<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act
of 1934. For the fiscal year ended January 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:
<TABLE>
<CAPTION>
Title of Class: Name of each exchange on which registered:
--------------- ------------------------------------------
<S> <C>
Common stock, par value $.05 per share. New York Stock Exchange
Series A junior preferred stock purchase rights. New York Stock Exchange
</TABLE>
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.
<PAGE> 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
<PAGE> 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 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. 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
<PAGE> 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
<PAGE> 5
establishment which wrongfully served alcoholic beverages to the intoxicated
person. The Company carries liquor liability coverage as part of its
comprehensive general liability insurance.
The Americans with Disabilities Act ("ADA") prohibits discrimination on
the basis of disability in public accommodations and employment. The ADA became
effective as to public accommodations in January 1992 and as to employment in
July 1992. Construction and remodeling projects since January 1992 have taken
into account the requirements of the ADA; however, 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
<PAGE> 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:
<TABLE>
<CAPTION>
Site Leased
Site and Building and Building Space
Owned by the Owned by the Leased to the
Company Company Company Total
------- ------- ------- -----
<S> <C> <C> <C> <C>
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
</TABLE>
6
<PAGE> 7
<TABLE>
<S> <C> <C> <C> <C>
Texas 0 1 0 1
Kentucky 0 1 0 1
Louisiana 0 1 0 1
-- -- -- --
Total 13 5 2 20
== == == ==
</TABLE>
(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:
<TABLE>
<CAPTION>
1998 1997
---- ----
Low High Low High
--- ---- --- ----
<S> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
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
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
(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
<PAGE> 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:
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C>
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%
======= ===== ======= ===== ======= =====
</TABLE>
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
<PAGE> 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 menu price increases of approximately 3% which were implemented in
each 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
<PAGE> 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 are expected to increase as a
percentage of sales in 1999 compared to 1998 as management does not anticipate
favorable insurance experiences in 1999 similar to those noted above.
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.
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
<PAGE> 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 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 1,086,267 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. 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
<PAGE> 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's key financial,
informational and operational systems have been assessed 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.
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 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.
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 testing phase is not
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. 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
<PAGE> 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
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C>
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
</TABLE>
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
<PAGE> 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
<PAGE> 17
J. ALEXANDER'S CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
-----------
JANUARY 3 December 28 December 29
1999 1997 1996
---- ---- ----
<S> <C> <C> <C>
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
==== ===== ====
</TABLE>
See notes to consolidated financial statements.
17
<PAGE> 18
J. ALEXANDER'S CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 3 December 28
1999 1997
---- ----
ASSETS
<S> <C> <C>
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
=========== ===========
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 19
J. ALEXANDER'S CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
-----------
JANUARY 3 December 28 December 29
1999 1997 1996
---- ---- ----
<S> <C> <C> <C>
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
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 20
J. ALEXANDER'S CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Note
Receivable-
Employee
Additional Stock Total
Outstanding Common Paid-In Retained Ownership Stockholders'
Shares Stock Capital Earnings Plan Equity
------ ----- ------- -------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
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
========== ========== ============ ============ ========== ============
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
YEARS ENDED
-----------
JANUARY 3 December 28 December 29
1999 1997 1996
---- ---- ----
<S> <C> <C> <C>
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
====== ====== =====
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
JANUARY 3 December 28
1999 1997
---- ----
<S> <C> <C>
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
============ ============
</TABLE>
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:
<TABLE>
<CAPTION>
JANUARY 3, 1999 December 28, 1997
--------------- -----------------
CURRENT LONG-TERM Current Long-Term
------- --------- ------- ---------
<S> <C> <C> <C> <C>
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
=========== =========== =========== ===========
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
Years Ended
-----------
JANUARY 3 December 28 December 29
1999 1997 1996
---- ---- ----
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
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:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------ ------
<S> <C> <C> <C>
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
========
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
JANUARY 3 December 28
1999 1997
---- ----
<S> <C> <C>
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
=========== ===========
</TABLE>
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:
<TABLE>
<CAPTION>
Years Ended
-----------
JANUARY 3 December 28 December 29
1999 1997 1996
---- ---- ----
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
The Company's consolidated effective tax rate differed from the federal
statutory rate as set forth in the following table:
26
<PAGE> 27
<TABLE>
<CAPTION>
Years Ended
-----------
JANUARY 3 December 28 December 29
1999 1997 1996
---- ---- ----
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
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:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Options Shares Option Prices Price
- ------- ------ ------------- -----
<S> <C> <C> <C>
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
======== =============== ======
</TABLE>
Options exercisable and shares available for future grant are as
follows:
<TABLE>
<CAPTION>
JANUARY 3 December 28 December 29
1999 1997 1996
---- ---- ----
<S> <C> <C> <C>
Options exercisable 221,171 269,439 380,734
Shares available for grant 123,014 218,384 228,850
</TABLE>
27
<PAGE> 28
The following table summarizes information about stock options
outstanding at January 3, 1999:
<TABLE>
<CAPTION>
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
- --------------- ---- ---------------- ----- ---- --------------
<S> <C> <C> <C> <C> <C>
$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
=============== ======== ===== ======== ======
</TABLE>
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:
<TABLE>
<CAPTION>
Years Ended
-----------
JANUARY 3 December 28 December 29
1999 1997 1996
---- ---- ----
<S> <C> <C> <C>
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
</TABLE>
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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
JANUARY 3 December 28
1999 1997
---- ----
<S> <C> <C>
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
========== ==========
</TABLE>
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
<PAGE> 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):
<TABLE>
<CAPTION>
1998 QUARTERS ENDED
------------------------------------------------------------
MARCH 29 JUNE 28 SEPTEMBER 27 JANUARY 3(1)
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
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
<CAPTION>
1997 Quarters Ended
-------------------------------------------------------------
March 30(3) June 29(3) September 28(3) December 28
----------- ---------- --------------- ------------
<S> <C> <C> <C> <C>
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)
======= ======= ======= =======
</TABLE>
(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
<PAGE> 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.
<TABLE>
<CAPTION>
Name Background Information
- ---- ----------------------
<S> <C>
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.
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
Name and Age Background Information
- ------------ ----------------------
<S> <C>
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.
</TABLE>
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 $100,000 (collectively, the "Named Officers").
33
<PAGE> 34
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(1)
- --------------------------- ---- --------- -------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
(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, $838 contributed by the Company to the Company's
401(k) Plan on behalf of Mr. Moore, and 450 ESOP shares allocated to Mr.
Moore.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information as to options granted to the
Named Officers during fiscal 1998. No stock appreciation rights ("SARs") have
ever been awarded by the Company.
34
<PAGE> 35
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------
PERCENT OF
NUMBER OF TOTAL GRANT DATE
SECURITIES OPTIONS VALUE
UNDERLYING GRANTED TO ----------
OPTIONS/SARS EMPLOYEES IN EXERCISE OR GRANT DATE
GRANTED FISCAL BASE EXPIRATION PRESENT
NAME (#)(1) YEAR (%) ($/SH) DATE VALUE($)(2)
- ---- ----------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
(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 $2.75 exercise price and
market price on the date of grant; (ii) a ten year expected option term;
(iii) risk-free rate based on the current Treasury bill rate (4.60% ten
year rate); (iv) volatility of .3799, based on monthly closing prices since
August 1990; and (v) no annual dividend yield. The grant date value has not
been discounted for the vesting schedule of the options.
(3) Represents new options issued in option exchange, described below in
"Report on Exchange of Options".
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table provides information as to options exercised by the
Named Officers during fiscal 1998. None of the Named Officers has held or
exercised separate SARs. In addition, this table includes the number of shares
covered by both exercisable and unexercisable stock options as of January 3,
1999. Also reported are the values for the "in-the-money" options, which
represent the positive spread between the exercise price of any such existing
stock options and the year-end price of the Common Stock.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Options at Options At
Shares Fiscal Year End(#) Fiscal Year End($)(1)
Name Acquired on Value ------------------------------- ------------------------------
---- Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ------------------
(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
<PAGE> 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
<PAGE> 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 $2.75 per share, the closing sale price of the common stock on
September 30, 1998 as reported on the New York Stock Exchange. For management
employees, including the executive officers listed below, the number of shares
of common stock that may be purchased when the new options are exercised is 80%
of the shares issuable under the surrendered options. The new options will vest
in one-third increments on the first, second and third anniversaries of the date
of grant.
The following table sets forth certain information concerning the
exchange, which has been the only adjustment to option exercise prices in the
past ten years.
<TABLE>
<CAPTION>
TEN YEAR OPTION EXCHANGE
NUMBER OF (NEW LENGTH OF
SECURITIES EXERCISE ORIGINAL
UNDERLYING PRICE) NUMBER OF OPTION TERMS
NEW MARKET PRICE SECURITIES EXERCISE REMAINING AT
OPTIONS OF STOCK AT UNDERLYING PRICE DATE OF
ISSUED TIME OF OLD OPTIONS AT TIME OF EXCHANGE
NAME DATE (#)(1) EXCHANGE ($) EXCHANGED (#) EXCHANGE ($) (YEARS)
- --------------------------------- -------- ---------- ----------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ------------
(1) Represents 80% of the number of shares of common stock issuable upon
exercise of the surrendered options.
37
<PAGE> 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
<PAGE> 39
<TABLE>
<CAPTION>
AMOUNT OF PERCENTAGE OF
COMMON STOCK OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK(1)
- ------------------------------------ ------------------ ---------------
<S> <C> <C>
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
</TABLE>
- ----------
* 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
<PAGE> 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
<PAGE> 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.
(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
<PAGE> 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
<PAGE> 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
<PAGE> 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 report to be signed on
its behalf by the undersigned, thereunto duly authorized.
J. ALEXANDER'S CORPORATION
Date: 3/22/99 By: /s/Lonnie J. Stout II
---------- --------------------------------
Lonnie J. Stout II
Chairman, President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Capacity Date
--------- ------------- -------
<S> <C> <C>
/s/Lonnie J. Stout II Chairman, President, Chief Executive 3/22/99
- ------------------------------ Officer and Director
Lonnie J. Stout II
/s/R. Gregory Lewis Vice President and Chief Financial 3/22/99
- ------------------------------ Officer (Principal Financial
R. Gregory Lewis Officer)
/s/Mark A. Parkey Controller 3/22/99
- ------------------------------ (Principal Accounting Officer)
Mark A. Parkey
/s/Earl Beasley, Jr. Director 3/22/99
- ------------------------------
Earl Beasley, Jr.
/s/E. Townes Duncan Director 3/22/99
- ------------------------------
E. Townes Duncan
/s/Garland G. Fritts Director 3/22/99
- ------------------------------
Garland G. Fritts
/s/John L.M. Tobias Director 3/22/99
- ------------------------------
John L.M. Tobias
</TABLE>
44
<PAGE> 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
<PAGE> 46
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
J. ALEXANDER'S CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
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
- --------------------------------------------- ------------- ------------ ---------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
(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
<PAGE> 47
J. ALEXANDER'S CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
Reference Number
per Item 601 of
Regulation S-K Description
- -------------- -----------
<S> <C>
(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)
</TABLE>
47
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 5
SOLIDUS, LLC
By: /s/ E. Townes Duncan, Chief Manager
---------------------------------------
J. ALEXANDER'S CORPORATION
By: /s/ Lonnie J. Stout II, President & CEO
---------------------------------------
5
<PAGE> 1
EXHIBIT 21--SUBSIDIARIES OF J. ALEXANDER'S CORPORATION
<TABLE>
<CAPTION>
STATE OF NAME UNDER WHICH
SUBSIDIARY INCORPORATION BUSINESS IS DONE
- ---------- ------------- ----------------
<S> <C> <C>
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
</TABLE>
<PAGE> 1
Exhibit 23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the following J. Alexander's
Corporation Registration Statements:
a. Form S-8 Registration Statement (No. 333-49393) pertaining to the 1994
Employee Stock Incentive Plan, filed on April 3, 1998;
b. Form S-8 Registration Statement (No. 33-77478) pertaining to the 1985 Stock
Option Plan, filed on May 25, 1994;
c. Form S-8 Registration Statement (No. 33-77476) pertaining to the 1994
Employee Stock Incentive Plan, filed on April 6, 1994;
d. Form S-8 Registration Statement (No. 33-39870) pertaining to the 1990 Stock
Option Plan for Outside Directors, filed April 9, 1991;
e. Form S-8 Registration Statement (No. 33-4483) pertaining to the 1985
Stock Option Plan, filed on April 1, 1986;
f. Form S-8 Registration Statement (No. 2-78140) pertaining to the 1982
Incentive Stock Option Plan, filed on June 25, 1982; and
g. 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 the Annual
Report (Form 10-K) for the year ended January 3, 1999.
/s/ Ernst & Young LLP
Nashville, Tennessee
March 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> DEC-29-1997
<PERIOD-END> JAN-03-1999
<CASH> 1,022
<SECURITIES> 0
<RECEIVABLES> 77
<ALLOWANCES> 0
<INVENTORY> 800
<CURRENT-ASSETS> 2,223
<PP&E> 72,493
<DEPRECIATION> 11,053
<TOTAL-ASSETS> 65,120
<CURRENT-LIABILITIES> 9,301
<BONDS> 21,361
0
0
<COMMON> 272
<OTHER-SE> 33,459
<TOTAL-LIABILITY-AND-EQUITY> 65,120
<SALES> 74,200
<TOTAL-REVENUES> 74,200
<CGS> 25,410
<TOTAL-COSTS> 50,073
<OTHER-EXPENSES> 17,417
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,986
<INCOME-PRETAX> (1,485)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,485)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,485)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
