due to the high fixed costs necessary to deliver and sustain the high levels of food quality, service and ambiance which are critical components of the J. Alexander's concept, management continues to believe that the primary issue faced by the Company in returning it to consistent profitability is the improvement of sales in several of its restaurants, particularly its newer restaurants. Management intends to accomplish this through a series of initiatives which began in 1997 when guest service support was increased in some of the Company's newer restaurants in order to ensure the highest quality of operations. Additionally menu prices were reduced in some of the restaurants which were not posting satisfactory guest count increases. While these strategies increased the Company's losses for 1997, guest counts increased significantly in these restaurants. Other actions which improved 1998 results and should continue to have a favorable impact during 1999 include the implementation of operational systems designed to provide quicker service and increase table turns and the implementation during the fourth quarter of 1998 of an extensive profit improvement plan which included certain menu and procedural changes and which took advantage of significant purchasing opportunities. This plan resulted in significant food cost savings without sacrificing product quality, while also improving the quality and efficiency of operations. 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. The lower expansion rate will also reduce start-up related expenses. The Company opened two restaurants in 1998 and currently plans to open one restaurant in 1999 and two in 2000. Management remains optimistic about the long-term prospects for J. Alexander's. It believes that actions taken to date as well as continued emphasis on increasing sales and profits will have a positive impact on financial performance for 1999 and that the Company will be profitable in 1999. 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 for J. Alexander's (and, before 1997, Wendy's) operations, increased slightly in fiscal 1998 compared to 1997. For the 1998 year, favorable experience under the Company's workers' compensation program for the current and prior policy years and the Company's self-insured group medical 10 11 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 decreased by $1,307,000, or 18.4%, in 1997 compared to 1996 due to the disposition of the Wendy's operations. As expected, however, general and administrative expenses increased as a percentage of sales to 10.1% in 1997 from 7.8% in 1996, because these expenses did not decrease in proportion to the reduction in revenues resulting from the Wendy's divestiture. General and administrative expenses in 1998 included the effect of both premium rebates and special rate discounts in the state of Ohio due to favorable experience of that state's workers' compensation fund. Further, the Company reduced certain of its estimated worker's compensation accruals, primarily for self-insured claims, for prior years as a result of favorable experience related to those estimates. Primarily because the Company does not expect similar factors to be present in 1999, general and administrative expenses are expected to increase as a percentage of sales as compared to 1998. 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. In 1996 the Company changed its amortization period for pre-opening costs from twenty-four months to twelve months. Due to only two restaurants being opened in 1998, pre-opening expenses, which are approximately $350,000 per restaurant, were $920,000 less in 1998 than in 1997. Pre-opening expenses are expected to be approximately $300,000 to $350,000 for 1999. Interest Income and Expense Interest expense increased by $956,000 in 1998 compared to 1997 due to the use of the Company's line of credit to fund a portion of the cost of developing new restaurants and due to lower amounts of capitalized interest resulting from the Company's lower new restaurant development rate. Interest expense decreased by $617,000 in 1997 compared to 1996 due to the elimination of long-term obligations associated with the Company's Wendy's restaurant operations and a reduction in average balances outstanding under the Company's line of credit as a result of the use of a portion of the proceeds from the Wendy's divestiture to retire the outstanding balance of the line of credit at that time and to fund a portion of the Company's capital needs for 1997. There was no interest income in 1998 due to the use in 1997 of the remaining proceeds from the Company's Wendy's divestiture to fund a portion of the cost of developing new J. Alexander's restaurants. Interest income increased by $79,000 in 1997 compared to 1996 due to increased investment balances resulting from the Wendy's divestiture. Income Taxes Under the provisions of SFAS No. 109 "Accounting for Income Taxes", the Company had gross deferred tax assets of $5,324,000 and $5,213,000 and gross deferred tax liabilities of $929,000 and $948,000 at January 3, 1999 and December 28, 1997, respectively. The deferred tax assets at January 3, 1999 relate primarily to $4,962,000 of net operating loss carryforwards and $3,101,000 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. No allowance was deemed necessary during 1996 and earnings for the year were taxed at an effective rate of 37.1%. 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 1998, management was again unable to conclude that it was more likely than not that its existing deferred tax assets would be realized. At January 3, 1999, the Company has recorded a valuation allowance for deferred tax assets of $4,395,000. Approximately $14,100,000 of future taxable income would be needed to realize the Company's tax credit and net operating loss carryforwards at January 3, 1999. These carryforwards expire in the years 1999 through 2013. Approximately $2,250,000 of taxable income would be needed to realize the carryforwards which expire in 1999 and $1,400,000 to use those which expire in 2000. 11 12 LIQUIDITY AND CAPITAL RESOURCES The Company's primary need for capital has historically been and is expected to continue to be capital expenditures for the development of new restaurants. This need has been reduced, however, as a result of the Company's lower new restaurant development rate beginning in 1998. Capital expenditures totaled $4,914,000, $16,619,000 and $22,589,000 for 1998, 1997 and 1996, respectively, and were primarily for the development of new J. Alexander's restaurants. Also included in these amounts were capital expenditures for the Wendy's division of $1,717,000 for 1996 which included facilities upgrades and miscellaneous equipment replacements. The Company's capital expenditures for new restaurants significantly exceeded the cash flow generated from operations for the last three years, with the difference being funded primarily by proceeds from the sale of the Company's Wendy's operations in 1996 and use of the Company's bank line of credit. For 1999, the Company plans to construct and open one restaurant on leased land in West Bloomfield, Michigan at a cost of approximately $2.9 million. Management estimates that total capital expenditures for the Company for 1999 will be $3.5 million to $5.5 million, the variance depending primarily on the amount expended for restaurants to be opened in 2000. While a working capital deficit of $7,078,000 existed as of January 3, 1999, the Company does not believe that this deficit impairs the overall financial condition of the Company because it expects cash flow from operations to be adequate to meet current obligations, including a scheduled sinking fund payment of $1,875,000 in 1999 on its Convertible Subordinated Debentures. 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. The Company maintains a bank line of credit of $20 million which is expected to be used as needed for funding of capital expenditures through its expiration date of July 1, 2000 and which will also provide liquidity for meeting working capital or other needs. At January 3, 1999, borrowings outstanding under this line of credit were $9,270,000. The line of credit agreement contains certain covenants which require the Company to achieve 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 3,1999 and, based on a current assessment of its business, believes it will continue to comply with those covenants through July 1, 2000. 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, 2000. 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 for approximately $4.1 million. In addition, the Company is filing a registration statement for a proposed rights offering pursuant to which shareholders of the Company on the record date for distribution of the rights will be given the opportunity to purchase up to 1,089,067 shares of common stock at a price of $3.75 per share, which is the same price per share as stock sold in the private sale. If the maximum number of shares are sold pursuant to the rights offering, the Company will receive net proceeds of approximately $3.9 million. Proceeds from the above transactions have been or will be used to repay borrowings outstanding under the Company's 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. 12 13 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. IMPACT OF THE YEAR 2000 ISSUE INTRODUCTION. The term "Year 2000 issue" is a general term used to describe the various problems that may result from the improper processing of dates and date-sensitive calculations by computers and other machinery as the year 2000 is approached and reached. These problems generally arise from the fact that most of the world's computer hardware and software has historically used only two digits to identify the year in a date, often meaning that the computer will fail to distinguish dates in the "2000's" from dates in the "1900's". These problems may also arise from other sources as well, such as the use of special codes and conventions in software that make use of the date field. THE COMPANY'S STATE OF READINESS. The Company has completed its assessment of its internal information technology systems and its major information technology vendors and detailed plans have been developed to address system modifications required by September 30, 1999. Generally, the Company's information systems are relatively new systems based on personal computer, rather than mainframe, technology. As a result, the Company's remediation process consists primarily of replacing personal computers which are not Year 2000 compliant and installing upgrades from certain third party software vendors which the Company has been advised will make that software Year 2000 compliant. As indicated, the assessment phase with respect to information technology systems has been completed. With respect to remediation, all of the Company's personal computers have been tested for Year 2000 compliance, and replaced as necessary. Software upgrades are expected to be installed on or before August 31, 1999, with testing completed by September 30, 1999. The Company estimates that its Year 2000 readiness initiatives with respect to its information technology systems are approximately 50% complete. The Company is currently in the process of assessing its non-information technology systems that utilize embedded technology such as microcontrollers and reviewing them for Year 2000 compliance. The Company will continue to assess these systems and take appropriate action with respect to non-Year 2000 compliant systems of this nature where practicable. However, the Company does not believe that non-Year 2000 compliance of these systems will have a material effect on the Company's operations. The Company's information systems are generally not interfaced with third party vendors. However, to operate its business, the Company relies upon government agencies, utility companies, providers of telecommunication services, suppliers, and other third party service providers ("Material Relationships"), over which it can assert little control. The Company's ability to conduct its core business is dependent upon the ability of these Material Relationships to fix their Year 2000 issues to the extent they affect the Company. If the telecommunications carriers, public utilities and other Material Relationships do not appropriately rectify their Year 2000 issues, the Company's ability to conduct its core business may be materially impacted, which could result in a material adverse effect on the Company's financial condition. The Company has had discussions with a limited number of its Material Relationships regarding their Year 2000 readiness and plans to further query certain of its Material Relationships in order to obtain additional information from them. The Company believes that making these inquiries nearer Year 2000 will allow it to receive the latest information from its Material Relationships regarding their state of readiness. The Company plans to complete its survey process prior to June 30, 1999, and will use information obtained from that process to further assess its risks and assist in the development of contingency plans prior to the end of 1999. COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES. The Company expenses costs associated with Year 2000 system changes as the costs are incurred except for system change costs that the Company would otherwise capitalize. To date, the Company has incurred costs of approximately $10,000 in connection with its Year 2000 compliance plan ("Year 2000 Plan") and estimates it will spend an additional $50,000 to $150,000 to complete its Year 2000 Plan. The financial impact of these expenses has not been material, and the Company does not expect future remediation costs to be material to the Company's consolidated financial position or results of operations. However, the Company is unable to estimate the costs that it may incur as a result of Year 2000 problems suffered by the parties with which it deals, such as Material Relationships, and there can be no assurance that the Company will successfully address the Year 2000 problems present in its own systems. RISKS PRESENTED BY YEAR 2000 PROBLEMS. The Company has begun the testing phase of its Year 2000 Plan. However, until testing is substantially in process the Company cannot fully assess the risks of its Year 2000 issue. As a result of the testing process, the Company may identify areas of its business that are at risk of Year 2000 disruption. The absence of any such determination at this point represents only the current status of the implementation of the Company's Year 2000 Plan, and should not be construed to mean that there is no area of the Company's business which is at risk of a Year 2000 related disruption. As noted above, many of the Company's business critical Material Relationships may not appropriately address their Year 2000 issues, the result of which could have a material adverse effect on the Company's financial condition and results of operations. THE COMPANY'S CONTINGENCY PLANS. The Company's Year 2000 Plan calls for the development of contingency plans for areas of the business that are determined to be susceptible to substantial risk of a disruption resulting from a Year 2000 related event. Because the Company's remediation, testing, and, with respect to Material Relationships, assessment phases are not complete, it has not fully assessed its risk from potential Year 2000 failures and has not yet developed detailed contingency plans specific to Year 2000 events for any specific area of business. The Company does, however, maintain contingency plans, outside of the scope of the Year 2000 issue, designed to address various other business interruptions. The Company is prepared for the possibility that the testing process may hereafter identify certain areas of business at risk. Consistent with its Year 2000 Plan, the Company will develop specific Year 2000 contingency plans, to the extent practicable, for such areas of business as and if such determinations are made. 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. 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, including but not limited to those discussed in this Form 10-K. 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 in this Form 10-K.) The Company does not expect changes in interest rates to have a material effect on income or cash flows in fiscal 1999, 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 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 3, 1999, December 28, 1997 and December 29, 1996 17 Consolidated balance sheets - January 3, 1999 and December 28, 1997 18
14 15 Consolidated statements of cash flows - Years ended January 3, 1999, December 28, 1997 and December 29, 1996 19 Consolidated statements of stockholders' equity - Years ended January 3, 1999, December 28, 1997 and December 29, 1996 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 3, 1999 and December 28, 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three fiscal years in the period ended January 3, 1999. 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 generally accepted auditing standards. 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 3, 1999 and December 28, 1997, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended January 3, 1999 in conformity with generally accepted accounting principles. 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 March 22, 1999 16 17 J. ALEXANDER'S CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended ----------- JANUARY 3 December 28 December 29 1999 1997 1996 ---- ---- ---- Net sales $74,200,000 $57,138,000 $90,879,000 Costs and expenses: Cost of sales 25,410,000 19,480,000 31,969,000 Restaurant labor and related costs 24,663,000 18,871,000 27,374,000 Depreciation and amortization of restaurant property and equipment 3,758,000 2,860,000 2,958,000 Royalties -- -- 1,952,000 Other operating expenses 13,659,000 10,813,000 14,410,000 ----------- ----------- ----------- Total restaurant operating expenses 67,490,000 52,024,000 78,663,000 ----------- ----------- ----------- Income from restaurant operations 6,710,000 5,114,000 12,216,000 General and administrative expenses 5,815,000 5,793,000 7,100,000 Pre-opening expense 660,000 1,580,000 1,503,000 Gain on Wendy's disposition 264,000 669,000 9,400,000 ----------- ----------- ----------- Operating income (loss) 499,000 (1,590,000) 13,013,000 ----------- ----------- ----------- Other income (expense): Interest expense (1,986,000) (1,030,000) (1,647,000) Interest income -- 186,000 107,000 Other, net 2,000 13,000 (22,000) ----------- ----------- ----------- Total other income (expense) (1,984,000) (831,000) (1,562,000) ----------- ----------- ----------- Income (loss) before income taxes (1,485,000) (2,421,000) 11,451,000 Income tax provision -- (2,685,000) (4,243,000) ----------- ----------- ----------- Income (loss) before cumulative effect of change in accounting principle (1,485,000) (5,106,000) 7,208,000 Cumulative effect of change in accounting principle -- (885,000) -- ----------- ----------- ----------- Net income (loss) $(1,485,000) $(5,991,000) $ 7,208,000 =========== =========== =========== Basic earnings per share: Income (loss) before accounting change $(.27) $(.95) $1.36 Cumulative effect of change in accounting principle -- (.16) -- ----- ---- ------- Net income (loss) $(.27) $(1.11) $1.36 ==== ===== ==== Diluted earnings per share: Income (loss) before accounting change $(.27) $(.95) $1.26 Cumulative effect of change in accounting principle -- (.16) -- ----- ---- ------ Net income (loss) $(.27) $(1.11) $1.26 ==== ===== ====
See notes to consolidated financial statements. 17 18 J. ALEXANDER'S CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JANUARY 3 December 28 1999 1997 ---- ---- ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,022,000 $ 134,000 Accounts and notes receivable, including current portion of direct financing leases, net of allowances for possible losses 77,000 241,000 Inventories at lower of cost (first-in, first-out method) or market 800,000 689,000 Deferred income taxes -- 400,000 Net assets held for disposal -- 156,000 Prepaid expenses and other current assets 324,000 387,000 ----------- ----------- TOTAL CURRENT ASSETS 2,223,000 2,007,000 OTHER ASSETS 887,000 1,167,000 PROPERTY AND EQUIPMENT, at cost, less allowances for depreciation and amortization 61,440,000 60,573,000 DEFERRED CHARGES, less accumulated amortization of $995,000 and $875,000 at January 3, 1999, and December 28, 1997, respectively 570,000 674,000 ----------- ----------- $65,120,000 $64,421,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 3,491,000 $ 3,573,000 Accrued expenses and other current liabilities 3,893,000 3,048,000 Current portion of long-term debt and obligations under capital leases 1,917,000 1,922,000 ----------- ----------- TOTAL CURRENT LIABILITIES 9,301,000 8,543,000 LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES, net of portion classified as current 21,361,000 20,231,000 OTHER LONG-TERM LIABILITIES 727,000 652,000 STOCKHOLDERS' EQUITY Common Stock, par value $.05 per share: Authorized 10,000,000 shares; issued and outstanding 5,431,335 and 5,421,538 shares at January 3, 1999, and December 28, 1997, respectively 272,000 272,000 Preferred Stock, no par value: Authorized 1,000,000 shares; none issued -- -- Additional paid-in capital 30,007,000 29,909,000 Retained earnings 4,272,000 5,757,000 ----------- ----------- 34,551,000 35,938,000 Note receivable - Employee Stock Ownership Plan (820,000) (943,000) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 33,731,000 34,995,000 ----------- ----------- Commitments and Contingencies $65,120,000 $64,421,000 =========== ===========
See notes to consolidated financial statements. 18 19 J. ALEXANDER'S CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended ----------- JANUARY 3 December 28 December 29 1999 1997 1996 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (1,485,000) $ (5,991,000) $ 7,208,000 Adjustments to reconcile net income (loss) to net cash (used) provided by operating activities: Depreciation and amortization of property and equipment 3,936,000 3,004,000 3,096,000 Cumulative effect of change in accounting principle -- 885,000 -- Amortization of deferred charges 131,000 134,000 1,578,000 Employee Stock Ownership Plan expense 123,000 85,000 -- Gain on Wendy's disposition (264,000) (669,000) (9,400,000) Deferred income tax provision -- 2,393,000 2,441,000 Other, net 125,000 41,000 195,000 Changes in assets and liabilities: (Increase) decrease in accounts receivable 502,000 (58,000) 135,000 Increase in inventories (111,000) (155,000) (78,000) (Increase) decrease in prepaid expenses and other current assets 63,000 (18,000) 115,000 Increase in deferred charges (27,000) (61,000) (1,377,000) Increase in accounts payable 44,000 687,000 4,000 Increase (decrease) in accrued expenses and other current liabilities 1,037,000 (2,468,000) (634,000) Increase in other long-term liabilities 75,000 41,000 110,000 ------------ ------------ ------------ Net cash provided (used) by operating activities 4,149,000 (2,150,000) 3,393,000 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (5,040,000) (17,481,000) (22,132,000) Proceeds from sale of Wendy's restaurant operations 228,000 625,000 28,764,000 Proceeds from maturities and sales of investments -- -- 505,000 Other, net 328,000 (17,000) (78,000) ------------ ------------ ------------ Net cash (used) provided by investing activities (4,484,000) (16,873,000) 7,059,000 ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds under bank line of credit agreement 28,961,000 11,614,000 12,544,000 Payments under bank line of credit agreement (25,914,000) (5,391,000) (12,544,000) Payments on long-term debt and obligations under capital leases (1,922,000) (55,000) (415,000) Sale of stock and exercise of stock options 98,000 440,000 278,000 ------------ ------------ ------------ Net cash provided (used) by financing activities 1,223,000 6,608,000 (137,000) ------------ ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 888,000 (12,415,000) 10,315,000 Cash and cash equivalents at beginning of year 134,000 12,549,000 2,234,000 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,022,000 $ 134,000 $ 12,549,000 ============ ============ ============
See notes to consolidated financial statements. 19 20 J. ALEXANDER'S CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Note Receivable- Employee Additional Stock Total Outstanding Common Paid-In Retained Ownership Stockholders' Shares Stock Capital Earnings Plan Equity ------ ----- ------- -------- ---- ------ BALANCES AT DECEMBER 31, 1995 5,276,972 $ 264,000 $ 29,199,000 $ 4,540,000 $1,028,000) $ 32,975,000 Exercise of stock options, including tax benefits, and sale of stock under Employee Stock Purchase Plan 45,535 2,000 276,000 -- -- 278,000 Net income -- -- -- 7,208,000 -- 7,208,000 ---------- ---------- ------------ ------------ ---------- ------------ 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, and sale of stock under Employee Stock Purchase Plan 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 ========== ========== ============ ============ ========== ============
See notes to consolidated financial statements. 20 21 J. ALEXANDER'S CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company and its subsidiaries. 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 1998 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 1997 and 1996. 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 - 20 to 25 years, restaurant and other equipment - three to 10 years, and capital leases and leasehold improvements - lesser of life of assets or terms of leases. 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. 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). The pro forma effect of the change in accounting for pre-opening costs would have been to decrease net income by $511,000 ($.09 per share) for the year ended December 29, 1996. In April 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 during fiscal 1998. Prior to fiscal 1996, pre-opening costs associated with the start-up of new restaurants were deferred and amortized over the restaurant's first 12 months (Wendy's) or 24 months (J. Alexander's) of operations. During the fourth quarter of 1996, the Company changed its period of amortization from 24 months to 12 months relative to its J. Alexander's restaurants resulting in approximately $450,000 of additional pre-opening amortization during 1996. FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: 21 22 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 in conjunction with acquiring and developing new J. Alexander's restaurant sites and amortized over the life of the related building. Development costs of $292,000, $307,000 and $335,000 were capitalized during 1998, 1997 and 1996, 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 portions of 1996 through 1998, 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 $289,000, $255,000 and $1,778,000 in 1998, 1997 and 1996, 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, reserves for self-insurance of group medical claims and workers' compensation benefits and, accruals related to the exit of the Wendy's business. 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, the Company periodically evaluates the carrying value of property and equipment and intangibles. COMPREHENSIVE INCOME: In 1998, the Company adopted a new disclosure pronouncement, SFAS No. 130, "Reporting Comprehensive Income". The Company had no items of comprehensive income and, accordingly, adoption of the Statement 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. NOTE B - SALE OF WENDY'S RESTAURANT OPERATIONS In 1996, the Company sold 52 of its 58 Wendy's Old Fashioned Hamburgers restaurants to Wendy's International, Inc. for $28.3 million in cash plus the assumption of capitalized lease obligations and long-term debt totaling approximately $2.5 million. This transaction generated a pre-tax gain of $9.4 million in 1996. The six 22 23 restaurants not sold as part of the November 1996 transaction were sold or closed. In connection with the sale of its Wendy's restaurants, the Company established various accruals for termination benefits and other costs associated with its exit from the Wendy's business, with such accruals totaling $527,000 at December 28, 1997. During 1998 and 1997, the Company made net cash payments of $285,000 and $833,000, respectively, related to these accruals. In addition, the Company recognized $264,000 and $669,000 in additional gains related to the Wendy's divestiture during 1998 and 1997, respectively, primarily due to the sale of properties for amounts greater than their carrying values, a favorable insurance settlement and other adjustments to the accruals established during 1996. At January 3, 1999, the Company no longer maintains accruals related to the exit of the Wendy's business. NOTE C - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
YEARS ENDED ----------- JANUARY 3 December 28 December 29 1999 1997 1996 ---- ---- ---- NUMERATOR: Net income (loss) before cumulative effect of change in accounting principle $(1,485,000) $(5,106,000) $7,208,000 Cumulative effect of change in accounting principle -- (885,000) -- ----------- ----------- ---------- Net income (loss) (numerator for basic earnings per share) (1,485,000) (5,991,000) 7,208,000 Effect of dilutive securities -- -- 799,000 ----------- ----------- ---------- Net income (loss) after assumed conversions (numerator for diluted earnings per share) $(1,485,000) $(5,991,000) $8,007,000 =========== =========== ========== DENOMINATOR: Weighted average shares (denominator for basic earnings per share) 5,426,000 5,409,000 5,303,000 Effect of dilutive securities: Employee stock options -- -- 167,000 Convertible debentures -- -- 880,000 ----------- ----------- ---------- Dilutive potential common shares -- -- 1,047,000 ----------- ----------- ---------- Adjusted weighted average shares and assumed conversions (denominator for diluted earnings per share) 5,426,000 5,409,000 6,350,000 =========== =========== ========== Basic earnings per share: Income (loss) before accounting change $(0.27) $(0.95) $1.36 Cumulative effect of change in accounting principle -- (0.16) -- ------ ------ ----- Net income (loss) $(0.27) $(1.11) $1.36 ====== ====== ===== Diluted earnings per share: Income (loss) before accounting change $(0.27) $(0.95) $1.26 Cumulative effect of change in accounting principle -- (0.16) -- ------ ------ ----- Net income (loss) $(0.27) $(1.11) $1.26 ====== ====== =====
For additional disclosures regarding the Convertible Subordinated Debentures and employee stock options, see Notes E and H, respectively. 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 1998 and 1997, all options outstanding were excluded from the computation of diluted earnings per share. For 1996, options to purchase approximately 203,000 shares of common 23 24 stock ranging in price from $7.50 to $13.00, were excluded from the computation of diluted earnings per share due to their antidilutive effect. NOTE D - PROPERTY AND EQUIPMENT Balances of major classes of property and equipment are as follows:
JANUARY 3 December 28 1999 1997 ---- ---- Land $ 13,126,000 $ 13,033,000 Buildings 29,158,000 28,341,000 Buildings under capital leases 276,000 276,000 Leasehold improvements 15,351,000 10,580,000 Restaurant and other equipment 14,519,000 12,612,000 Construction in progress (estimated additional cost to complete at January 3, 1999, $2,800,000) 63,000 3,053,000 ------------ ------------ 72,493,000 67,895,000 Less allowances for depreciation and amortization (11,053,000) (7,322,000) ------------ ------------ $ 61,440,000 $ 60,573,000 ============ ============
NOTE E - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES Long-term debt and obligations under capital leases at January 3, 1999, and December 28, 1997, are summarized below:
JANUARY 3, 1999 December 28, 1997 --------------- ----------------- CURRENT LONG-TERM Current Long-Term ------- --------- ------- --------- Convertible Subordinated Debentures, 8.25%, due 2003 $ 1,875,000 $11,875,000 $ 1,864,000 $13,750,000 Bank credit agreement, at variable interest rates ranging from 5.69% to 8.69%, available through July 1, 2000 -- 9,270,000 -- 6,223,000 Obligations under capital leases, 9.75% to 11.50% interest, payable through 2005 42,000 216,000 58,000 258,000 ----------- ----------- ----------- ----------- $ 1,917,000 $21,361,000 $ 1,922,000 $20,231,000 =========== =========== =========== ===========
Aggregate maturities of long-term debt, including required sinking fund payments, for the five years succeeding January 3, 1999, are as follows: 1999 - $1,917,000; 2000 - $11,178,000 (includes line of credit balance); 2001 - $1,912,000; 2002 - $1,916,000; 2003 - $6,296,000. 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 3, 1999, 774,648 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 agreement, as amended in March 1998, totaled $9,270,000 and $6,223,000 at January 3, 1999 and December 28, 1997, respectively. No borrowings were outstanding under the agreement at December 29, 1996. The credit agreement contains covenants which require the Company to achieve 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 following the execution of the amendment in March 1998 was based on LIBOR plus three percent and for 1999 will be LIBOR plus two to three percent, depending on the ratio of senior debt to EBITDA achieved by the Company. All amounts 24 25 outstanding under the line become due on July 1, 2000, unless the Company exercises its option to convert outstanding borrowings to a term loan prior to that time. Cash interest payments amounted to $2,011,000, $1,483,000 and $2,033,000, in 1998, 1997 and 1996, respectively. Interest costs of $96,000, $453,000 and $386,000 were capitalized as part of building and leasehold costs in 1998, 1997, and 1996, respectively. The carrying value and estimated fair value of the Company's Convertible Subordinated Debentures were $13,750,000 and $12,100,000, respectively, at January 3, 1999. NOTE F - LEASES At January 3, 1999, 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 $229,000 at January 3, 1999, and $215,000 at December 28, 1997. Amortization of leased assets is included in depreciation and amortization expense. Total rental expense amounted to:
Years Ended ----------- JANUARY 3 December 28 December 29 1999 1997 1996 ---- ---- ---- Minimum rentals under operating leases $ 1,566,000 $ 1,218,000 $ 1,996,000 Contingent rentals 69,000 63,000 366,000 Less: Sublease rentals (260,000) (260,000) (264,000) ----------- ----------- ----------- $ 1,375,000 $ 1,021,000 $ 2,098,000 =========== =========== ===========
At January 3, 1999, future minimum lease payments under capital leases and noncancellable operating leases with initial terms of one year or more are as follows:
Capital Operating Leases Leases ------ ------ 1999 $ 69,000 $ 1,437,000 2000 56,000 1,565,000 2001 56,000 1,584,000 2002 55,000 1,510,000 2003 55,000 1,543,000 Thereafter 63,000 13,381,000 -------- ----------- Total minimum payments 354,000 $21,020,000 -------- =========== Less imputed interest (96,000) -------- Present value of minimum rental payments 258,000 Less current maturities at January 3, 1999 (42,000) Long-term obligations at January 3, 1999 $216,000 ========
Minimum future rentals receivable under subleases for operating leases at January 3, 1999, amounted to $1,485,000. NOTE G - INCOME TAXES At January 3, 1999, the Company had net operating loss carryforwards of $4,962,000 for income tax purposes that expire in the years 2000 through 2013. Tax credit carryforwards (consisting primarily of investment and jobs tax credits which expire in the years 1999 through 2001 and FICA tips credits which expire in the years 2009 through 2013) of $3,101,000 are also available to reduce future federal income taxes. 25 26 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 3, 1999, and December 28, 1997, are as follows:
JANUARY 3 December 28 1999 1997 ---- ---- Deferred tax liabilities: Tax over book depreciation $ 407,000 $ 423,000 Other - net 522,000 525,000 ----------- ----------- Total deferred tax liabilities 929,000 948,000 ----------- ----------- Deferred tax assets: Capital/finance leases 6,000 7,000 Deferred compensation accruals 194,000 172,000 Self-insurance accruals 65,000 99,000 Wendy's disposition accruals -- 60,000 Net operating loss carryforwards 1,687,000 2,117,000 Tax credit carryforwards 3,101,000 1,982,000 Other - net 271,000 776,000 ----------- ----------- Total deferred tax assets 5,324,000 5,213,000 Valuation allowance for deferred tax assets (4,395,000) (3,865,000) ----------- ----------- 929,000 1,348,000 ----------- ----------- Net deferred tax assets $ -- $ 400,000 =========== ===========
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. Management evaluated the need for a valuation allowance for deferred tax assets for 1996 and concluded that all of the deferred tax assets would more likely than not be realized through the future reversal of existing taxable temporary differences within their carryforward period and the future earnings of the Company and, as a result, a valuation allowance was not considered appropriate as of December 29, 1996. In the fourth quarter of 1997, management concluded that, based upon results of operations during 1997 and its near-term forecast of future taxable earnings, a valuation allowance was appropriate relative to its deferred tax assets as of December 28, 1997. The beginning of the year valuation allowance was increased by $2,393,000 which, when combined with the impact of 1997's operations, resulted in a valuation allowance of $3,865,000 at December 28, 1997. Management concluded again in 1998 that a valuation allowance was warranted relative to existing deferred tax assets. At January 3, 1999, the Company had no net deferred tax assets and a valuation allowance of $4,395,000. Significant components of the income tax provision (benefit) are as follows:
Years Ended ----------- JANUARY 3 December 28 December 29 1999 1997 1996 ---- ---- ---- Currently payable: Federal $ (94,000) $ 31,000 $1,100,000 State 94,000 261,000 702,000 ---------- ---------- ---------- Total -- 292,000 1,802,000 Deferred -- 2,393,000 2,441,000 ---------- ---------- ---------- Income tax provision $ -- $2,685,000 $4,243,000 ========== ========== ==========
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 3 December 28 December 29 1999 1997 1996 ---- ---- ---- Tax expense (benefit) computed at federal statutory rate (34%) $ (505,000) $(1,124,000) $ 3,893,000 State and local income taxes 63,000 172,000 463,000 Non-deductible expenses 156,000 98,000 121,000 Benefit of net operating loss carryforwards and tax credits (244,000) (326,000) (234,000) Valuation of deferred tax assets 530,000 3,865,000 -- ----------- ----------- ----------- Income tax provision $ -- $ 2,685,000 $ 4,243,000 =========== =========== ===========
The Company received net income tax refunds of $814,000 in 1998 and made income tax payments of $1,126,000 and $1,098,000 in 1997 and 1996, respectively. 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. On September 30, 1998, the Company's Board of Directors offered employees, excluding the Chief Executive Officer (who asked not to be considered for the exchange offer), with options outstanding under the Company's option plans an opportunity to surrender such outstanding options in exchange for new option grants at fair market value on the grant date. Members of management were offered new option grants representing 80% of the number of shares of common stock issuable under the surrendered options. All other employees with options outstanding were offered new options for the same number of shares issuable under their surrendered options. The new options vest in one-third increments over a period of three years from the date of grant. Members of the Company's Board of Directors were not offered the opportunity to exchange their options. A summary of options under the Company's option plans is as follows:
Weighted Average Exercise Options Shares Option Prices Price - ------- ------ ------------- ----- Outstanding at December 31, 1995 562,708 $1.38- $13.00 $ 6.85 Issued 5,000 9.88 9.88 Exercised (26,521) 1.38- 7.25 4.96 Expired or canceled (11,900) 7.25- 10.38 9.20 -------- --------------- ------ 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- $10.50 $ 4.40 ======== =============== ======
Options exercisable and shares available for future grant are as follows:
JANUARY 3 December 28 December 29 1999 1997 1996 ---- ---- ---- Options exercisable 221,171 269,439 380,734 Shares available for grant 123,014 218,384 228,850
27 28 The following table summarizes information about stock options outstanding at January 3, 1999:
Options Outstanding Options Exercisable - ------------------------------------------------------------------------ ------------------- Number Number Outstanding at Weighted Weighted Exercisable at Weighted Range of January 3 Average Remaining Average Exercise January 3 Average Exercise Prices 1999 Contractual Life Price 1999 Exercise Price - --------------- ---- ---------------- ----- ---- -------------- $1.38- $ 2.19 97,500 1.1 years $1.57 97,500 $ 1.57 2.75 348,220 9.7 years 2.75 -- -- 3.81- 5.69 62,750 8.5 years 5.52 22,247 5.35 7.38- 10.50 170,350 6.3 years 9.01 101,424 8.73 -------------- -------- ----- -------- ------ $1.38- $10.50 678,820 $4.40 221,171 $ 5.23 =============== ======== ===== ======== ======
Options exercisable at December 28, 1997 and December 29, 1996 had weighted average exercise prices of $6.00 and $6.02, 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 to continue 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 1998, 1997 and 1996, respectively: risk-free interest rates of 4.62%, 6.04% and 6.85%; no annual dividend yield; volatility factors of .3795, .3619 and .3812 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 3 December 28 December 29 1999 1997 1996 ---- ---- ---- Pro forma net income (loss) $(2,076,000) $(6,503,000) $7,009,000 Pro forma earnings (loss) per share Basic $ (.38) $ (1.20) $ 1.32 Diluted $ (.38) $ (1.20) $ 1.23
The weighted average fair value per share for options granted during 1998, 1997 and 1996 was $1.61, $4.09 and $6.27, 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. Shares issued under the plan totaled 15,760 and 19,014 in 1997 and 1996, respectively. No shares were issued under the plan in 1998. The Company has a Salary Continuation Plan which provides retirement and death benefits to certain key employees. The expense recognized under this plan was $59,000, $113,000 and $67,000 in 1998, 1997 and 1996, 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 1998 totaled $29,000, or 25% of eligible participant contributions. For 1997 and 1996, the Company recognized expense of $22,000 and $24,000, respectively. 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 $123,000 and $85,000 for 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 $135,000 to $197,000 over the period 1999 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 267,515 and 229,606 at January 3, 1999 and December 28, 1997, 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 (other than Solidus, LLC and its affiliates -- See Note M -- Subsequent Events) 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, 1999. In order to prevent dilution, the exercise price and 29 30 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. 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 seventeen years. The total amount of lease payments remaining on these leases at January 3, 1999 was approximately $5.0 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 seven years. The total amount of lease payments remaining on these leases at January 3, 1999, was approximately $2.2 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 eight years. The total amount of lease payments remaining on these leases as of January 3, 1999, was approximately $1.1 million. 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. NOTE L - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities included the following:
JANUARY 3 December 28 1999 1997 ---- ---- Taxes, other than income taxes $1,401,000 $ 961,000 Salaries and wages 750,000 324,000 Insurance 493,000 905,000 Interest 191,000 120,000 Wendy's disposition accruals -- 527,000 Other 1,058,000 211,000 ---------- ---------- $3,893,000 $3,048,000 ========== ==========
NOTE M - SUBSEQUENT EVENTS 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, the Company is filing a registration statement for a proposed rights offering pursuant to which shareholders of the Company on the record date for distribution of the rights will be given the opportunity to purchase up to 1,086,267 shares of common stock at a price of $3.75 per share, which is the same price per share as stock sold in the private sale. If the maximum number of shares are sold pursuant to the rights offering, the Company will receive net proceeds of approximately $3.9 million. Proceeds from the above transactions have been or will be used to repay borrowings outstanding under the Company's line of credit. Amounts repaid can be reborrowed in accordance with the terms of the line of credit agreement. 30 31 QUARTERLY RESULTS OF OPERATIONS The following is a summary of the quarterly results of operations for the years ended January 3, 1999 and December 28, 1997 (dollars in thousands, except per share amounts):
1998 QUARTERS ENDED ------------------------------------------------------------ MARCH 29 JUNE 28 SEPTEMBER 27 JANUARY 3(1) -------- ------- ------------ ------------ NET SALES $17,512 $18,095 $18,087 $20,506 INCOME FROM RESTAURANT OPERATIONS 1,138 1,465 1,688 2,419 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 1997 Quarters Ended ------------------------------------------------------------- March 30(3) June 29(3) September 28(3) December 28 ----------- ---------- --------------- ------------ Net sales $14,032 $13,459 $14,143 $15,504 Income from restaurant operations 1,714 1,416 1,094 890 Net income $ (712)(4) $ (45)(5) $ (599)(6) $(4,635)(7) Basic earnings per share: Income (loss) before accounting change $ .03 $ (.01) $ (.11) $ (.85) Cumulative effect of change in accounting principle (.16) -- -- -- ------- ------- ------- ------- Net loss $ (.13) $ (.01) $ (.11) $ (.85) ======= ======= ======= ======= Diluted earnings per share: Income (loss) before accounting change $ .03 $ (.01) $ (.11) $ (.85) Cumulative effect of change in accounting principle (.16) -- -- -- ------- ------- ------- ------- Net loss $ (.13) $ (.01) $ (.11) $ (.85) ======= ======= ======= =======
(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. (3) Restated to reflect the change in the Company's accounting policy for pre-opening costs to expense them as incurred effective with the beginning of fiscal 1997. (4) 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. (5) Includes pre-tax gain of $369 related to disposal of Wendy's restaurant operations in 1996. (6) Includes pre-tax gain of $300 related to disposal of Wendy's restaurant operations in 1996. (7) 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 Account Standards (SFAS) No.109. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 31 32 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Five directors are to be elected at the annual meeting for a term of one year and until their successors shall be elected and qualified. All of such nominees are presently directors of the Company. The following schedule includes certain information with respect to each of the nominees.
Name Background Information - ---- ---------------------- Earl Beasley, Jr.................... Mr. Beasley, 65, has been a director of the Company since March 1991. Since 1981, Mr. Beasley has been President of Homer B. Brown Co., an investment firm. Mr. Beasley was President and a director of the Company from 1971 to 1980. E. Townes Duncan.................... Mr. Duncan, 45, has been a director of the Company since May 1989. Mr. Duncan has been President and a director of Solidus, LLC, a private investment firm, since January 1997. From 1993 to May 1997, Mr. Duncan was the Chairman of the Board and Chief Executive Officer of Comptronix Corporation, a manufacturer of printed circuit board assemblies ("Comptronix"). From 1985 to 1993, Mr. Duncan was a Vice President and principal of Massey Burch Investment Group, Inc. Mr. Duncan is also a director of Sirrom Capital Corporation, a specialty finance company, and Bright Horizons Family Solutions, Inc., (formerly CorporateFamily Solutions) a childcare services company. Garland G. Fritts................... Mr. Fritts, 69, has been a director of the Company since December 1985. Since 1993, Mr. Fritts has been a consultant for Fry Consultants, Inc., a management consulting firm. Mr. Fritts was a consultant for McManis Associates, Inc., a management consulting firm, from 1989 to 1993. Lonnie J. Stout II.................. Mr. Stout, 52, has been a director and President and Chief Executive Officer of the Company since May 1986. Since July 1990, Mr. Stout has also served as Chairman of the Company. From 1982 to May 1984, Mr. Stout was a director of the Company, and served as Executive Vice President and Chief Financial Officer of the Company from October 1981 to May 1984. John L.M. Tobias.................... Mr. Tobias, 78, has been a director of the Company since February 1983. He has served as President of J.M.T. Associates, Inc., an investment firm, since 1979 and as that corporation's Board Chairman since January 1987.
CERTAIN PROCEEDINGS Mr. Duncan served as Chairman of the Board and Chief Executive Officer, and Mr. Stout served as a director of Comptronix. Comptronix filed for reorganization under Chapter 11 of the Bankruptcy Code in August 1996. In November 1996, Comptronix sold substantially all of its assets pursuant to an agreement approved by the Bankruptcy Court. Comptronix distributed all of its remaining assets, including the proceeds from the November 1996 sale, to its creditors pursuant to a plan of liquidation consummated in May 1997. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires the Company's executive officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Commission and the New York Stock Exchange. Executive officers, directors and greater than 32 33 10% shareholders are required by regulation of the Commission to furnish the Company with copies of all Section 16(a) forms they file. Based solely on a review of the Forms 3, 4 and 5 and amendments thereto and certain written representations furnished to the Company, the Company believes that during the fiscal year ended January 3, 1999, its executive officers, directors and greater than 10% beneficial owners complied with all applicable filing requirements, except that Mr. Beasley failed to timely report a surrender of $1,000 principal amount of convertible debentures, which were called by the Company on June 1, 1998, and Mr. Duncan failed to timely report purchases of 1,000 shares, 300 shares and 200 shares, occurring in October, November and December, 1998, respectively, by Solidus, LLC, a company of which he is a principal manager and member. Each of the delinquent transactions of Messrs. Beasley and Duncan have since been reported to the Commission. 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, 52...... 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, 46...... Chief Financial Officer since July 1986; Vice President of Finance and Secretary since August 1984. J.Michael Moore, 39....... 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, 36........ Controller of the Company since May 1997; Director of Finance from January, 1993 to May, 1997. Lonnie J. Stout II, 52.... Chairman since July 1990; Director, President and Chief Executive Officer since May 1986.
ITEM 11. EXECUTIVE COMPENSATION The following table provides information as to annual, long-term or other compensation during fiscal years 1998, 1997 and 1996 for the Company's Chief Executive Officer and each of the other executive officers of the Company who were serving as executive officers at January 3, 1999 whose cash compensation exceeded $100,000 (collectively, the "Named Officers"). 33 34 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ------------- ANNUAL COMPENSATION SECURITIES ------------------------------- UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(1) - --------------------------- ---- --------- -------- ---------- ------------------ Lonnie J. Stout II...................... 1998 272,500 34,688 50,000 5,388(2) Chairman, President, Chief 1997 258,750 -- 80,000 5,623 Executive Officer, and Director 1996 250,000 -- -- 1,634 R. Gregory Lewis........................ 1998 130,000 16,750 46,800 5,636(3) Vice-President, Chief Financial 1997 121,500 -- 19,500 6,231 Officer, and Secretary 1996 117,000 -- -- 2,425 Ronald E. Farmer........................ 1998 103,500 13,375 34,200 3,078(4) Vice-President, Development 1997 96,500 -- -- 3,348 1996 87,000 -- -- 1,241 J. Michael Moore........................ 1998 95,650 12,250 15,800 3,531(5) Vice-President, Human Resources and 1997 86,000 -- -- 3,555 Administration
(1) The ESOP shares included in this column for 1998 are valued at $4 per share, the closing price of the Company's Common Stock on December 31, 1998. The number of ESOP shares included in this column for 1998 is an approximation of the number of shares to be allocated to the participants. (2) Includes the $1,440 premium cost of term life insurance maintained for the benefit of Mr. Stout, $600 contributed by the Company to the Company's 401(k) Plan on behalf of Mr. Stout, and 837 ESOP shares allocated to Mr. Stout. (3) Includes the $1,248 premium cost of term life insurance maintained for the benefit of Mr. Lewis, $1,040 contributed by the Company to the Company's 401(k) Plan on behalf of Mr. Lewis and 837 ESOP shares allocated to Mr. Lewis. (4) Includes the $994 premium cost of term life insurance maintained for the benefit of Mr. Farmer and 521 ESOP shares allocated to Mr. Farmer. (5) Includes the $893 premium cost of term life insurance maintained for the benefit of Mr. Moore, $838 contributed by the Company to the Company's 401(k) Plan on behalf of Mr. Moore, and 450 ESOP shares allocated to Mr. Moore. OPTION GRANTS IN LAST FISCAL YEAR The following table provides information as to options granted to the Named Officers during fiscal 1998. No stock appreciation rights ("SARs") have ever been awarded by the Company. 34 35
INDIVIDUAL GRANTS --------------------------------------- PERCENT OF NUMBER OF TOTAL GRANT DATE SECURITIES OPTIONS VALUE UNDERLYING GRANTED TO ---------- OPTIONS/SARS EMPLOYEES IN EXERCISE OR GRANT DATE GRANTED FISCAL BASE EXPIRATION PRESENT NAME (#)(1) YEAR (%) ($/SH) DATE VALUE($)(2) - ---- ----------- ---------- ---------- --------- ------------- Lonnie J. Stout II................. 50,000 14.1% 2.75 9/30/2008 79,000 R. Gregory Lewis................... 10,000 2.75 9/30/2008 15,800 36,800(3) 2.75 9/30/2008 58,144 -------- ------- 46,800 13.2% 73,944 Ronald E. Farmer................... 9,000 2.75 9/30/2008 14,220 25,200(3) 2.75 9/30/2008 39,816 -------- ------- 34,200 9.6% 54,036 J. Michael Moore................... 5,000 2.75 9/30/2008 7,900 10,800(3) 2.75 9/30/2008 17,064 -------- ------- 15,800 4.4% 24,964
(1) One-third of the shares covered by the options granted to the Named Officers vest on the first anniversary of the date of grant and each year thereafter. (2) Based on the Black-Scholes Option Valuation Method. The assumptions underlying this valuation are as follows: (i) a $2.75 exercise price and market price on the date of grant; (ii) a ten year expected option term; (iii) risk-free rate based on the current Treasury bill rate (4.60% ten year rate); (iv) volatility of .3799, based on monthly closing prices since August 1990; and (v) no annual dividend yield. The grant date value has not been discounted for the vesting schedule of the options. (3) Represents new options issued in option exchange, described below in "Report on Exchange of Options". OPTION EXERCISES AND YEAR-END VALUE TABLE The following table provides information as to options exercised by the Named Officers during fiscal 1998. None of the Named Officers has held or exercised separate SARs. In addition, this table includes the number of shares covered by both exercisable and unexercisable stock options as of January 3, 1999. Also reported are the values for the "in-the-money" options, which represent the positive spread between the exercise price of any such existing stock options and the year-end price of the Common Stock.
Number of Securities Value of Unexercised Underlying Unexercised In-The-Money Options at Options At Shares Fiscal Year End(#) Fiscal Year End($)(1) Name Acquired on Value ------------------------------- ------------------------------ ---- Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable ----------- ----------- ----------- ------------- ----------- ------------- Lonnie J. Stout II.............. -- -- 179,741 140,259 182,850 59,400 R. Gregory Lewis................ -- -- 7,500 46,800 19,185 55,598 Ronald E. Farmer................ -- -- -- 34,200 -- 40,630 J. Michael Moore............... -- -- -- 15,800 -- 18,770
- ------------------ (1) Amounts reflect the value of outstanding options based on the average of the high and low price of the Company's Common Stock on January 3, 1999. 35 36 SALARY CONTINUATION PLAN Since 1978, the Company has provided a salary continuation plan for eligible employees (the "Salary Plan") which will continue to operate in 1999. The Salary Plan generally provides for a retirement benefit of 50% of the employee's salary on the date of entry into the plan with adjustments based on certain subsequent salary increases. The retirement benefit is payable over 15 years commencing at age 65. The Salary Plan also provides that in the event an employee dies while in the employ of the Company after entering the Salary Plan but before retirement, his or her beneficiaries, for a period of one year, will receive 100% of such employee's salary at the applicable time under the Salary Plan. Thereafter, for a period of 10 years, or until such time as the employee would have attained age 65, whichever period is longer, the beneficiaries will receive 50% of such salary yearly. All officers and certain other key employees of the Company with three full years of service are eligible to participate in the Salary Plan, which is generally funded by life insurance purchased by the Company and payable to the Company on the death of the employee. An amount which approximates the cash value of the life insurance policy, or in some cases in which the Company currently self funds the retirement benefit, the cash value of the policy which would have been required to fund the retirement benefit, for each employee vests for the benefit of such employee at the rate of 10% per year for each year of service, including the first three years of service required for eligibility under the Salary Plan, and is payable to such employee upon termination of service with the Company for any reason other than death or retirement at age 65. Directors of the Company who are not also executive officers or employees do not participate in the Salary Plan. The estimated annual benefits payable upon retirement at age 65 for each of Messrs. Stout and Lewis are $107,500 and $58,500, respectively. Messrs. Farmer and Moore are each expected to receive estimated annual benefits of approximately $46,500 payable upon retirement at age 65. These amounts may be adjusted periodically pursuant to the terms of the plan. TERMINATION BENEFITS Pursuant to severance benefits agreements with the Company, in the event that Mr. Stout or Mr. Lewis is terminated or resigns after a change in responsibilities, then such employee will receive an amount equal to 18 months' compensation. Based on current levels of compensation, such amount would be $416,250 for Mr. Stout and $201,000 for Mr. Lewis. COMPENSATION OF DIRECTORS The directors receive a monthly director's fee of $500 plus an additional fee of $300 for each Board or Board Committee meeting attended. Pursuant to the 1990 Stock Option Plan for Outside Directors ("1990 Plan"), each director who is not also an officer or employee of the Company and who was serving in such capacity on October 24, 1989 was granted an option to purchase 10,000 shares of Common Stock and an additional 1,000 shares for each previous full year of service as a director. Each eligible director elected thereafter has been and will be granted an option to purchase 10,000 shares upon election, and all directors have been and will be granted an option to purchase 1,000 shares for each full year of service as a director after 1989 or their later election, as applicable. The per share exercise price of the options granted under the 1990 Plan is the fair market value of the Common Stock on the date the option is granted. 36 37 EXCHANGE OF OPTIONS On September 30, 1998, the Board of Directors approved an exchange of some option grants to employees under the Company's 1994 Employee Stock Incentive Plan and 1985 Stock Option Plan. All employees other than Lonnie J. Stout II, President and Chief Executive Officer (who asked not to be considered for the exchange offer), were eligible to surrender their outstanding grants in exchange for new grants with a new 3-year vesting period, new exercise prices and, for management employees, reduced number of shares issuable upon exercise. No directors were eligible to participate. The new options were granted at an exercise price of $2.75 per share, the closing sale price of the common stock on September 30, 1998 as reported on the New York Stock Exchange. For management employees, including the executive officers listed below, the number of shares of common stock that may be purchased when the new options are exercised is 80% of the shares issuable under the surrendered options. The new options will vest in one-third increments on the first, second and third anniversaries of the date of grant. The following table sets forth certain information concerning the exchange, which has been the only adjustment to option exercise prices in the past ten years.
TEN YEAR OPTION EXCHANGE NUMBER OF (NEW LENGTH OF SECURITIES EXERCISE ORIGINAL UNDERLYING PRICE) NUMBER OF OPTION TERMS NEW MARKET PRICE SECURITIES EXERCISE REMAINING AT OPTIONS OF STOCK AT UNDERLYING PRICE DATE OF ISSUED TIME OF OLD OPTIONS AT TIME OF EXCHANGE NAME DATE (#)(1) EXCHANGE ($) EXCHANGED (#) EXCHANGE ($) (YEARS) - --------------------------------- -------- ---------- ----------- -------------- -------------- ------------ R. Gregory Lewis.................... 9/30/98 36,800 2.75 9,000 7.38 5.9 Vice President, Chief Financial 9,000 9.75 6.8 Officer, and Secretary 7,500 8.75 8.4 12,000 5.69 9.1 8,500 10.50 4.8 Ronald E. Farmer.................... 9/30/98 25,200 2.75 7,500 8.75 8.4 Vice President-Development 12,000 5.69 9.1 5,000 10.38 5.1 3,000 7.25 6.1 4,000 9.75 6.8 J. Michael Moore............... 9/30/98 10,800 2.75 3,500 8.75 8.4 Vice President, Human 10,000 5.69 9.1 Resources and Administration
- ------------ (1) Represents 80% of the number of shares of common stock issuable upon exercise of the surrendered options. 37 38 The Board believes that permitting the exchange for new options with the exercise price at the current market price of the common stock was in the best interests of the Company and its shareholders. In the view of the Board, the decline in the market price of the common stock substantially impaired the effectiveness of the surrendered options as incentives to management's performance. It was also determined by the Board that exchanging the new options would renew the incentive for employees of the Company to acquire an equity interest in the Company, which the Board believes better aligns the long-term interests of management with those of the shareholders. Further, the Board believes that the commencement of the new vesting period would provide further incentive to employees to remain with the Company. On March 22, 1999, the closing sale price of the common stock on the New York Stock Exchange was $3.6875. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of March 22, 1999, certain information with respect to those persons known to the Company to be the beneficial owners (as defined by certain rules of the Securities and Exchange Commission (the "Commission") of more than five percent (5%) of the Common Stock, its only voting security, and with respect to the beneficial ownership of the Common Stock by all directors and nominees, each of the executive officers named in the Summary Compensation Table, and all executive officers and directors of the Company as a group. Except as otherwise specified the shares indicated are presently outstanding. 38 39
AMOUNT OF PERCENTAGE OF COMMON STOCK OUTSTANDING NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK(1) - ------------------------------------ ------------------ --------------- E. Townes Duncan**.................................... 1,597,166 (2) 24.5 Solidus, LLC.......................................... 1,560,666 (3) 23.9 30 Burton Hills Blvd Suite 100 Nashville, TN 37214 Sackett & Company..................................... 416,967 (4) 6.3 P.O. Box 276 Corte Madera, CA 94976-0276 Dimensional Fund Advisors, Inc........................ 350,600 (5) 5.4 1299 Ocean Avenue, 11th Floor Santa Monica, CA 90401 The J. Alexander's Corporation........................ 334,273 (6) 5.1 Employee Stock Ownership Trust 3401 West End Avenue, Suite 260 Nashville, TN 37203 Lonnie J. Stout II****................................ 212,523 (7) 3.2 John L.M. Tobias**.................................... 48,992 (8) * R. Gregory Lewis***................................... 42,741 (9) * Earl Beasley, Jr.**................................... 38,218 (10) * Garland G. Fritts**................................... 25,000 (11) * Ronald E. Farmer***................................... 9,446 (12) * J. Michael Moore***................................... 3,752 (13) * All directors and executive officers as a group....... 1,979,673 (14) 29.3
- ---------- * Less than one percent. ** Director. *** Named Officer. **** Director and Named Officer. (1) Pursuant to the rules of the Commission, shares of Common Stock which certain persons presently have the right to acquire pursuant to the conversion provisions of the Company's 8 1/4% Convertible Subordinated Debentures Due 2003 ("Conversion Shares") are deemed outstanding for the purpose of computing such person's percentage ownership, but are not deemed outstanding for the purpose of computing the percentage ownership of the other persons shown in the table. Likewise, shares subject to options held by directors and executive officers of the Company which are exercisable within 60 days of the Record Date are deemed outstanding for the purpose of computing such director's or executive officer's percentage ownership and the percentage ownership of all directors and executive officers as a group. Unless otherwise indicated, each individual has sole voting and dispositive power with respect to all shares shown. 39 40 (2) Includes 9,000 shares issuable upon exercise of certain options held by Mr. Duncan, 1,180 shares that Mr. Duncan holds as custodian for his children, 700 shares owned by Mr. Duncan's wife, 2,070 shares that are held in trusts of which Mr. Duncan is trustee, and 1,560,666 shares that are owned by Solidus, LLC, a limited liability company in which Mr. Duncan is the principal manager and a member. (3) Solidus, LLC ("Solidus") shares voting and dispositive power with respect to 1,560,666 shares with Mr. Duncan, a principal manager and member whose beneficial ownership in such shares is shown above. Information is based on the Schedule 13D filed with the Commission by Solidus and the records of the Company. (4) Includes 73,467 Conversion Shares. Sackett & Company ("Sackett") is a registered investment advisor. Information is based solely on the Schedule 13G filed with the Commission by Sackett. (5) Dimensional Fund Advisors, Inc. ("DFA") is a registered investment advisor. Information is based solely on the Schedule 13G filed with the Commission by DFA. (6) Includes 144,732 shares that have been allocated to the J. Alexander's Employee Stock Ownership Plan (the "ESOP") participants. Pursuant to the terms of the ESOP that govern the J. Alexander's Corporation Employee Stock Ownership Trust (the "Trust"), each ESOP participant instructs SunTrust Bank, Nashville, N.A., as trustee of the Trust (the "Trustee"), how to vote the shares allocated to his or her account. The ESOP provides that the Trustee shall abstain from voting allocated shares for which no written instructions are received. Shares of the Company's Common Stock held by the ESOP but not yet allocated to the accounts of the participants will be voted based on the percentage of stock allocated to the participants' accounts which is voted for and against each proposal, including in the tabulation of such percentages only those shares as to which written voting instructions were received. The Trustee has shared dispositive power with respect to the shares, subject to certain provisions of the ESOP. (7) Includes 179,741 shares issuable upon exercise of certain options held by Mr. Stout and 7,025 ESOP shares allocated to Mr. Stout and held by the Trust, as to which Mr. Stout has sole voting power and shared dispositive power. (8) Includes 1,126 Conversion Shares, 3,000 shares owned by Mr. Tobias' wife, and 20,000 shares issuable upon exercise of certain options held by Mr. Tobias. (9) Includes 7,500 shares issuable upon exercise of certain options held by Mr. Lewis and 5,499 ESOP shares allocated to Mr. Lewis and held by the Trust, as to which Mr. Lewis has sole voting power and shared dispositive power. (10) Includes 56 Conversion Shares, 1,332 shares that Mr. Beasley holds as custodian for his children, and 7,000 shares issuable upon exercise of certain options held by Mr. Beasley. (11) Includes 7,000 shares issuable upon exercise of certain options held by Mr. Fritts. (12) Includes 2,084 ESOP Shares allocated to Mr. Farmer and held by the Trust, as to which Mr. Farmer has sole voting power and shared dispositive power. (13) Includes 3,377 ESOP Shares allocated to Mr. Moore and held by the Trust, as to which Mr. Moore has sole voting power and shared dispositive power. (14) Includes 1,182 Conversion Shares, 230,241 shares issuable upon exercise of certain options held by the directors and executive officers, and 19,804 ESOP shares allocated to the executive officers and held by the Trust, as to which such officers have sole voting power and shared dispositive power. 40 41 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Company does not have any information relevant to disclosure under Item 404 of Regulation SK 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. (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). (4)(c) Amendments to Rights Agreement dated February 22, 1999, by and between the Registrant and SunTrust Bank (amending Rights Agreement dated May 16, 1989). (4)(d) Amendment to Rights Agreement dated March 22, 1999, by and between the Registrant and SunTrust Bank (amending Rights Agreement dated May 16, 1989). (4)(e) Stock Purchase and Standstill Agreement dated March 22, 1999, by and between the Registrant and Solidus, LLC. (4)(f) Amendment to Rights Agreement dated May 6, 1999, by and between the Registrant and SunTrust Bank (amending Rights Agreement dated May 16, 1989) (Exhibit 5 to the Registrant's Report on Form 8-A, Amendment No. 2, dated May 12, 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). 41 42 (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). 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 No. 33-77476). 42 43 (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). (21) List of subsidiaries of Registrant. (23) Consent of Independent Auditors. (b) Reports on Form 8-K: During the quarter ended January 3, 1999, the Company filed no reports on Form 8-K. (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. 43 44 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. J. ALEXANDER'S CORPORATION Date: 5/14/99 By: /s/Lonnie J. Stout II ---------- -------------------------------- Lonnie J. Stout II Chairman, President and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this amendment 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 5/14/99 - ------------------------------ Officer and Director (Principal Lonnie J. Stout II Executive Officer) /s/R. Gregory Lewis Vice President and Chief Financial 5/14/99 - ------------------------------ Officer (Principal Financial R. Gregory Lewis Officer) /s/Mark A. Parkey Vice-President and Controller 5/14/99 - ------------------------------ (Principal Accounting Officer) Mark A. Parkey /s/Earl Beasley, Jr. Director 5/14/99 - ------------------------------ Earl Beasley, Jr. /s/E. Townes Duncan Director 5/14/99 - ------------------------------ E. Townes Duncan /s/Garland G. Fritts Director 5/14/99 - ------------------------------ Garland G. Fritts /s/John L.M. Tobias Director 5/14/99 - ------------------------------ John L.M. Tobias
44 45 ANNUAL REPORT ON FORM 10-K ITEM 14(a)(2), (c) AND (d) FINANCIAL STATEMENT SCHEDULES CERTAIN EXHIBITS FISCAL YEAR ENDED JANUARY 3, 1999 J. ALEXANDER'S CORPORATION AND SUBSIDIARIES NASHVILLE, TENNESSEE F-1 46 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 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 Year ended December 29, 1996: Valuation allowance for deferred tax assets $ 0 $ 0 $0 $0 $ 0
(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 47 J. ALEXANDER'S CORPORATION EXHIBIT INDEX
Reference Number per Item 601 of Regulation S-K Description - -------------- ----------- (3)(b) Restated Bylaws as currently in effect. (4)(c) Amendments to Rights Agreement dated February 22, 1999. (4)(d) Amendment to Rights Agreement dated March 22, 1999. (4)(e) Stock Purchase and Standstill Agreement. (21) List of subsidiaries of Registrant. (23) Consent of Ernst & Young LLP, independent auditors (27) Financial Data Schedule (FOR SEC USE ONLY)
EX-3.B 2 RESTATED BYLAWS 1 EXHIBIT 3(b) RESTATED BYLAWS OF J. ALEXANDER'S CORPORATION OFFICES 1. The principal office of the Corporation shall be at Nashville, Tennessee, and the Corporation shall have such other offices at such other places within or without the State of Tennessee as the Board of Directors of the Corporation may from time to time determine or as the business of the Corporation may require. STOCKHOLDERS' MEETINGS 2. Annual Meetings. (a) The annual meeting of the stockholders of the Corporation shall be held at the principal office of the Corporation or at such other place within or without the State of Tennessee as may be determined by the Board of Directors and as may be designated in the notice of such meeting. The meeting shall be held on a date set by the Board of Directors during the third, fourth, or fifth month following the end of the Corporation's fiscal year. The business to be transacted at such meeting shall be the election of directors and such other business as shall be properly brought before the meeting. (b) If the election of directors shall not be held on the day here designated for any annual meeting, or at any adjournment of such meeting, the Board of Directors shall call a special meeting of the stockholders as soon as conveniently possible thereafter. At such meeting 2 the election of directors shall take place and such election and any other business transacted thereat shall have the same force and effect as at an annual meeting duly called and held. 3. Special Meetings. (a) Special meetings of the stockholders for any purpose or purposes, unless otherwise prescribed by statute, may be called at any time by (i) the President, (ii) the Chairman of the Board of Directors, (iii) a majority of the Board of Directors, or (iv) subject to the procedures set forth in Section 3(b) below, one or more stockholders owning of record on the date the notice described in Section 3(b) below is received by the Secretary of the Corporation 10% or more of the entire capital stock of the Corporation issued and outstanding and entitled to vote. (b) Any stockholder or stockholders who are the record owners of the requisite percentage of the entire capital stock of the Corporation issued and outstanding and entitled to vote and who desire to call a special meeting in accordance with Section 3(a)(iv) above shall deliver written notice by registered mail to the Secretary of the Corporation complying with the requirements of Section 3A hereof. Upon receipt of said notice, the Secretary shall determine (i) whether the stockholder or stockholders giving such notice own as of the date of receipt of such notice by the Secretary the requisite percentage of the entire capital stock of the Corporation issued and outstanding and entitled to vote and (ii) whether the notice complies with Section 3A hereof. Following such determinations, the Secretary shall deliver such notice of the Board of Directors, who shall determine a place and time for such meeting, which time shall not be less than seventy-five nor more than ninety days after the receipt by the Secretary. Following such determination by the Board of Directors as to a place and time for 2 3 such meeting, it shall be the duty of the Secretary to cause notice to be given to the stockholders entitled to vote at such meeting in the manner set forth in Section 4(b) hereof that a meeting will be held at the time and place so determined. 3A. Advance Notice of Nominations and Proposals of Business. (a) Nominations of persons for election to the Board of Directors and the proposal of business to be transacted by the stockholders may be made at an annual or any special meeting of stockholders (i) pursuant to the Corporation's notice with respect to such meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of record of the Corporation who was a stockholder of record at the time of giving the notice provided for in the following paragraph, who is entitled to vote at the meeting and who has complied with the notice procedures set forth in this Section 3A. (b) For nominations or other business to be properly brought before an annual or special meeting by a stockholder pursuant to clause (iii) of the foregoing paragraph (a) of this Section 3A, (i) the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such notice shall comply with the requirements as to the content thereof set forth in this Section 3A, (ii) the business must be a proper matter for stockholder action under the Tennessee Business Corporation Act, (iii) if the stockholder has provided the Corporation with a "Solicitation Notice" (as that term is defined below), such stockholder must, in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the Corporation's voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the Corporation's voting shares reasonably believed 3 4 by such stockholder to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice and (iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this Section, the stockholder proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section. (c) To be timely, a stockholder's notice with respect to an annual meeting shall be delivered to the Secretary at the principal executive offices of the Corporation not less than seventy-five or more than ninety days prior to the first anniversary (the "Anniversary") of the date on which the Corporation first mailed its proxy materials for the preceding year's annual meeting of stockholders; provided, however, if the date of the annual meeting is advanced more than thirty days prior to or delayed by more than thirty days after the anniversary of the preceding year's annual meeting, notice by the stockholder to be timely must be so delivered not later than the close of business on the later of the ninetieth day prior to the annual meeting or tenth day following the day on which public announcement of the date of the meeting is first made. (d) The stockholder's notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to the person as would be required to be disclosed in solicitations of proxies for the election of such nominees as directors pursuant to Regulation 14A under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and the persons' written consent to serve as a director if elected; (ii) as to any other business that the stockholder proposes to bring before a meeting, a brief description of the business, the reasons for conducting the business at the meeting and any 4 5 material interest in the business of the stockholder and the beneficial owner, if any, on whose behalf the proposal is made; (iii) as to the stockholder giving notice (A) the name and address of the stockholder, as they appear on the Corporation's books, (B) if any other person or entity has beneficial ownership (as defined in Rules 13d-3 and 13d-5 of the Exchange Act) of the shares of the Corporation owned of record by such stockholder, the name and address of all such beneficial owners and the nature of their beneficial ownership of such shares, (C) the class (and, if applicable, the series) and number of shares of the Corporation that are owned of record by the stockholder, and if there are beneficial owners of any of such shares, the number of such shares beneficially owned by each such beneficial owner, and (D) whether either the stockholder or beneficial owner, if any, intends to deliver a proxy statement and form of proxy to holders of, in the case of a proposal, at least the percentage of the Corporation's voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the Corporation's voting shares to elect such nominee or nominees (an affirmative statement of such intent, a "Solicitation Notice"). (e) Notwithstanding anything in paragraph (b) of this Section 3A to the contrary, in the event that the number of directors to be elected to the Board is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of the Corporation at least fifty-five days prior to the Anniversary, a stockholder's notice required by this Section 3A shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the Corporation. 5 6 (f) Only persons nominated in accordance with the procedures set forth in this Section 3A shall be eligible for election as and to serve as directors and the only business that shall be conducted at an annual or special meeting of the stockholders is business that has been brought before the meeting in accordance with the procedures set forth in this Section 3A. The presiding officer of the meeting shall have the power and the duty to determine whether a nomination or any business proposed to be brought before the meeting has been made in accordance with the procedures set forth in this Section 3A and, if any proposed nomination or business is not in compliance with this Section 3A, to declare that the defective proposed business or nomination shall not be presented for stockholder action at the meeting and shall be disregarded. (g) For purposes of the Section 3A, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14, or 15(d) of the Exchange Act. (h) Notwithstanding the foregoing provisions of this Section 3A, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to matters set forth in this Section 3A. Nothing in this Section 3A shall affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. 4. Notice and Purpose of Meetings; Waiver. (a) Regular Meetings. Each stockholder of record entitled to vote at any meeting shall be given in person or by mail written notice of the place, date and hour of every 6 7 regular meeting of stockholders. Such notice shall be delivered or mailed not less than ten (10) days nor more than sixty (60) days before the meeting. Mailed notice shall be deemed to be delivered when mailed to the stockholder's address as it appears on the stock book or to such other address as the Stockholder shall have designated in writing to the Secretary. (b) Special Meetings. Each stockholder of record entitled to vote at any meeting shall be given, in person or by mail, written notice of every special meeting of stockholders. Such notice shall state the place, date, hour, purpose or purposes for which the meeting is called, and the person or persons calling the meeting, and shall be delivered or mailed not less than ten (10) days nor more than sixty (60) days before the meeting. Mailed notice shall be deemed to be delivered when deposited in the United States mail addressed to the stockholder at his address as it appears on the stock book of the Corporation or to such other address as the stockholder shall have designated in writing to the Secretary. No publication of notice of the meeting shall be required. (c) Waiver. A stockholder may waive the notice of either a regular or special meeting by attendance, either in person or by proxy, at the meeting, or by so stating in writing, either before or after such meeting. Attendance at a meeting for the express purpose of objecting that the meeting was not lawfully called or convened shall not, however, constitute a waiver of notice. 5. Quorum. Except as otherwise provided by law, a quorum at all meetings of stockholders shall consist of the holders of record of a majority of the shares entitled to vote thereat, present in person or by proxy. 7 8 6. Record Date; Voting. The Board of Directors may fix in advance of any meeting of the stockholders, regular or special, a record date for the determination of stockholders entitled to notice of, and the right to vote at, such meeting; such record date shall be not more than seventy-five (75) nor less than eleven (11) days prior to the date of such meeting. At such meetings every stockholder having the right to vote shall be entitled to vote in person or by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than eleven (11) months prior to said meeting, unless said instrument provides for a longer period. Each stockholder shall have one vote for each share of stock registered in his name on the books of the Corporation. All elections shall be had and all questions decided by a plurality vote of the number of shares represented in person or by proxy. At any meeting of the stockholders, either regular or special, the stockholders by majority vote may remove the entire Board of Directors or any number of the directors, with or without cause, and where such removal shall have been made, successor directors shall be at once elected to serve the unexpired terms of the directors so removed. 7. Presiding Officer. (a) Meetings of the stockholders shall be presided over by the President or if he is not present by a Vice President, or if neither the President nor a Vice President is present, by a chairman to be chosen by a majority of the stockholders entitled to vote at the meeting who are present in person or by proxy. The Secretary of the corporation, or, in his absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, the meeting shall choose any person present to act as secretary of the meeting. 8 9 DIRECTORS 8. Number, Qualification, Term, Quorum and Vacancies. (a) The property, affairs and business of the Corporation shall be managed by a Board of Directors of not less than three (3) nor more than fifteen (15) persons. Except as hereinafter provided, directors shall be elected at the annual meeting of the stockholders and each director shall serve for one year and until his successor shall be elected and qualified. (b) In addition to the powers and authorities by these Bylaws expressly conferred upon them, the Board may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. The number of the Board of Directors may be increased from time to time by either the stockholders or directors. If the number of directors be increased by action of the stockholders a vacancy or vacancies caused by such increase shall be filled by the stockholders in the same manner as at an annual election and if the number of directors be increased by action of the directors, then such increase shall be effected by a majority of the entire Board of Directors, and any vacancy or vacancies caused by such increase in number shall be filled by the directors. Directors elected to fill vacancies caused by increase in number of the Board shall hold office until the annual meeting of stockholders until their successors are chosen and qualified. (c) Directors need not be stockholders of the Corporation unless the number of directors is less than three (3) persons. Directors need not be residents of Tennessee. (d) A majority of the directors in office shall be necessary to constitute a quorum for the transaction of business. If, at any meeting of the Board of Directors, there shall 9 10 be less than a quorum present, a majority of those present may adjourn the meeting, without further notice, from time to time until a quorum shall have been obtained. In case there are vacancies on the Board of Directors, other than vacancies created by the removal of a director or directors by the stockholders, the remaining directors, although less than a quorum, may by a majority vote elect a successor or successors for the unexpired term or terms. 9. Meetings. Meetings of the Board of Directors may be held either within or without the State of Tennessee. Regular meetings of the Board of Directors shall be held at such times as are fixed from time to time by resolution of the Board, and may be held without notice. Special meetings may be held at any time upon call of the President or a Vice President, or any two (2) directors, upon personal notice, or written or telegraphic notice deposited in the United States mail or delivered to the telegraph company at least one (1) day prior to the day of the meeting. A meeting of the Board of Directors shall be held without notice immediately following the annual meeting of the stockholders. Special meetings may be held at any time without notice if all the directors are present or if, before or after the meeting, those not present waive such notice in writing. Notice of a meeting of the Board of Directors need not state the purpose of, nor the business to be transacted at, such meeting. 10. Removal. (a) At any meeting of the stockholders, any director or directors may be removed from office, without assignment of any reason therefore, by a majority vote of the shares outstanding and entitled to vote. 10 11 (b) At any meeting of the Board of Directors, any director or directors may be removed from office for cause, as that term is defined in Tennessee Code Annotated, ss. 48-807, by a majority of the entire Board of Directors. (c) When any director or directors are removed, new directors may be elected at the same meeting of the stockholders, or Board of Directors as the case may be, for the unexpired term of the director or directors removed. If the stockholders fail to elect persons to fill the unexpired term or terms of the director or directors removed by them, such unexpired terms shall be considered vacancies on the Board to be filled by the remaining directors. 11. Committees. (a) The Board of Directors is authorized, in its discretion, to appoint from its members an Executive Committee of not less than three nor more than five members who shall be vested with all the powers of the Board of Directors when it is not in session, including but not limited to the power to (1) Adopt, amend or repeal the bylaws, (2) Submit to stockholders any corporate action requiring stockholders' authorization; (3) Fill vacancies in the Board of Directors or in any committee; and (4) Declare dividends or make other corporate distributions. (b) The Board of Directors is authorized, in its discretion, to appoint from its members a Finance Committee which shall consider and pass on all questions and matters arising in connection with the investment of the Corporation's funds, the number of members of this 11 12 Committee to be determined by the directors. Members of the Finance Committee need not be members of the Board of Directors. (c) The Board of Directors is authorized, in its discretion, to appoint such other committees as may seem desirable in the conduct of the Corporation's affairs. 12. Compensation. Directors, and members of any committee of the Board of Directors, shall be entitled to such reasonable compensation for their services as directors and members of any such committee as shall be fixed from time to time by resolution of the Board of Directors, and shall also be entitled to reimbursement for any reasonable expenses incurred in attending such meetings. The compensation of directors may be on such basis as is determined in the resolution of the Board of Directors. Any director receiving compensation under these provisions shall not be barred from serving the Corporation in any other capacity and receiving reasonable compensation for such other services. OFFICERS 13. Number. The officers of the Corporation shall be chosen by the directors and shall be a Board Chairman, a President, a Secretary and a Treasurer and such other officers as may be from time to time elected by the Board of Directors. One person may hold any two offices except the President may not hold the office of Secretary. 14. Term of Office. The principal officers shall be chosen annually by the Board of Directors at the first meeting of the Board following the stockholders' annual meeting, or as soon thereafter as is 12 13 conveniently possible. Subordinate officers may be elected from time to time. Each officer shall serve until his successor shall have been chosen and qualified, or until his death, resignation or removal. 15. Removal. Any officer may be removed from office, with or without cause, at any time by the affirmative vote of a majority of the Board of Directors then in office. Such removal shall not prejudice the contract rights, if any, of the persons so removed. 16. Vacancies. Any vacancy in an office from any cause may be filled for the unexpired portion of the term by the Board of Directors. 17. Duties. (a) The Board Chairman shall preside at all meetings of the Board of Directors and shall exercise such powers and perform such other duties as may be directed by the Board. (b) The President shall preside at all meetings of the stockholders and directors; he shall have general supervision over the active management of the business of the Corporation and shall see that all orders and resolutions of the Board are carried into effect. He shall execute bonds, mortgages and other contracts and shall be ex officio, a member of all standing committees and shall have the general powers and duties of supervision and management usually vested in the office of President of a corporation. (c) The Vice President or Vice Presidents (if there be one or more) shall be active executive officers of this Corporation, shall assist the President in the active management 13 14 of the business and shall perform such other duties as the Board of Directors may from time to time prescribe. (d) The Secretary shall attend all sessions of the Board and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose; and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors when required, and shall perform such other duties as may be prescribed by the Board of Directors. (e) The Treasurer shall have the custody of the Corporation funds and securities, and shall keep full and accurate account of receipts and disbursements in books belonging to the Corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board, taking proper vouchers for such disbursements and shall render to the President and directors at the regular meetings of the Board or whenever they may require it, an account of all of his transactions as Treasurer, and the financial condition of the Corporation. He shall give the Corporation a bond, if required by the Board of Directors, in a sum and with one or more sureties satisfactory to the Board for the faithful performance of his duties of his office and for the restoration to the Corporation in case of his death, resignation, retirement, or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. 14 15 (f) Other officers appointed by the Board of Directors shall exercise such powers and perform such duties as may be delegated to them. (g) In case of the absence or disability of any officer of the Corporation and of any person hereby authorized to act in his place during such period of absence or disability, the Board of Directors may from time to time delegate the powers and duties of such officer to any officer, or any director, or any other person whom it may select. 18. Salaries. The salaries of all officers of the Corporation shall be fixed by the Board of Directors. No officer shall be ineligible to receive such salary by reason of the fact that he is also a director of the Corporation and receiving compensation therefor. 19. Indemnification of Officers and Directors. The Corporation shall indemnify each present and future director and officer of the Corporation, or any person who may have served at its request as a director or officer of another company in which it owns shares of capital stock (and, in either case, his heirs, executors and administrators), to the full extent allowed by the laws of the State of Tennessee, both as now in effect and as hereafter adopted. CERTIFICATES OF STOCK 20. Form. (a) The interest of each stockholder of the Corporation shall be evidenced by a certificate or certificates for shares of stock, certifying the number of shares represented thereby and in such form, not inconsistent with the Charter, as the President may from time to time select. 15 16 (b) The certificates of stock shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer. Where any certificate is manually signed by a transfer agent or by a registrar, the signatures of the President, Vice President, Secretary, Assistant Secretary, and/or Treasurer upon such certificate may be facsimiles, engraved or printed. In case any officer who has signed or whose facsimile signature has been placed upon any certificate shall have ceased to be such before the certificate is issued, it may be issued by the Corporation with the same effect as if such officer had not ceased to be such at the time of its issue. 21. Subscriptions for Shares. Unless the subscription agreement provides otherwise, subscriptions for shares, regardless of the time when they are made, shall be paid in full at such time, or in such installments and at such periods, as shall be specified by the Board of Directors. All calls for payments on subscriptions shall carry the same terms with regard to all shares of the same class. 22. Transfers. (a) Transfers of shares of the capital stock of the Corporation shall be made only on the books of the Corporation by the registered owner thereof, or by his duly authorized attorney, upon surrender of the certificate or certificates for such shares properly endorsed and with all taxes thereon paid. (b) The person in whose name shares of stock are registered on the books of the Corporation shall be deemed by the corporation to be the owner thereof for all purposes. However, if any transfer of shares is made only for the purpose of furnishing collateral security, 16 17 and such fact is made known to the Secretary of the Corporation, the entry of the transfer shall record such fact. 23. Lost, Destroyed, or Stolen Certificates. No certificate for shares of stock in the Corporation, shall be issued in place of any certificate alleged to have been lost, destroyed, or stolen except on production of evidence, satisfactory to the Board of Directors, of such loss, destruction or theft, and, if the Board of Directors so requires, upon the furnishing of an indemnity bond in such amount (but not to exceed twice the value of the shares represented by the certificate) and with such terms and such surety as the Board of Directors may, in its discretion, require. CORPORATE ACTIONS 24. Deposits. The Board of Directors shall select banks, trust companies, or other depositories in which all funds of the Corporation not otherwise employed shall, from time to time, be deposited to the credit of the Corporation. All checks or demands for money and notes of the Corporation shall be signed by such officers or officer as the Board of Directors may from time to time designate. 25. Voting Securities Held by the Corporation. Unless otherwise ordered by the Board of Directors, the President shall have full power and authority on behalf of the Corporation to attend and to act and to vote at any meeting of security holders of other corporations in which the Corporation may hold securities. At such meeting the President shall possess and exercise any and all rights and powers incident to the ownership of such securities which the Corporation might have possessed and exercised if it had 17 18 been present. The Board of Directors may, from time to time, confer like powers upon any other person or persons. 26. Fiscal Year. The fiscal year of the corporation shall be determined by the Board of Directors and in the absence of such determination, shall be the calendar year. CORPORATE SEAL 27. The Corporation shall not have a corporate seal. AMENDMENT OF BYLAWS 28. These Bylaws may be altered or amended by the affirmative vote of the holders of a majority of the stock issued and outstanding and entitled to vote thereat at any regular or special meeting of the stockholders if notice of the proposed alteration or amendment is contained in the notice of the meeting, or by the affirmative vote of a majority of the Board of Directors at any regular or special meeting if notice of the proposed alteration or amendment is contained in the notice of the meeting. STOCKHOLDERS 29. The Board of Directors shall not have the power to submit to the stockholders any plan of merger or share exchange that does not comply with this Article 29. The vote of stockholders of the Corporation required to approve any Business Combination shall be as set forth in this Article. The term "Business Combination" shall have the meaning ascribed to it in (a)(B) of this Article; each other capitalized term used in this Article shall have the meaning ascribed to it in (c) of this Article. 18 19 (a)(A) In addition to any affirmative vote required by law or the Charter or Bylaws and except as otherwise expressly provided in (b) of this Article;: (1) Any merger or share exchange of the Corporation or any Subsidiary with (i) any Interested Stockholder or (ii) any other corporation or entity (whether or not itself an Interested Stockholder) which is, or after each merger or consolidation would be, an Affiliate of an Interested Stockholder; or (2) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of assets of the Corporation or any Subsidiary having an aggregate Fair Market Value of $2,000,000 or more; or (3) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $2,000,000 or more, other than the issuance of securities upon the conversion of convertible securities of the Corporation or any Subsidiary which were not acquired by such Interested Stockholder (or such Affiliate) from the Corporation or a Subsidiary; or (4) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Stockholder or any Affiliate of any Interested Stockholder; or (5) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of 19 20 its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which in any such case has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class or series of stock or securities convertible into stock of the Corporation or any Subsidiary which is directly or indirectly beneficially owned by any Interested Stockholder or any Affiliate of any Interested Stockholder; shall not be consummated without the affirmative vote of the holders of at least 80 percent of the combined voting power of the then outstanding shares of stock of all classes and series of the Corporation entitled to vote generally in the election of directors ("Voting Stock"), in each case voting together as a single class (it being understood that for purposes of this Article, each share of the Voting Stock shall have the number of votes granted to it pursuant to the Charter). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or by the Charter or in any agreement with any national securities exchange or otherwise. (B) The term "Business Combination" as used in this Article shall mean any transaction that is referred to in any one or more of clauses (1) through (5) of (a)(A) of this Article. (b) The provisions of (a) of this Article shall not be applicable to any Business Combination in respect of which all of the conditions specified in either of the following paragraphs A and B are met, and such Business Combination shall require only such affirmative vote as is required by law and any other provision of the Charter: (A) such Business Combination shall have been approved by a majority of the Disinterested Directors, or 20 21 (B) each of the six conditions specified in the following clauses (1) through (6) shall have been met; (1) the aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination (the "Consummation Date") of any consideration other than cash to be received by holders of Common Stock in such Business Combination shall be at least equal to the higher of the following: (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of Common Stock beneficially owned by the Interested Stockholder which were acquired beneficially by such Interested Stockholder (x) within the two-year period immediately prior to the Announcement Date or (y) in the transaction in which it became an Interested Stockholder, whichever is higher; or (ii) the Fair Market Value per share of Common Stock on the Announcement Date or on the Determination Date, whichever is higher; and (2) the aggregate amount of the cash and the Fair Market Value as of the Consummation Date of any consideration other than cash to be received per share by holders of shares of any other class or series of Voting Stock shall be at least equal to the highest of the following (it being intended that the requirements of this clause (B)(2) shall be required to be met with respect to every class and series of such outstanding Voting Stock, whether or not the Interested Stockholder beneficially owns any shares of a particular class or series of Voting Stock): 21 22 (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of such class or series of Voting Stock beneficially owned by the Interested Stockholder which were acquired beneficially by such Interested Stockholder (x) within the two-year period immediately prior to the Announcement Date or (y) in the transaction in which it became an Interested Stockholder, whichever is higher; (ii) (if applicable) the highest preferential amount per share to which the holders of shares of such class or series of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; and (iii) the Fair Market Value per share of such class or series of Voting Stock on the Announcement Date or the Determination Date, whichever is higher; and (3) the consideration to be received by holders of a particular class or series of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form (including the same proportions, to the extent that more than one form of consideration is used) as was previously paid in order to acquire beneficially shares of such class or series of Voting Stock that are beneficially owned by the Interested Stockholder on the Determination Date; and (4) after such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination; 22 23 (i) except as approved by a majority of the Disinterested Directors, there shall have been no failure to declare and pay at the regular dates therefor the full amount of any dividends (whether or not cumulative) payable on any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation; (ii) there shall have been (x) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Disinterested Directors, and (y) an increase in such annual rate of dividends (as necessary to prevent any such reduction) in the event of any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of Common Stock, unless the failure so to increase such annual rate was approved by a majority of the Disinterested Directors; and (iii) such Interested Stockholder shall not have become the beneficial owner of any shares of Voting Stock except as part of the transaction in which it became an Interested Stockholder; and (5) after such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise; and 23 24 (6) a proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to all public stockholders of the Corporation at least 45 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). (c) For the purposes of this Article: (A) A "person" shall mean any individual, firm, corporation or other entity. (B) "Interested Stockholder" shall mean any person (other than the Corporation or any Subsidiary) who or which; (1) is the beneficial owner, directly or indirectly, of more than 20 percent of the combined voting power of the then outstanding shares of Voting Stock; or (2) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 20 percent or more of the combined voting power of the then outstanding shares of Voting Stock; or (3) is an assignee of or has otherwise succeeded to the beneficial ownership of any shares of Voting Stock that were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933, as amended. 24 25 (C) A person shall be a "beneficial owner" of any Voting Stock: (1) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or (2) which such person or any of its Affiliates or Associates has (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote or direct the vote pursuant to any agreement, arrangement or understanding; or (3) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. (D) For the purposes of determining whether a person is an Interested Stockholder pursuant to (c)(B) of this Article, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of (c)(C) of this Article but shall not include any other shares of Voting Stock that may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (E) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on January 1, 1988. 25 26 (F) "Subsidiary" means any corporation at least 50 percent of whose outstanding stock having ordinary voting power in the election of directors is owned, directly or indirectly, by the Corporation or by a Subsidiary or by the Corporation and one or more Subsidiaries; provided, however, that for the purposes of the definition of Interested Stockholder set forth in (c)(B) of this Article, the term "Subsidiary" shall mean only a corporation of which at least 50 percent of each class of equity security is owned, directly or indirectly by the Corporation. (G) "Disinterested Director" means any member of the Board of Directors of the Corporation who was a member of the Board of Directors of the Corporation on January 19, 1988, or a person recommended to succeed a Disinterested Director and designated a Disinterested Director by a majority of Disinterested Directors then on the Board of Directors and who is subsequently elected to the Board of Directors. (H) "Fair Market Value" means: (1) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed or, if such stock is not listed on any such exchange, the highest closing sales price or bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotation System or any system then in use, or if no such quotation is available, the fair market value on the date in question of a share of such stock as 26 27 determined by a majority of the Disinterested Directors in good faith; and (2) in the case of stock of any class or series which is not traded on any United States registered securities exchange nor in the over-the-counter market or in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by a majority of the Disinterested Directors in good faith. (I) In the event of any Business Combination in which the Corporation survives, the phrase "consideration other than cash to be received" as used in (b)(B)(1) and (2) of this Article shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares. (J) "Announcement Date" means the date of first public announcement of the proposed Business Combination. (K) "Determination Date" means the date on which the Interested Stockholder became an Interested Stockholder. (d) A majority of the Disinterested Directors of the Corporation shall have the power and duty to determine, on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this Article, including, without limitation, (A) whether a person is an Interested Stockholder, (B) the number of shares of Voting Stock beneficially owned by any person, (C) whether a person is an Affiliate or Associate of another person, (D) whether the requirements of (b) of this Article have been met with respect to any Business Combination, and (E) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market 27 28 Value of $2,000,000 or more. The good faith determination of a majority of the Disinterested Directors on such matters shall be conclusive and binding for all purposes of this Article. (e) Nothing contained in this Article shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. (f) Notwithstanding anything contained in the Bylaws to the contrary, the unanimous vote of all directors which shall include at least four Disinterested Directors shall be required to alter, amend, or repeal this Article or to adopt any provision inconsistent therewith. 28 EX-4.C 3 AMENDMENTS TO RIGHTS AGREEMENTS (DATED 2/22/99) 1 EXHIBIT 4(c) AMENDMENTS TO RIGHTS AGREEMENT THESE AMENDMENTS (these "Amendments"), between J. Alexander's Corporation, a Tennessee corporation (the "Company"), and SunTrust Bank, Atlanta (the "Rights Agent"). W I T N E S S E T H WHEREAS, on May 16, 1989, the Company entered into that certain Rights Agreement between the Company and the Rights Agent (the "Rights Agreement"); WHEREAS, the Board of Directors of the Company declared a distribution of one Right for each outstanding share of Common Stock issued (including shares distributed from Treasury) by the Company thereafter as well as each share of Common Stock issued by the Company prior to the Distribution Date (as defined in Section 3(a) of the Rights Agreement); WHEREAS, the Board of Directors of the Company has determined that it is in the best interest of the Company to amend the Rights Agreement as set forth in these Amendments; WHEREAS, pursuant to Section 26, the Company and the Rights Agent, at the direction of the Company's Board of Directors, may supplement or amend any provision of the Rights Agreement without the approval of any holders of certificates representing shares of the Company's Common Stock since the Distribution Date has not yet occurred; WHEREAS, terms used in these Amendments that are defined in the Rights Agreement are used with the meanings ascribed to them in the Rights Agreement; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: 1. Amendments. Effective as of the date of these Amendments, the Rights Agreement shall be amended as follows: (a) Section 1(i) defining "Independent Director" is stricken in its entirety; (b) Section 28(ii) is amended by striking "or by a majority of the Independent Directors"; and (c) All other references to "Independent Directors" are replaced with "Board of Directors". (d) Section 18(a) is amended so that the second sentence thereof shall read as follows: "The Company shall indemnify the Rights Agent for, and hold 2 it harmless against, any losses, expenses, claims, damages or liability incurred without gross negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement and performance hereunder, including without limitation the cost and expenses of defending against any claim of liability therefrom, directly or indirectly and will promptly reimburse the Rights Agent for legal and other expenses reasonably incurred in defending any such loss, expense, claim, damage or liability." 2. Effective Date. These Amendments shall become effective as of the date hereof upon its execution and delivery by each of the parties. 3. Rights Agreement. Except as set forth in Section 1 above, the Rights Agreement shall remain in full force and effect. 4. Counterparts. These Amendments may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute a single instrument. IN WITNESS WHEREOF, the parties have caused these Amendments to be executed and delivered by their duly authorized officers or agents all as of the date first above written. J. ALEXANDER'S CORPORATION By: /s/ Lonnie J. Stout II --------------------------------- Name: Lonnie J. Stout II Title: Chairman, President & CEO Date: February 17, 1999 SUNTRUST BANK, ATLANTA By: /s/ Letitia A. Radford ---------------------------------- Name: Letitia A. Radford Title: Vice President Date: February 22, 1999 EX-4.D 4 AMENDMENTS TO RIGHTS AGREEMENT (DATED 3/22/99) 1 EXHIBIT 4(d) AMENDMENT TO RIGHTS AGREEMENT THIS AMENDMENT (the "Amendment"), between J. Alexander's Corporation, a Tennessee corporation (the "Company"), and SunTrust Bank, Atlanta (the "Rights Agent"). W I T N E S S E T H WHEREAS, on May 16, 1989, the Company entered into that certain Rights Agreement between the Company and the Rights Agent (the "Rights Agreement"); WHEREAS, the Board of Directors of the Company declared a distribution of one Right for each outstanding share of Common Stock issued (including shares distributed from Treasury) by the Company thereafter as well as each share of Common Stock issued by the Company prior to the Distribution Date (as defined in Section 3(a) of the Rights Agreement); WHEREAS, the Rights Agreement was previously amended by the Amendments to Rights Agreement effective February 22, 1999; WHEREAS, the Board of Directors of the Company has determined that it is in the best interest of the Company to further amend the Rights Agreement as set forth in this Amendment; WHEREAS, pursuant to Section 26, the Company and the Rights Agent, at the direction of the Company's Board of Directors, may supplement or amend any provision of the Rights Agreement without the approval of any holders of certificates representing shares of the Company's Common Stock since the Distribution Date has not yet occurred; WHEREAS, terms used in this Amendment that are defined in the Rights Agreement are used with the meanings ascribed to them in the Rights Agreement; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: 1. Amendment. Effective as of the date of this Amendment, the Rights Agreement shall be amended as follows: Section 1 (a) defining, "Acquiring Person" is amended to add at the end thereof the following: Notwithstanding the foregoing, 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 the shares of Company Common Stock outstanding. 2 2. Effective Date. The Amendment shall become effective as of the date hereof upon its execution and delivery by each of the parties. 3. Rights Agreement. Except as set forth in Section 1 above, the Rights Agreement shall remain in full force and effect. 4. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute a single instrument. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered by their duly authorized officers or agents all as of the date first above written. J. ALEXANDER'S CORPORATION By: /s/ Lonnie J. Stout II --------------------------------- Name: Lonnie J. Stout II Title: Chairman, President & CEO Date: March 22, 1999 SUNTRUST BANK, ATLANTA By: /s/ Letitia A. Radford ---------------------------------- Name: Letitia A. Radford Title: Vice President Date: March 22, 1999 EX-4.E 5 STOCK PURCHASE & STANDSTILL AGREEMENT 1 EXHIBIT 4(e) STOCK PURCHASE AND STANDSTILL AGREEMENT STOCK PURCHASE AND STANDSTILL AGREEMENT dated as of March 22, 1999, among Solidus, LLC, a Tennessee limited liability company (the "Purchaser"), and J. Alexander's Corporation, a Tennessee corporation (the "Company"). The Company wishes to sell to the Purchaser, and the Purchaser wishes to purchase from the Company, 1,086,266 authorized and unissued shares (the "Shares") of Common Stock, $.05 par value, of the Company (the "Common Stock"). The parties hereto agree as follows: ARTICLE I. STOCK PURCHASE 1. On the terms and subject to the conditions herein set forth, the Company will issue and sell the Shares to the Purchaser for an aggregate cash purchase price of $4,073,497.50, payable to the Company in immediately available funds. 2. The Company represents and warrants to the Purchaser as follows: (A) The Company has been duly formed and is validly existing as a corporation under the laws of the State of Tennessee; (B) The Company has full legal right, power and authority to enter into this Agreement and to issue, sell and deliver the Shares to the Purchaser. Upon payment therefor in accordance with the terms of this Agreement, the Shares will be duly authorized, validly issued, fully paid and nonassessable. (C) The Company and its Board of Directors have approved the acquisition of the Shares by Purchaser for purposes of T.C.A. ss. 48-103-205(1). (D) The Company and its Disinterested Directors have approved the acquisition of the Shares by Purchaser for purposes of Article 29 of the Company's Bylaws. (E) The Company and its Board of Directors have duly adopted the Amendment to the Rights Agreement set forth as Exhibit A hereto. (F) Within five days following the closing, the Company will file a registration statement relating to an offering to its common shareholders pursuant to which the holder of each share shall be granted the nontransferable right to purchase 0.2 share of the Company's Common Stock at $3.75 per share for each share owned on April 5, 1999. 2 3. The Purchaser represents and warrants to the Company: (A) It is purchasing the Shares for investment only and not with a view to the distribution thereof. (B) It will not exercise the rights received by it in the Company's offering referred to in Paragraph 2 (F) with respect to the Shares acquired pursuant to this Agreement. ARTICLE II. STANDSTILL AGREEMENT For purposes of this Article: "Purchaser" means Solidus, LLC, a Tennessee limited liability company, its affiliates, its subsidiaries, and other corporations, entities and persons under its direct or indirect control or under common control or acting on its behalf or in concert with it; and "Voting Securities" means Common Stock and any other securities of the Company entitled to vote generally for the election of directors. 1. The Purchaser covenants and agrees as follows: (A) For a period beginning on the date of this Agreement and ending on the seventh anniversary date hereof, the Purchaser will not, without the prior consent of the Company's Board of Directors specifically expressed in a resolution adopted by a majority of the directors of the Company who are not employees, directors or designees of the Purchaser: (1) acquire, directly or indirectly, by purchase or otherwise, any Voting Securities, if after such acquisition the Purchaser would hold beneficially or of record in the aggregate more than 33.0% of the Voting Securities then outstanding; (2) solicit proxies with respect to Voting Securities under any circumstances; provided however, that this prohibition shall not apply to a solicitation made by the Company's Board of Directors if an affiliate or designee of the Purchaser is a member of the Company's Board of Directors; (3) deposit any Voting Securities in a voting trust or any similar arrangement; or (4) sell, transfer or otherwise dispose of any Voting Securities, except: (a) to the Company or to any person, corporation, entity or group approved by the Company; or (b) to any affiliate, subsidiary or entity under the direct or indirect 2 3 control of, or under common control with, the Purchaser. (B) The restrictions set forth in Paragraph (A) (1) and (A) (2) hereof shall terminate if: (1) At any time, any corporation, entity, person or group (other than the Company) makes a tender or exchange offer to holders of Voting Securities which, if successful, would result in such person holding in excess of 10% of the outstanding Voting Securities. For purposes of this Paragraph (B) (1) a tender or exchange offer shall be deemed to have been made when (but not before) offering documents are first published, sent or given to holders of Voting Securities. (2) At any time, any corporation, entity, person or group other than the Purchaser files: (a) A notice under Section 7A of the Clayton Act relating to the intention to acquire more than 15% of the outstanding Voting Securities, or (b) a Schedule 13D under the Securities Exchange Act of 1934 (the "Exchange Act") relating to the acquisition of more than 10% of the outstanding Voting Securities. (3) At any time the Company proposes, authorizes or adopts a merger, consolidation, sale of all or substantially all its assets or other transaction or series of transactions pursuant to which shareholders of the Company would receive for their shares securities of one or more entities or cash or property or some combination thereof; provided, however, that this subparagraph (3) shall not apply to a plan of complete liquidation adopted by the shareholders of the Company. (4) During any period of two consecutive years, individuals who at the beginning of any such two-year period constituted the Board of Directors of the Company cease to constitute at least a majority thereof. However, if the election, or nomination for election by the Company's shareholders, of a director of the Company first elected during such period was approved by a vote of at least two-thirds of the directors of the Company then still in office who were directors of the Company at the beginning of such period, then such new director will be treated as if he were an individual who served at the beginning of the two-year period for purposes of the determination made in the preceding sentence. 3 4 2. The Company covenants and agrees as follows: (A) The Company will not interpose any objection or take any legal action as a plaintiff in connection with the acquisition by the Purchaser of up to 33.0% of the Voting Securities. (B) The Company agrees to give the Purchaser prompt notice of the receipt of (i) any written notice from any corporation, entity, person or group couched in such terms as to put the Company reasonably on notice of the likelihood that such corporation, entity, person or group will seek to acquire more than 10% of the outstanding Voting Securities, (ii) any notice under Section 7A of the Clayton Act and (iii) any Schedule 13D under the Exchange Act. 3. (A) The Purchaser agrees to the placement on the certificate(s) representing any Voting Securities owned by the Purchaser of the following legend: "The shares represented by this certificate or any certificate issued in exchange therefor are subject to restrictions on sale or transfer as set forth in a certain agreement dated March 22, 1999, between the holder hereof and J. Alexander's Corporation." 4. It is agreed that each party shall be entitled to an inunction or injunctions to prevent breaches of this Agreement and to specifically enforce the terms and provisions thereof in any action instituted in any court of the United States or any state thereof having subject matter jurisdiction, in addition to any other remedy to which such party may be entitled, at law or in equity. ARTICLE III. GENERAL. 1. This Agreement may not be assigned by any party hereto. 2. This Agreement may be executed in counterparts and each such counterpart shall be deemed to be an original instrument. 3. This Agreement, including the exhibits and other documents referred to herein or delivered pursuant hereto, contains the entire understanding of the parties with respect to its subject matter. This Agreement supersedes all prior agreements and understandings between the parties with respect to its subject matter. 4. This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee. 4 5 SOLIDUS, LLC By: /s/ E. Townes Duncan, Chief Manager --------------------------------------- J. ALEXANDER'S CORPORATION By: /s/ Lonnie J. Stout II, President & CEO --------------------------------------- 5 EX-21 6 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 7 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-3 Registration Statement, Amendment No. 2 (No. 333-74849) pertaining to the 1999 J. Alexander's Corporation Rights Offering, filed on May 12, 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 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 March 22, 1999, with respect to the consolidated financial statements and schedule of J. Alexander's Corporation included in Amendment No. 1 to the Annual Report (Form 10-K/A) for the year ended January 3, 1999. /s/ Ernst & Young LLP Nashville, Tennessee May 12, 1999 EX-27 8 FINANCIAL DATA SCHEDULE PERIOD ENDED 3/31/99
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED JANUARY 3, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JAN-03-1999 DEC-29-1997 JAN-03-1999 1,022 0 77 0 800 2,223 72,493 11,053 65,120 9,301 21,361 0 0 272 33,459 65,120 74,200 74,200 25,410 50,073 17,417 0 1,986 (1,485) 0 (1,485) 0 0 0 (1,485) (.27) (.27)
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