SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): October 18, 1996
SHOLODGE, INC.
(Exact name of Registrant as Specified in Charter)
Tennessee No. 0-19840 62-1015641
(State or Other (Commission File Number) (IRS Employer Identification
Jurisdiction of Number)
Incorporation)
217 West Main Street, Gallatin, Tennessee 37066
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (615) 452-7200
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ITEM 5. OTHER EVENTS.
On October 17, 1996, the Company entered into a letter agreement with
Shoney's Investments, Inc., an affiliate of Shoney's, Inc.
("Shoney's") relating to the repurchase by the Company of warrants held by
Shoney's and certain modifications to the license agreement between the
Company and Shoney's.
A copy of the letter agreement between the Company and Shoney's, Inc.,
dated October 17, 1996 has been filed with this Form 8-K as Exhibit 99.2
A copy of the press release of ShoLodge, Inc., dated October 18, 1996 has
been filed with this Form 8-K as Exhibit 99.1 and is hereby incorporated by
reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
99.1 Press release issued by ShoLodge, Inc. on October 18, 1996.
99.2 Letter Agreement between ShoLodge, Inc. and Shoney's
Investments, Inc., dated October 17, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ShoLodge, Inc.
Date: October 21 , 1996 By:/s/ Michael A. Corbett
Its: Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
99.1 Press Release issued by ShoLodge, Inc. on October 18, 1996
99.2 Letter Agreement between ShoLodge, Inc., ShoLodge Franchise
Systems, Inc. and Shoney's Investments Inc. dated October 17, 1996
SHOLODGE, INC. REACHES AGREEMENT WITH SHONEYS, INC.
Gallatin, Tennessee (October 18, 1996) - ShoLodge, Inc. (Nasdaq/NM:LODG) today
announced an agreement with Shoneys, Inc. (NYSE:SHN) whereby ShoLodge will
repurchase for $2,050,000 the warrant held by Shoney's to acquire 5% of the
Company's stock. The warrant presently entitles Shoney's to acquire 560,000
shares of common stock. Of that total, 438,000 shares, which carry an average
exercise price of $9.49 a share, are exercisable at prices below the current
trading quote for ShoLodge's shares.
Under this same agreement, ShoLodge will pay Shoney's $5,250,000 to
cancel the future obligations to pay a portion of the franchisee fees generated
by the Shoney's Inn chain (currently 89 inns) to Shoney's. These fees paid to
Shoney's, which currently amount to $1.1 million annually, range from 0.5% to
1.5% of gross room revenues generated by the Shoney's Inn system.
The purchase of the warrants is expected to reduce shareholders' equity
and reduce the number of common equivalent shares outstanding. The payment to
Shoney's to cancel the obligation will be treated as a deferred asset and
amortized over future periods.
Other terms of the agreement include termination of Shoney's will no
longer designate two members of ShoLodge's Board of Directors. ShoLodge
currently has seven directors, two of which, W. Craig Barber and Robert M.
Langford, are executive officers of Shoney's and serve as the designees.
Leon Moore, chairman and president of ShoLodge, remarked, "We believe the
effective repurchase of our shares, represented by the warrant which Shoney's
owns, is an attractive use of our funds considering the current valuation of
our shares. The other elements of this agreement mark a logical evolution of
our ongoing development of Shoney's Inns. Since acquiring the exclusive
franchise rights, we have expanded the chain of Shoney's Inns into a system
which spans locations in 21 states. We now have practical autonomy to manage
the future expansion of the chain, especially the franchised component of our
strategy. Our plans are to continue expanding the chain through both company-
owned and franchised locations. Thus far in 1996, two company-owned properties
have opened; and a net total of seven franchised Shoney's Inns have joined our
system. Of the 89 Shoney's Inns currently in operation, we own and operate 32;
and the balance of 57 are operated under franchise agreements with us."
Moore said that although the agreement remains subject to certain closing
conditions, including final documentation, approval by the Boards of each
company and approval by lenders, plans are to close the transaction by October
25.
In addition to owning, managing and franchising Shoney's Inns, the
Company develops, owns and operates all-suite hotels under the brand name
"Sumner Suites" and has 10 Sumner Suites in operation, with six more under
construction.
Mr. W. Craig Barber
October 17, 1996
Page 1
October 17, 1996
Mr. W. Craig Barber
Senior Executive Vice President
and Chief Financial Officer
Shoney's, Inc.
1727 Elm Hill Pike
Nashville, TN 37210
Re: Sale of Warrants and Rights to Royalty Payments
Dear Mr. Barber:
The purpose of this letter is to set forth in writing the agreement among
Shoney's Investments, Inc. ("SII") and ShoLodge, Inc. ("ShoLodge") and ShoLodge
Franchise Systems, Inc. ("SFS") concerning the sale by SII to ShoLodge of its
warrants to acquire shares of common stock of ShoLodge and the relinquishment
and cancellation by SII of its right to receive future royalty payments with
respect to Shoney's Inns. The terms of the agreement are as follows:
1. In consideration of the payment from ShoLodge to SII on the closing
date of $2,050,000 in good and collected funds, SII shall transfer and convey
to ShoLodge all of its warrants to acquire shares of common stock of ShoLodge,
such warrants having been obtained pursuant to that certain Stock Purchase and
Warrant Agreement dated as of October 25, 1991 between ShoLodge (then known as
Gulf Coast Development, Inc.) and SII, and such warrants being evidenced by
that certain Warrant Certificate dated October 25, 1991 executed by ShoLodge
(then known as Gulf Coast Development, Inc.) in favor of SII, such Warrant
Certificate having been executed and issued pursuant to such Stock Purchase and
Warrant Agreement. At closing, SII shall deliver the Warrant Certificate to
ShoLodge properly endorsed for transfer, and shall enter into a Warrant
Purchase Agreement which will contain terms and provisions customary for
similar transactions and mutually acceptable to SII, ShoLodge and their
respective legal counsel, including, without limitation, representations and
warranties from SII to ShoLodge that SII is the true and lawful owner and
holder of the Warrant Certificate, that SII has good right and lawful authority
to transfer, convey and endorse the Warrant Certificate to ShoLodge, that such
Warrant Certificate has not been previously transferred, conveyed or endorsed
to any other person and that such Warrant Certificate is free and clear of any
and all liens, encumbrances or security interests of any kind.
2. In consideration of the payment from SFS to SII on the closing date
of $5,250,000 in good and collected funds, SII shall (i) relinquish and cancel
its right to receive future royalties pursuant to Section 4.1 of that certain
License Agreement dated October 25, 1991 between SII and SFS (then known as
Shoney's Lodging, Inc.) (such License Agreement as heretofore amended being
referred to herein as the "License Agreement"), (ii) transfer, convey and
endorse to ShoLodge the stock certificate evidencing the ownership by SII of
1,000 shares of the Series A Redeemable Nonparticipating Stock of ShoLodge
issued to SII pursuant to Section 5.5 of the License Agreement, (iii) cause the
resignation at closing of the directors elected by SII to the Board of
Directors of ShoLodge, (iv) transfer, convey and endorse to SFS the stock
certificate evidencing the ownership by SII of 1,000 shares of the Series A
Redeemable Nonparticipating Stock of SFS issued to SII pursuant to Section 5.5
of the License Agreement, (v) cause the resignation at closing of the directors
elected by SII to the Board of Directors of SFS, (vi) terminate and fully
release any and all UCC-1 financing statements filed to perfect the security
interest granted pursuant to that certain Stock Pledge Agreement dated as of
October 28, 1991 between ShoLodge (then known as Gulf Coast Development, Inc.)
and SII and deliver to ShoLodge the stock certificates evidencing the shares of
SFS pledged to SII pursuant to such Stock Pledge Agreement, (vii) terminate and
fully release any and all UCC-1 financing statements filed to perfect the
security interest granted pursuant to that certain Security Agreement dated as
of October 25, 1991 between SFS (then known as Shoney's Lodging, Inc.) and SII,
(viii) cancel and terminate that certain Stock Restriction Agreement dated
October 25, 1991 among Leon Moore, ShoLodge (then known as Gulf Coast
Development, Inc.) and SII, such Stock Restriction Agreement having been
entered into pursuant to Section 5.1 of the License Agreement, (ix) cause any
and all lenders which hold a security interest in the Licensed Mark (as defined
in the License Agreement) or the License Agreement to enter into an agreement
whereby such lender or lenders recognize and agree that, so long as no event
has occurred giving SII the right to terminate the License Agreement in
accordance with the terms thereof, SFS shall not be disturbed in its use and
licensing of the use of the Licensed Mark pursuant to the terms of the License
Agreement during the term thereof or any extension thereof, notwithstanding the
exercise by such lender or lenders of any remedies available as a result of any
such security interest in the Licensed Mark or the License Agreement, and
(x) modify and amend the License Agreement and Guaranty Agreement dated as of
October 25, 1991, made by ShoLodge (then known as Gulf Coast Development, Inc.)
in favor of SII, as necessary to reflect the foregoing transactions.
3. On the closing date, the License Agreement shall be further
modified as follows: (i) Section 1.5 shall be deleted in its entirety;
(ii) Section 4.1 and 4.2 shall be deleted in their entirety; (iii) Section
4.4(a) of the License Agreement shall be deleted in its entirety and the
language attached hereto as Insert 4.4(a) shall be inserted in lieu thereof,
(iv) Section 4.4(b) of the License Agreement shall be deleted in its entirety,
(v) Section 4.4(c) of the License Agreement shall be deleted in its entirety,
(vi) the phrase "subject to the limitations set forth below" shall be deleted
from the second sentence of Section 4.4(d) and the fourth sentence therein
shall be deleted in its entirety and the following language shall be inserted
in lieu thereof "Licensor shall not object to a form of agreement, offering
circular or other promotional items because of the fees, royalties or
advertising fees or similar financial obligations proposed to be charged
thereunder," (vii) Section 4.5(a) of the License Agreement shall be amended by
inserting the words "Upon Licensor's request," at the beginning of the first
sentence thereof and by deleting the second through fourth sentences thereof,
(viii) Section 4.10 of the License Agreement shall be deleted in its entirety
and the language attached hereto as Insert 4.10 shall be inserted in lieu
thereof, (ix) Section 4.11(b) shall be amended by deleting the phrase "that
consent may be given by any of Licensor's representatives to the board of
directors of Gulf or Licensee" and inserting in lieu thereof the words "a
request for consent shall be made by Licensee in writing to the Secretary of
Licensor and written approval may be given by the Secretary, Treasurer or Chief
Financial Officer of Licensor," (x) Section 5.1 shall be deleted in its
entirety, (xi) Section 5.2 shall be amended to delete the date "October 27,
19091" and insert the date "October 27, 1996," (xii) Sections 5.4 and 5.5 shall
be deleted in their entirety, (xiii) the words "subject to the provisions of
Section 4.10" shall be inserted immediately before the words "Gulf will
continue" in the third line of that section, (xiv) Section 6.3 shall be amended
by deleting the second and third sentences thereof, (xv) Section 6.5 shall be
deleted in its entirety, (xvi) Sections 7.1(f) and 7.1(g) shall be deleted in
their entirety, (xvii) Section 7.1(j) shall be amended by deleting the term
"ten (10)" and inserting the term "thirty (30)" in lieu thereof, and
(xx) Sections 7.4(c), 7.4(d) and 7.4(f) shall be deleted in their entirety.
All other provisions of the License Agreement shall remain unchanged and in
full force and effect except to the extent that additional revisions may be
mutually agreed upon by the parties hereto.
4. The transactions contemplated by this agreement shall close on or
before October 25, 1996. If this transaction has not closed on or before
October 25, 1996, either party hereto may terminate this agreement upon written
notice to the other and all further obligations of the parties hereunder shall
terminate.
5. The transactions contemplated by this agreement and the obligations
of SII hereunder are subject to and contingent upon approval of this agreement
by both: (i) the board of directors of Shoney's, Inc. ("Shoney's"); and
(ii) Shoney's lenders as required by their respective instruments.
Please sign below indicating your agreement to the foregoing terms.
Sincerely,
SHOLODGE, INC.
By: /s/ Leon Moore
Leon Moore, President
SHOLODGE FRANCHISE SYSTEMS, INC.
By: /s/ Leon Moore
Leon Moore, Chairman
The undersigned agrees to the foregoing this 17th day of October, 1996.
SHONEY'S INVESTMENTS, INC.
By: /s/ W. Craig Barber
Title: Senior Executive Vice
President and Chief
Financial Officer
