<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
_______________________________________
For the Second Quarter Ended July 14, 1996 Commission File No. 0-19840
_______________________________________
SHOLODGE, INC.
(Exact name of registrant as specified in its charter)
_______________________________________
Tennessee 62-1015641
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
217 West Main Street, Gallatin, Tennessee 37066
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (615) 452-7200
_______________________________________
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 as 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 the number of shares outstanding of each of the registrant's classes
of common stock as of the latest practicable date.
As of August 27, 1996, there were 8,232,985 shares of ShoLodge,
Inc. common stock outstanding.
<PAGE> 2
SHOLODGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
JULY 14, DECEMBER 31,
1996 1995 (1)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,637,142 $ 2,444,990
Accounts receivable 2,359,990 2,545,108
Construction contracts 1,054,919 1,726,844
Due from related parties 44,100,071
Less profits not recognized on installment sales (1,681,312)
------------
42,418,759
Prepaid expenses 686,682 385,615
Other current assets 330,404 287,871
------------ ------------
Total current assets 11,069,137 49,809,187
DIRECT FINANCING LEASES, less current portion 630,010 661,631
PROPERTY AND EQUIPMENT 227,709,677 176,701,146
Less accumulated depreciation and amortization (30,099,795) (27,021,202)
------------ ------------
197,609,882 149,679,944
DEFERRED CHARGES 2,906,768 3,437,887
SECURITIES HELD TO MATURITY - RESTRICTED 7,961,450 7,618,031
SECURITIES AVAILABLE FOR SALE 1,180,289 2,090,943
EXCESS OF COST OVER FAIR VALUE
OF NET ASSETS ACQUIRED 3,206,182 3,286,938
OTHER 3,357,451 4,205,151
------------ ------------
TOTAL ASSETS $227,921,169 $220,789,712
============ ============
</TABLE>
(1) Derived from fiscal year ended December 31, 1995 audited financial
statements.
See notes to consolidated financial statements.
<PAGE> 3
SHOLODGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Continued)
<TABLE>
<CAPTION>
JULY 14, DECEMBER 31,
1996 1995 (1)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 9,495,622 $ 7,750,468
Taxes other than on income 780,380 689,564
Income taxes payable 4,309,963 2,274,693
Current portion of long-term debt
and capitalized lease obligations 32,052,018 34,308,402
------------ ------------
Total current liabilities 46,637,983 45,023,127
LONG-TERM DEBT ASSOCIATED WITH LODGING FACILITIES 34,158,168 33,125,280
OTHER LONG-TERM DEBT 54,091,783 54,112,647
CAPITALIZED LEASE OBLIGATIONS 1,816,871 2,104,765
DEFERRED INCOME TAXES 3,153,751 3,153,751
MINORITY INTERESTS IN EQUITY OF
CONSOLIDATED SUBSIDIARIES AND PARTNERSHIPS 487,930 533,642
------------ ------------
TOTAL LIABILITIES 140,346,486 138,053,212
------------ ------------
SHAREHOLDERS' EQUITY:
Series A redeemable nonparticipating stock
(no par value; 1,000 shares authorized,
issued and outstanding) - -
Common stock (no par value; 20,000,000 shares
authorized, 8,231,651 shares issued and outstanding
as of July 14, 1996 and 8,228,502 shares issued
and outstanding as of December 31, 1995) 1,000 1,000
Additional paid-in capital 44,261,848 44,235,396
Retained earnings 43,000,546 37,966,623
Unrealized gain on securities available for sale (net of tax) 311,289 533,481
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 87,574,683 82,736,500
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $227,921,169 $220,789,712
============ ============
</TABLE>
(1) Derived from fiscal year ended December 31, 1995 audited financial
statements.
See notes to consolidated financial statements.
<PAGE> 4
SHOLODGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
FOR THE TWENTY-EIGHT WEEKS ENDED JULY 14, 1996 AND JULY 9, 1995
<TABLE>
<CAPTION>
12 WEEKS ENDED 28 WEEKS ENDED
JULY 14, JULY 9, JULY 14, JULY 9,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Hotel $14,140,194 $10,926,217 $28,221,015 $23,047,544
Construction and development 239 3,012,217 514,473 7,695,912
Construction and development - other 0 12,000,000 200,000 13,437,741
Sale of hotels 0 0 0 6,173,500
Profits not Recognized on installment sales 0 0 0 (1,955,791)
Franchising 1,040,946 701,124 2,105,938 1,543,454
Management 66,628 51,244 115,536 289,142
Management - previously deferred 0 0 0 2,862,000
----------- ----------- ----------- -----------
Total operating revenues 15,248,007 26,690,802 31,156,962 53,093,502
COSTS AND EXPENSES:
Operating expenses:
Hotel 7,216,937 5,695,180 15,524,779 13,108,328
Construction and development 232 3,211,210 690,731 7,585,101
Cost of hotels sold 0 0 0 4,217,709
Franchising 791,554 670,494 1,775,647 1,443,782
Total operating expenses 8,008,723 9,576,884 17,991,157 26,354,920
----------- ----------- ----------- -----------
Gross operating profit 7,239,284 17,113,918 13,165,805 26,738,582
----------- ----------- ----------- -----------
General and administrative 537,266 309,629 1,491,504 902,362
----------- ----------- ----------- -----------
Earnings before interest, taxes, depreciation and amortization 6,702,018 16,804,289 11,674,301 25,836,220
Depreciation and amortization 1,736,213 1,202,563 3,820,425 2,779,472
----------- ----------- ----------- -----------
Net operating profit (before interest and taxes) 4,965,805 15,601,726 7,853,876 23,056,748
OTHER INCOME AND EXPENSES:
Interest expense 424,028 1,243,638 905,074 3,504,376
Interest income 210,738 1,350,938 842,546 3,551,799
----------- ----------- ----------- -----------
Net interest expense (income) 213,290 (107,300) 62,528 (47,423)
Other income 257,860 155,434 433,841 317,633
----------- ----------- ----------- -----------
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND MINORITY INTERESTS 5,010,375 15,864,460 8,225,189 23,421,804
INCOME TAXES 1,777,000 5,839,000 2,962,000 8,691,000
MINORITY INTERESTS IN EARNINGS OF CONSOLIDATED
SUBSIDIARIES & PARTNERSHIPS 193,893 188,538 229,266 90,543
----------- ----------- ----------- -----------
EARNINGS FROM CONTINUING OPERATIONS BEFORE 3,039,482 9,836,922 5,033,923 14,640,261
EXTRAORDINARY ITEMS
DISCONTINUED OPERATIONS:
LOSS FROM OPERATIONS OF DISCONTINUED
BUSINESS SEGMENT, net of applicable
income taxes & minority interest 0 (14,127) 0 (45,382)
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT,
net of income tax benefit 0 190,388 0 708,195
----------- ----------- ----------- -----------
NET EARNINGS $ 3,039,482 $ 9,632,407 $ 5,033,923 $13,886,684
=========== =========== =========== ===========
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Primary:
Earnings from continuing operations $0.36 $1.15 $0.60 $1.70
Net Earnings $0.36 $1.13 $0.60 $1.62
----------- ----------- ----------- -----------
Fully Diluted:
Earnings from continuing operations $0.34 $0.96 $0.60 $1.47
Net Earnings $0.34 $0.94 $0.60 $1.40
----------- ----------- ----------- -----------
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Primary 8,494,133 8,526,118 8,443,028 8,591,683
Fully Diluted 10,810,735 10,842,720 10,759,630 10,908,285
----------- ----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
SHOLODGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-EIGHT WEEKS ENDED JULY 14, 1996 AND JULY 9, 1995
<TABLE>
<CAPTION>
28 WEEKS ENDED
JULY 14, JULY 9,
1996 1995
---------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET EARNINGS $5,033,923 $13,886,684
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT 0 1,128,598
DEPRECIATION AND AMORTIZATION 3,820,425 2,779,472
INCREASE IN DEFERRED INCOME TAXES 0 3,700,000
GAIN ON SALE OF PROPERTY & EQUIPMENT 0 (3,855)
ACCRETION OF DISCOUNT ON SECURITIES
HELD TO MATURITY (343,419) (509,159)
CHANGES IN ASSETS AND LIABILITIES:
DECREASE (INCREASE) IN ACCOUNTS RECEIVABLE 857,043 (1,229,910)
INCREASE IN PREPAID EXPENSES (301,067) (342,203)
DECREASE IN PROFITS NOT RECOGNIZED
ON INSTALLMENT SALES (1,681,312) (3,396,015)
DECREASE (INCREASE) IN OTHER ASSETS 728,819 (162,035)
DECREASE IN DEFERRED CHARGES (303,691) (1,138,172)
INCREASE IN ACCOUNTS PAYABLE
AND ACCRUED EXPENSES 1,745,154 605,245
INCREASE IN INCOME AND OTHER TAXES 2,126,086 1,161,847
DECREASE IN DEFERRED REVENUE 0 (2,862,000)
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,681,961 13,618,497
CASH FLOWS FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (51,008,531) (20,433,251)
PROCEEDS FROM SALE OF PROPERTY & EQUIPMENT 0 3,855
MATURITY OF SECURITIES HELD TO MATURITY 0 10,000,000
SALE OF SECURITIES AVAILABLE FOR SALE 847,120 0
- ------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (50,161,411) (10,429,396)
CASH FLOWS FROM FINANCING ACTIVITIES:
REPAYMENT FROM RELATED PARTIES--NET 44,100,071 4,077,154
PROCEEDS FROM DIRECT FINANCING LEASES 31,621 37,889
PROCEEDS FROM LONG-TERM DEBT 52,472,371 25,785,000
PAYMENTS ON LONG-TERM DEBT (53,716,731) (31,567,733)
PAYMENTS ON CAPITALIZED LEASE OBLIGATIONS (287,894) (440,298)
INCREASE (DECREASE) IN MINORITY INTEREST IN EQUITY
OF CONSOLIDATED SUBSIDIARIES AND PARTNERSHIPS 45,712 (267,091)
EXERCISE OF STOCK OPTIONS 26,452 89,020
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 42,671,602 (2,286,059)
- ------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS $4,192,152 $903,042
======================================================================================================
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD $2,444,990 $2,188,185
======================================================================================================
CASH AND CASH EQUIVALENTS - END OF PERIOD $6,637,142 $3,091,227
======================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
SHOLODGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-EIGHT WEEKS ENDED JULY 14, 1996 AND JULY 9, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
28 WEEKS ENDED
JULY 14, JULY 9,
1996 1995
--------------------------------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
PROPERTY AND EQUIPMENT ACQUIRED UNDER
CAPITALIZED LEASE OBLIGATIONS:
PROPERTY AND EQUIPMENT - 1,024,413
CAPITALIZED LEASE OBLIGATION - (1,024,413)
--------------------------------
- -
================================
SALE OF HOTELS TO RELATED PARTY:
DUE FROM RELATED PARTIES - (6,173,500)
PROFITS NOT RECOGNIZED ON INSTALLMENT
SALES - 1,955,791
PROPERTY AND EQUIPMENT - 4,217,709
--------------------------------
- -
================================
</TABLE>
<PAGE> 7
SHOLODGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. The consolidated financial statements have been prepared by the
Company without audit.
In Management's opinion, the information and amounts furnished
in this report reflect all adjustments which are necessary for
the fair presentation of the financial position and results of
operations for the periods presented. All adjustments are of a
normal and recurring nature. It is suggested that these
financial statements be read in conjunction with the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1995.
There have been no changes in accounting policies nor has the
composition of accounts substantially changed since the year
ended December 31, 1995.
The fiscal year consists of a 52/53 week year ending the last
Sunday of the year.
The Company has historically reported lower earnings in the
first and fourth quarters of the year due to the seasonality of
the Company's business. The results of operations for the
quarters ended July 14, 1996 and July 9, 1995 are not
necessarily indicative of the operating results for the entire
year.
B. The net earnings per share is computed by dividing net earnings
by the weighted average number of common and common equivalent
shares outstanding.
<PAGE> 8
ShoLodge, Inc. and Subsidiaries Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
For the Quarters and Year-to-date Periods Ended July 14, 1996 and July 9, 1995
Total operating revenues for the quarter ended July 14, 1996, were
$15,248,000, or 42.9% less than the total operating revenues for the second
quarter of 1995. For the two quarters ended July 14, 1996, total operating
revenues were $31,157,000, for a decrease of 41.3% from the same two quarters
in 1995.
Revenues from hotel operations in second quarter 1996 increased by
$3,214,000 to $14,140,000, or 29.4%, over the $10,926,000 reported for the same
period last year. For the 29 same store hotels opened for all of both
quarterly periods, an increase of 6.4% in average daily room rates, from $48.44
in second quarter 1995 to $51.54 in second quarter 1996, partially offset by a
decline in average occupancy rates on these hotels from 72.0% last year to
69.1% this year, resulted in a net increase in same store hotel revenues of
1.7%, from $10,820,000 in second quarter 1995 to $10,999,000 in second quarter
1996. The four hotels opened during 1995 and the seven hotels opened in first
two quarters 1996 contributed $3,141,000 to hotel operating revenues in second
quarter this year versus $69,000 in the second quarter last year. One hotel
which was sold in the first half of 1995 contributed $37,000 to hotel revenues
in the second quarter of 1995.
Revenues from hotel operations in the first two quarters of 1996
increased by $5,173,000, or 22.4%, over the $23,048,000 reported for the
comparable two quarters last year. For the 29 same store hotels opened for
both year-to- date periods, an increase of 6.0% in average daily room rates,
from $47.35 in first two quarters 1995 to $50.21 in first two quarters 1996,
partially offset by a decline in average occupancy rates on these hotels from
65.4% last year to 63.3% this year, resulted in a net increase in same store
hotel revenues of 2.1%, from $22,429,000 in first two quarters 1995 to
$22,894,000 in first two quarters 1996. The eleven hotels opened during 1995
and first two quarters of 1996 contributed $5,327,000 to hotel revenues in
first two quarters this year versus $69,000 for the comparable period last
year. One hotel which was sold in the first half of 1995 contributed $550,000
to hotel revenues in the first two quarters of 1995.
Revenues from regular construction and development activities were nil
in second quarter this year compared with $3,012,000 for the same period last
year. Revenues from this source for the first two quarters of 1996 were
$514,000 in contrast to $7,696,000 for the same period last year. Revenues
from construction and development can vary widely from quarter to quarter
depending upon the volume of outside contract work and the timing of those
projects. Three outside construction projects were in progress during the
first two quarters of 1995 compared with only one during the comparable period
in 1996. No outside construction contracts are currently in progress, due to
the concentration on the Company's own development plans.
<PAGE> 9
There were no revenues from "Construction and development - other" in
second quarter 1996 and only $200,000 in the first two quarters of 1996 which
represents a portion of profits not previously recognized on installment sales.
The $12,000,000 reported for second quarter last year and the $13,438,000
reported for the first two quarters of 1995, represented the earned portion of
revenues, a portion of which was deferred from 1993 and 1994, resulting from a
transaction closed on March 31, 1995, with Suites of America, Inc. and its
parent, Prime Hospitality Corp.
Revenue from the sale of hotels in the first two quarters of 1995 was
$4,218,000, net of profits not recognized on installment sales of $1,956,000,
representing the sale of one hotel in first quarter 1995 in conjunction with
the transaction with Suites and Prime previously discussed. These net revenues
are completely offset by the cost of hotels sold, resulting in no gross
operating profit from these transactions. Any profit recognition is through
"construction and development - other" discussed above.
Franchising revenues increased by $340,000, or 48.5%, in second
quarter 1996 from second quarter 1995. This was due primarily to a 14.5%
increase in franchised hotel revenues upon which royalty and reservation system
fees are based. The number of franchised Shoney's Inns at the end of second
quarter 1996 increased to 56 from the 48 franchised at the same time last year.
Also, initial franchise fees increased by $83,000 from second quarter 1995 to
second quarter 1996. Initial franchise fees may vary widely from quarter to
quarter. Franchise revenues increased by $562,000, or 36.4%, in first two
quarters 1996 from the comparable period last year. This was due to higher
royalty and reservation center fees resulting from a 17.3% higher sales level
of franchised inns, and to an increase of $28,000 in initial franchise fee
revenues.
Management contract revenues increased by $15,000, from $51,000 to
$66,000, in second quarter 1996 versus second quarter 1995. Management contract
revenues for the first two quarters of 1996 were $116,000, or 60.0%, less than
for the same period last year, due to the cancellation of management contracts
on eleven AmeriSuites hotels on March 31, 1995, as a part of the transaction
with Prime and Suites previously discussed.
Revenues from "Management - previously deferred" in the amount of
$2,862,000 reported for the two quarters ended July 9, 1995, was reported in
first quarter 1995 from the March 31, 1995, transaction discussed elsewhere,
and was fully discussed in the first quarter 1996 report. This is a
non-recurring source of revenue.
Operating expenses from hotel operations for the second quarter of
1996 increased by $1,522,000, or 26.7%, from $5,695,000 in second quarter 1995
to $7,217,000 in second quarter 1996, due to operating expenses associated with
the 29.4% increase in hotel operating revenues. Operating expenses as a
percentage of operating revenues for this activity decreased from 52.1% in
second quarter 1995 to 51.0% in second quarter 1996. The increase in hotel
gross operating profit margin from 47.9% in second quarter 1995 to 49.0% in
second quarter 1996 is due to (1) an increase in profit margin on the 29 "same"
hotels of 1.2% from 47.7% in second quarter 1995 to 48.9% in second quarter
1996, due to the 6.4% increase in average daily room rates combined with
improved cost control programs, and (2) a profit margin of 49.2% for the eleven
new hotels, due to their
<PAGE> 10
higher average daily room rates as compared with the older hotels. Seven of
these eleven new hotels are the new Sumner Suites all-suite properties which
command significantly higher room rates than the Shoney's Inn properties and
which generally operate at a higher gross operating profit margin. Operating
expenses from hotel operations for the first two quarters of 1996 increased by
$2,416,000, or 18.4%, from $13,108,000 in the first two quarters of 1995 to
$15,525,000 in the first two quarters of 1996, due to operating expenses
associated with the 22.4% increase in hotel operating revenues. Operating
expenses as a percentage of operating revenues for this activity decreased from
56.9% in the first two quarters of 1995 to 55.0% in the first two quarters of
1996, thus increasing the gross profit margin on all hotels from 43.1% in 1995
to 45.0% in 1996. The gross profit margin on same store hotels for the two
quarters ended July 14, 1996, reflected an increase to 44.3% from the 43.4%
level for the same two quarters in 1995. The new hotels reflect higher profit
margins than the same store hotels, reflecting a 47.8% profit margin in the
first two quarters of 1996.
Costs and expenses of construction and development in second quarter
1996 were nil versus $3,211,000 in second quarter 1995, and for the first two
quarters decreased from $7,585,000 in 1995 to $691,000 in 1996. There were
three outside construction contracts in the first half of 1995 versus only one
during the comparable period in 1996.
Franchising operating expenses increased by $121,000, or by 18.1%,
from second quarter 1995 to second quarter 1996, and for the first two quarters
of 1996 increased by $332,000, or 23.0%, over the same period last year. The
primary reason for these increases is the additional expenses incurred by the
reservation center in meeting the added demand from additional properties
served by that department, particularly in the areas of personnel costs and
telephone expense. For the first two quarters of 1996 the reservation center's
operating expenses increased by $118,000, or 28.4%, over the comparable period
last year.
General and administrative expense for second quarter 1996 increased
by $228,000 over the comparable period last year, and for the two quarters, the
increase over last year-to-date was $589,000. These increases were due
primarily to increased outside professional fees and increased payroll and
related expenses (due primarily to increased staffing levels).
Depreciation and amortization expense in second quarter 1996 increased
by $534,000, or 44.4%, over last year's second quarter. Eleven hotels were
opened during 1995 and first half of 1996, which resulted in $358,000
depreciation and amortization expense in second quarter 1996 versus only
$11,000 in second quarter 1995 on one of these hotels which opened during the
second quarter of 1995. For the first two quarters of 1996, depreciation and
amortization expense increased by $1,041,000, or 37.5%, over the same period
last year. Increased depreciation and amortization on the eleven added hotels
was $619,000. Also, depreciation due to renovations and other additions to
same hotels increased by $285,000 over first two quarters of last year.
Interest expense for the second quarter decreased by $820,000 from
1995's second quarter and interest income also declined, by $1,140,000, for an
increase in net
<PAGE> 11
interest expense of $320,000. For the two quarters ended July 14, 1996, the
decreases from prior year-to-date in interest expense and interest income were
$2,599,000 and $2,709,000, respectively, for an increase in net interest
expense of $110,000. The primary cause of the decreases in interest income was
the collection of the balance of first mortgage notes receivable of
approximately $44 million from Suites of America in early first quarter 1996,
which resulted in reducing interest income in second quarter 1996 and for the
first two quarters of 1996 by $1,039,000 and $2,227,000, respectively. The $44
million proceeds were used to reduce outstanding debt, significantly reducing
interest expense for both the second quarter and year-to-date from last year's
levels.
Other income increased by $102,000 and $116,000 from second quarter
1995 and first two quarters 1995, respectively. Minority interest in earnings
and losses of consolidated subsidiaries and partnerships was up $5,000, or
2.8%, from last year's second quarter due to more profitable consolidated
entities which include minority ownership. For the first two quarters of 1996,
the $139,000 increase is due to the same reason.
The 1995 loss from discontinued operations (quarter and year-to-date),
net of applicable income taxes and minority interest, was from the restaurant
subsidiary of which the Company sold its 60% interest to the 40% owner in the
first quarter 1996. The 1995 extraordinary loss (quarter and year-to-date),
net of income tax benefit, represents the extraordinary non-cash write-off of
unamortized deferred financing costs, and early redemption premiums paid,
associated with the refinancing of certain indebtedness during the first two
quarters of 1995.
Liquidity and Capital Resources
Net cash provided from operations was $31,570,000 in 1995 and
$5,801,000 in 1994. The Company currently has a total of $41,500,000 in
unsecured revolving credit facilities with four banks, of which $35,000,000
expires in January 1997, $5,000,000 expires in February 1997, and $1,500,000
expires in May 1997. Interest rates on these lines of credit are (1)
$40,000,000 at prime rate, or two points over 30, 60, or 90 day LIBOR rates at
the Company's option; and (2) $1,500,000 at prime rate. As of July 14, 1996,
the Company had $30,000,000 outstanding under these four credit facilities.
On March 31, 1995, the Company, Suites and Prime entered into an
agreement (the "Cancellation Agreement") under which the Company sold its
option to acquire 50% of the voting stock of Suites, for approximately
$27,327,000. In addition, the Company conveyed one AmeriSuites hotel to Suites
for approximately $6,174,000. Approximately $4,997,000 of the aggregate
purchase price of $33,501,000 was paid upon closing with the remaining
$28,504,000, along with approximately $25,015,000 of existing indebtedness from
Suites, consolidated into one note. Approximately $14,880,000 of existing
indebtedness from Suites was canceled by the company in connection with the
sale of the option. A $10,000,000 cash payment was received in second quarter
1995. Monthly payments of approximately $411,000 based upon an amortization
schedule were
<PAGE> 12
also received until January 1996, when the balance of $44,066,000 plus accrued
interest was received.
The Company requires capital principally for the construction and/or
acquisition of new lodging facilities and the purchase of equipment and
leasehold improvements. Capital expenditures for such purposes were
$56,174,000 in 1995 and $47,126,000 in 1994.
To date in 1996, two Shoney's Inns and seven Sumner Suites hotels have
opened and four Sumner Suites hotels are under development scheduled to open in
1996. Additionally, renovations of several existing properties are underway
and/or scheduled for completion in 1996 and early 1997. The Company also plans
to have an additional four all-suite hotels under construction by this year-end
and another six under construction by the end of second quarter 1997. The
Company expects that an additional approximately $75,000,000 of capital funds
will be necessary through the next twelve months to fulfill these plans.
In addition to its planned development expenditures, the Company has
principal payments totaling $2,052,000 due under existing debt instruments
through the end of second fiscal quarter of 1997. The Company believes that a
combination of net cash provided from operations, borrowings under existing
credit facilities, cash received from Prime from the above-discussed
transaction, proceeds from the sale of excess land and available furniture,
fixtures and equipment financing packages will be sufficient to fund its
scheduled development and debt repayments through the current fiscal year.
Management is currently pursuing additional sources of funds in order to
fulfill its development plans for 1997 and beyond.
<PAGE> 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments during the
quarter.
Item 2. Changes in securities
See amended bylaws filed herewith as Exhibit 3.1.
Item 3. Defaults upon senior securities
None.
Item 4. Submission of matters to a vote of security holders
At the Company's Annual Meeting of Shareholders held
on May 31, 1996, 8,231,501 shares were outstanding
and eligible to vote. The Shareholders considered
and voted to reelect the following directors:
<TABLE>
<CAPTION>
Name of Nominee Vote Cast
--------------- ---------
For Withheld
--- --------
<S> <C> <C>
Richard L. Johnson 7,057,440 470,009
Helen L. Moskovitz 7,061,314 466,135
</TABLE>
The Shareholders also considered and voted for an
amendment to the 1991 Stock Option Plan to increase
the number of options that may be granted thereunder
from 616,667 to 900,000:
Voting For 7,082,555
Voting Against 441,365
Abstain from Voting 3,529
Item 5. Other information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
6 (a) Exhibits -
3.1 Amended bylaws
10.1 Amendment No. 4 to license agreement
between Shoney's Investments, Inc.
and ShoLodge Franchise Systems, Inc.
dated June 26, 1996.
11 Computation of per share earnings
27 Financial Data Schedule (for SEC use only)
6 (b) Reports on Form 8-K
There were no reports on Form 8-K for the quarter ended July 14, 1996.
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934. The
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ShoLodge, Inc.
Date: August 23, 1996 /s/ Leon Moore
----------------------------------
Leon Moore
President, Chairman of the Board
and Director (Chief Executive Officer)
Date: August 23, 1996 /s/ Bob Marlowe
----------------------------------
Bob Marlowe
Secretary, Treasurer and Director
(Chief Accounting Officer)
Date: August 23, 1996 /s/ Michael A. Corbett
----------------------------------
Michael A. Corbett
Chief Financial Officer
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
BYLAWS
OF
SHOLODGE, INC.
ARTICLE I
MEETINGS OF SHAREHOLDERS
1.1 Place of Meetings. All meetings of shareholders
shall be held at such place, either within or without the State of Tennessee,
as from time to time may be fixed by the Board of Directors.
1.2 Annual Meetings. The annual meeting of shareholders,
for the election of directors and transaction of such other business as may
come before the meeting, shall be held in each year on such business day during
the first six months of the fiscal year and at such hour as the directors may
by resolution determine.
1.3 Special Meetings. A special meeting of the
shareholders for any purpose or purposes may be called at any time by the
Chairman of the Board or the President, by a majority of the Board of
Directors, or by shareholders together holding at least 10% of the number of
shares of the Corporation at the time outstanding and entitled to vote with
respect to the business to be transacted at such meeting. At a special meeting
no business shall be transacted and no corporate action shall be taken other
than that stated in the notice of the meeting.
1.4 Notice of Meetings. Written notice stating the
place, day and hour of every meeting of shareholders and, in case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
mailed not less than ten days nor more than two months before the date of the
meeting to each shareholder of record entitled to vote at such meeting, at his
address which appears in the share transfer books of the Corporation. Such
further notice shall be given as may be required by law, but meetings may be
held without notice if all the shareholders entitled to vote at the meeting are
present in person or by proxy or if notice is waived in writing by those not
present, either before or after the meeting.
1.5 Quorum. Any number of shareholders together holding
at least a majority of the outstanding shares of capital stock entitled to vote
with respect to the business to be transacted, who shall be present in person
or represented by proxy at any meeting duly called, shall constitute a quorum
for the transaction of business. If less than a quorum shall be in attendance
at the time for which a meeting shall have been called, the meeting may be
adjourned from time to time by a
<PAGE> 2
majority of the shareholders present or represented by proxy without notice
other than by announcement at the meeting.
1.6 Voting. At any meeting of shareholders each
shareholder of a class entitled to vote on any matter coming before the meeting
shall, as to such matter, have one vote, in person or by proxy, for each share
of capital stock of such class standing in his name on the books of the
Corporation on the date, not more than seventy days prior to such meeting,
fixed by the Board of Directors as the record date for the purpose of
determining shareholders entitled to vote. Every proxy shall be in writing,
dated and signed by the shareholder entitled to vote or by his duly authorized
attorney in fact.
1.7 Inspectors. An appropriate number if inspectors for
any meeting of shareholders may be appointed by the Chairman of such meeting.
Inspectors so appointed will open and close the polls, will receive and take
charge of proxies and ballots, and will decide all questions as to the
qualifications of voters, validity of proxies and ballots, and the number of
votes properly cast.
1.8 Added by amendment adopted July 31, 1996. See
attached.
ARTICLE II
DIRECTORS
2.1 General Powers. The property, affairs and business
of the Corporation shall be managed under the direction of the Board of
Directors, and, except as otherwise expressly provided by law, the Charter of
the Corporation or these Bylaws, all of the powers of the Corporation shall be
vested in such Board.
2.2 Number of Directors. The number of directors
constituting the Board of Directors shall be not less than five (5) nor more
than ten (10), as may be determined from time to time by resolution of the
Board of Directors; provided, however, that no reduction in the number of
directors shall have the effect of shortening the term of any incumbent
director.
2.3 Election of Directors; Quorum.
(a) For so long as any shares of the Corporation's Series
A Redeemable Nonparticipating Stock are outstanding, the term of office of the
member or members of the Board of Directors which such holder is entitled to
elect pursuant to the Charter of the Corporation shall be one year.
(b) Each member of the Board of Directors, other than
those provided for in subsection (a) hereof, and subject to
- 2 -
<PAGE> 3
subsection (c) hereof, shall belong to one of three classes, which classes
shall be as nearly equal in number as the then-total number of directors
constituting the entire Board permits. The term of office of one class shall
expire each year. By action of the holder of the Corporation's common stock to
be taken promptly after the adoption of these Amended and Restated Bylaws,
directors of the first class shall be elected to hold office for a term
expiring at the next succeeding annual meeting of shareholders, directors of
the second class shall be elected to hold office for a term expiring at the
second succeeding annual meeting and directors of the third class shall be
elected to hold office for a term expiring at the third succeeding annual
meeting.
(c) Notwithstanding subsection (b) hereof, except as
otherwise required by law or provided by the Charter of the Corporation as then
in effect, whenever the holders of any one or more series of preferred stock of
the Corporation shall have the right, voting as a class, to elect one or more
directors of the Corporation, the terms of the director or directors elected by
such shareholders shall expire at the next succeeding annual meeting of
shareholders.
(d) Subject to the foregoing, at each annual meeting of
shareholders the successors to the class of directors whose term shall then
expire shall be elected to hold office for a term expiring at the third
succeeding annual meeting.
(e) Any vacancy occurring in the Board of Directors for
any reason, including vacancies created by an expansion of the size of the
Board, may be filled by the affirmative vote of the majority of the remaining
directors though less than a quorum of the Board, and the term of office of any
director so elected shall hold office until the next election of the class for
which such directors shall have been chosen and until their successors have
been elected and qualified.
(f) A majority of the number of incumbent Directors shall
constitute a quorum for the transaction of business. The act of a majority of
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors. Less than a quorum may adjourn any meeting.
2.4 Meetings of Directors. An annual meeting of the
Board of Directors shall be held as soon as practicable after the adjournment
of the annual meeting of shareholders at such place as the Board may designate.
Other meetings of the Board of Directors shall be held at places within or
without the State of Tennessee and at times fixed by resolution of the Board,
or upon call of the Chairman of the Board, the President or a majority of the
Directors. The Secretary of officer performing the
- 3 -
<PAGE> 4
Secretary's duties shall give not less than twenty-four hours' notice by
letter, telegraph or telephone, or in person of all meetings of the Board of
Directors, provided that notice need not be given of the annual meeting or of
regular meetings held at times and places fixed by resolution of the Board.
Meetings may be held at any time without notice if all of the directors are
present, or if those not present waive notice in writing either before or after
the meeting. Directors may attend meetings and meetings may be conducted by
conference telephone call provided that each participant in the meeting can
hear and be heard by every other participant. The notice of meetings of the
Board need not state the purpose of the meeting.
2.5 Conflict of Interest. The Corporation shall not enter
into any transaction in which a director or officer of the Corporation has,
directly or indirectly, a material financial interest potentially or actually
in conflict with the interests of the Corporation without the prior approval of
(a) a majority of the members of the Board of Directors who have no direct or
indirect material financial interest in the transaction, based upon their
finding that the transaction is on terms no less favorable to the Corporation
than would be available in a transaction with an unrelated party, or (b) by the
holders of a majority of such outstanding shares of the Corporation's common
stock as are neither (i) held by or voted under the control of a director or
officer with a direct or indirect financial interest in the transaction in
question nor (ii) held by or voted under the control of any entity in which a
director or officer has a material financial interest or is a general partner.
For purposes of this Section 2.5, a director or officer has an indirect
interest in a transaction if he is a director, officer, general partner or
trustee of, or has a material financial interest in, an entity which is a party
to the transaction.
2.6 Compensation. By resolution of the Board, Directors
may be allowed a fee and expenses for attendance at all meetings, and such
other compensation as the Board may provide. Nothing herein shall preclude
directors from serving the Corporation in other capacities and receiving
compensation for such other services.
ARTICLE III
COMMITTEES
3.1 Audit Committee. The Corporation shall have an audit
committee composed of members of the Board of Directors, including at least two
who are not also officers or employees of the Corporation, elected annually by
the Board of Directors. The duties of the audit committee shall include the
following:
- 4 -
<PAGE> 5
(i) to serve as the primary means of communication between the Corporation's
Board of Directors and its independent accountants, (ii) to assist and make
recommendations to the Board of Directors in fulfilling its responsibilities
relating to the Corporation's accounting, financial reporting and internal
accounting control policies and practices, (iii) to review with the independent
accountants the scope of the annual audit plan, the results of the annual audit
and the adequacy of the Corporation's internal accounting controls, (iv) to
make recommendations to the Board of Directors with respect to the selection of
independent accountants, (v) to approve the fees payable to the independent
accountants, (vi) to review any non-audit services rendered by the independent
accountants, and (vii) such other duties as the Board may by resolution assign.
3.2 Compensation Committee. The Corporation shall have a
compensation committee composed of members of the Board of Directors elected
annually by the Board. The duties of the committee shall include making
recommendations to the Board regarding compensation of officers and directors,
administering the Company's stock option and other incentive compensation
plans, and such other duties as the Board may assign.
3.3 Executive Committee. The Board of Directors, by
resolution adopted by a majority of the directors, may elect an executive
committee which shall consist of not less than two Directors. When the Board
of Directors is not in session, the executive committee shall have all power
vested in the Board of Directors by law, by the Charter, or by these Bylaws,
provided that the executive committee shall not have power to (i) approve or
recommend to shareholders action required to be approved by shareholders; (ii)
fill vacancies on the Board or on any of its committees; (iii) amend the
Charter; (iv) adopt, amend, or repeal the bylaws; (v) approve a plan of merger
not requiring shareholder approval; (vi) authorize or approve a distribution;
or (vii) authorize or approve the issuance or sale or contract for sale of
shares, or determine the designation and relative rights, preferences, and
limitations of a class or services of shares. The executive committee shall
report at the next regular or special meeting of the Board of Directors all
action which the executive committee may have taken on behalf of the Board
since the last regular or special meeting of the Board of Directors.
3.4 Other Committees. The Board of Directors, by
resolution adopted by a majority of the number of directors fixed by these
Bylaws, may establish such other standing or special committees of the Board,
including, but not limited to, a nominating committee and a finance committee,
as it may deem advisable; and the composition, term and authority of such
committees shall be as set forth in the resolutions establishing the same.
- 5 -
<PAGE> 6
3.5 Meetings. Regular and special meetings of any
committee established pursuant to this Article may be called and held subject
to the same requirements with respect to time, place and notice as are
specified in these Bylaws for regular and special meetings of the Board of
Directors, or subject to such other requirements as each committee may adopt
for itself.
3.6 Quorum and Manner of Acting. A majority of the
members of any committee serving at the time of any meeting thereof shall
constitute a quorum for the transaction of business at such meeting. The
action of a majority of those members present at a committee meeting at which a
quorum is present shall constitute the act of the committee.
3.7 Term of Office. Members of any committee shall be
elected as above provided and shall hold office until their successors are
elected by the Board of Directors or until such committee is dissolved by the
Board of Directors.
3.8 Resignation and Removal. Any member of a committee
may resign at any time by giving written notice of his intention to do so to
the President or the Secretary of the Corporation, or may be removed, with or
without cause, at any time by such vote of the Board of Directors as would
suffice for his election.
3.9 Vacancies. Any vacancy occurring in a committee
resulting from any cause whatever may be filled by a person elected by a
majority of the number of directors fixed by these Bylaws.
ARTICLE IV
OFFICERS
4.1 Election of Officers; Terms. The officers of the
Corporation shall consist of a President, a Secretary and a Treasurer. Other
officers, including a Chairman of the Board, one or more Vice-Presidents (whose
seniority and titles, including Executive Vice-Presidents and Senior
Vice-Presidents, may be specified by the Board of Directors), and assistant and
subordinate officers, may from time to time be elected by the Board of
Directors. All officers shall hold office until the next annual meeting of the
Board of Directors and until their successors are elected. Any two officers
may be combined in the same person as the Board of Directors may determine.
4.2 Removal of Officers; Vacancies. Any officer of the
Corporation may be removed summarily with or without cause,
- 6 -
<PAGE> 7
at any time, by the Board of Directors. Vacancies may be filled by the Board
of Directors.
4.3 Duties. The officers of the Corporation shall have
such duties as generally pertain to their offices, respectively, as well as
such powers and duties as are prescribed by law or are hereinafter provided or
as from time to time shall be conferred by the Board of Directors.
4.4 Duties of the President. The President shall be the
chief executive officer of the Corporation and shall be primarily responsible
for the implementation of policies of the Board of Directors and shall have
authority over the general management and directors of the business and
operations of the Corporation and its divisions, if any, subject only to the
ultimate authority of the Board of Directors. In the absence of the Chairman
and the Vice-Chairman of the Board, or if there are no such officers, the
President shall preside at all corporate meetings. The President may sign and
execute in the name of the Corporation share certificates, deeds, mortgages,
bonds, contracts or other instruments except in cases where the signing and the
execution thereof shall be expressly delegated by the Board of Directors or by
these Bylaws to some other officer or agent of the Corporation or shall be
required by law otherwise to be signed or executed. In addition, the President
shall perform all duties incident to the office of the President and such other
duties as from time to time may be assigned by the Board of Directors.
4.5 Duties of the Vice-Presidents. Each Vice-President,
if any, shall have such powers and duties as may from time to time be assigned
to him by the President or the Board of Directors. Any Vice-President may sign
and execute in the name of the Corporation deeds, mortgages, bonds, contracts
or other instruments authorized by the Board of Directors, except where the
signing and execution of such documents shall be expressly delegated by the
Board of Directors or the President to some other officer or agent of the
Corporation or shall be required by law otherwise to be signed or executed.
4.6 Duties of the Treasurer. The Treasurer shall have
charge of and be responsible for all funds, securities, receipts and
disbursements of the Corporation, and shall deposit all monies and securities
of the Corporation in such banks and depositories as shall be designated by the
Board of Directors and shall be responsible (i) for maintaining adequate
financial accounts and records in accordance with generally accepted accounting
practices; (ii) for the preparation of appropriate operating budgets and
financial statements; (iii) for the preparation and filing of all tax returns
required by law; and (iv) for the performance of all duties incident to the
office of
- 7 -
<PAGE> 8
Treasurer such other duties as from time to time may be assigned to him by the
Board of Directors or the President. The Treasurer may sign and execute in the
name of the Corporation share certificates, deeds, mortgages, bonds, contracts
or other instruments except in cases where the signing and the execution
thereof shall be expressly delegated by the Board of Directors or by these
Bylaws to some other officer or agent of the Corporation or shall be required
by law otherwise to be signed or executed.
4.7 Duties of the Secretary. The Secretary shall act as
secretary of all meetings of the Board of Directors and shareholders of the
Corporation and, when requested, shall also act as secretary of the meetings of
the committees of the Board. The Secretary shall keep and preserve the minutes
of all such meetings in permanent books; see that all notices required to be
given by the Corporation are duly given and served; have custody of the seal of
the Corporation and shall affix the seal or cause it to be affixed to all share
certificates of the Corporation and to all documents the execution of which on
behalf of the Corporation under its corporate seal is duly authorized in
accordance with law or the provisions of these Bylaws; have custody of all
deeds, leases, contracts and other important corporate documents; have charge
of the books, records and papers of the Corporation relating to its
organization and management as a Corporation; see that all reports, statements
and other documents required by law (except tax returns) are properly filed;
and in general perform all the duties incident to the office of Secretary and
such other duties as from time to time may be assigned by the Board of
Directors or the President.
4.8 Compensation. The Board of Directors shall have
authority to fix the compensation of all officers of the Corporation.
ARTICLE V
CAPITAL STOCK
5.1 Certificates. The shares of capital stock of the
Corporation shall be evidenced by certificates in forms prescribed by the Board
of Directors and executed in any manner permitted by law and stating thereon
the information required by law. Transfer agents and/or registrars for one or
more classes of shares of the Corporation may be appointed by the Board of
Directors and may be required to countersign certificates representing shares
of such class of classes. If any officer whose signature or facsimile thereof
shall have been used on a share certificate shall for any reason cease to be an
officer of the corporation and such certificate shall not then have been
delivered by the Corporation, the Board of Directors may
- 8 -
<PAGE> 9
nevertheless adopt such certificate and it may then be issued and delivered as
though such person had not ceased to be an officer of the Corporation.
5.2 Lost, Destroyed and Mutilated Certificates. Holders
of the shares of the Corporation shall immediately notify the Corporation of
any loss, destruction or mutilation of the certificate therefor, and the Board
of Directors may in its discretion cause one or more new certificates for the
same number of shares in the aggregate to be issued to such shareholder upon
the surrender of the mutilated certificate or upon satisfactory proof of such
loss or destruction, and the deposit of a bond in such form and amount and with
such surety as the Board of Directors may require.
5.3 Transfer of Shares. The shares of the Corporation
shall be transferable or assignable only on the books of the Corporation by the
holder in person or by attorney on surrender of the certificate for such shares
duly endorsed and, if sought to be transferred by attorney, accompanied by a
written power of attorney to have the same transferred on the books of the
Corporation. The Corporation will recognize, however, the exclusive right of
the person registered on its books as the owner of shares to receive dividends
and to vote as such owner.
5.4 Fixing Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purpose, the
Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than
seventy days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If no record date is fixed for
the determination of shareholders entitled to notice of or to vote at a meeting
of shareholders, or shareholders entitled to receive payment of a dividend, the
date on which notices of the meetings are mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination
shall apply to any adjournment thereof unless the Board of Directors fixes a
new record date, which it shall do if the meeting is adjourned to a date more
than 120 days after the date fixed for the original meeting.
- 9 -
<PAGE> 10
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1 Seal. The seal of the Corporation shall consist of a
flat-faced circular die, of which there may be any number of counterparts, on
which there shall be engraved the word "Seal" and the name of the Corporation.
Presence or absence of the seal on any document shall not affect the validity
of such document.
6.2 Fiscal Year. The fiscal year of the Corporation
shall end on such date and shall consist of such accounting periods as may be
fixed by the Board of Directors.
6.3 Checks, Notes and Drafts. Checks, notes, drafts and
other orders for the payment of money shall signed by such persons as the Board
of Directors from time to time may authorize. When the Board of Directors so
authorizes, the signature of any such person may be a facsimile.
6.4 Amendment of Bylaws. Unless proscribed by the
Charter, these Bylaws may be amended or altered at any meeting of the Board of
Directors by affirmative vote of a majority of the number of Directors fixed by
these Bylaws. The shareholders entitled to vote in respect of the election of
Directors, however, shall have the power to rescind, amend, alter or repeal any
Bylaws and to enact Bylaws which, if expressly so provided, may not be amended,
altered or repealed by the Board of Directors.
6.5 Voting of Shares Held. Unless otherwise provided by
resolution of the Board of Directors or of the Executive Committee, if any, the
President may from time to time appoint an attorney or attorneys or agent or
agents of the Corporation, in the name and on behalf of the Corporation, to
cast the vote which the Corporation may be entitled to cast as a shareholder or
otherwise in any other corporation, any of whose securities may be held by the
Corporation, at meetings of the holders of the shares or other securities of
such other corporation, or to consent in writing to any action by any such
other corporation; and the President shall instruct the person or persons so
appointed as to the manner of casting such votes or giving such consent and may
execute or cause to be executed on behalf of the Corporation, and under its
corporate seal or otherwise such written proxies, consents, waivers of other
instruments as may be necessary or proper in the premises. In lieu of such
appointment the President may himself attend any meetings of the holders of
shares or other securities of any such other corporation and there vote or
exercise any or all power of the Corporation as the holder of such shares or
other securities of such other corporation.
- 10 -
<PAGE> 11
ARTICLE VII
EMERGENCY BYLAWS
The Emergency Bylaws provided in this Article VII shall be
operative during any emergency, notwithstanding any different provision in the
preceding Articles of these Bylaws or in the Charter of the Corporation or in
the Tennessee Business Corporation Act (other than those provisions relating to
emergency by-laws). An emergency exists if a quorum of the Corporation's Board
of Directors cannot readily be assembled because of some catastrophic event.
To the extent not inconsistent with these Emergency Bylaws, the Bylaws provided
in the preceding Articles shall remain in effect during such emergency and upon
the termination of such emergency the Emergency Bylaws shall cease to be
operative unless and until another such emergency shall occur.
During any such emergency:
(a) Any meeting of the Board of Directors may be called
by any officer of the Corporation or by any director. The notice thereof shall
specify the time and place of the meeting. To the extent feasible, notice shall
be given in accord with Section 2.4 above, but notice may be given only to such
of the directors as it may be feasible to reach at the time, by such means as
may be feasible at the time, including publication or radio, and at a time less
than twenty-four hours before the meeting if deemed necessary by the person
giving notice. Notice shall be similarly given, to the extent feasible, to the
other persons referred to in (b) below.
(b) At any meeting of the Board of Directors, a quorum
shall consist of a majority of the number of directors fixed at the time by
Article II of the Bylaws. If the directors present at any particular meeting
shall be fewer than the number required for such quorum, other persons present
as referred to below, to the number necessary to make up such quorum, shall be
deemed directors for such particular meeting as determined by the following
provisions and in the following order of priority:
(i) Vice-Presidents not already serving as directors, in
the order of their seniority of first election to such offices, of if
two or more shall have been first elected to such offices on the same
day, in the order of their seniority in age;
(ii) All other officers of the Corporation in the order of
their seniority of first election to such offices, or if two or more
shall have been first elected to such offices on the same day, in the
order of their seniority in age; and
- 11 -
<PAGE> 12
(iii) Any other persons that are designated on a list that
shall have been approved by the Board of Directors before the
emergency, such persons to be taken in such order of priority and
subject to such conditions as may be provided in the resolution
approving the list.
(c) The Board of Directors, during as well as before any
such emergency, may provide, and from time to time modify, lines of succession
in the event that during such an emergency any or all officers or agents of the
Corporation shall for any reason be rendered incapable of discharging their
duties.
(d) The Board of Directors, during as well as before any
such emergency, may, effective in the emergency, change the principal office,
or designate several alternative offices, or authorize the officers so to do.
No officer, director or employee shall be liable for action
taken in good faith in accordance with these Emergency Bylaws.
These Emergency Bylaws shall be subject to repeal or change by
further action of the Board of Directors or by action of the shareholders,
except that no such repeal or change shall modify the provisions of the next
preceding paragraph with regard to action or inaction prior to the time of such
repeal or change. Any such amendment of these Emergency Bylaws may make any
further or different provision that may be practical and necessary for the
circumstances of the emergency.
Approved by Board of Directors and Shareholders on
December 11, 1991.
- 12 -
<PAGE> 13
AMENDMENT TO
THE AMENDED AND RESTATED BYLAWS
OF SHOLODGE, INC.
ADOPTED ON JULY 31, 1996
The Amended and Restated Bylaws of ShoLodge, Inc. were amended
on July 31, 1996 by inserting in Article I thereof a new Section 1.8 as
follows:
1.8. Notice of Shareholder Business and
Nominations.
(a) Annual Meetings of Shareholders.
(1) Nominations of persons for election
to the Board of Directors of the Corporation and the proposal
of business to be considered by the shareholders may be made
at an annual meeting of shareholders (A) pursuant to the
Corporation's notice of meeting, (B) by or at the direction of
the Board of Directors or (C) by any shareholder of the
Corporation who was a shareholder of record at the time of
giving of notice provided for in this Bylaw, who is entitled
to vote at the meeting and who complies with the notice
procedures set forth in this Bylaw.
(2) For nominations or other businesses
to be properly brought before an annual meeting by a
shareholder pursuant to clause (C) of paragraph (a)(1) of this
Bylaw, the shareholder must have given timely notice thereof
in writing to the Secretary of the Corporation and such other
business must otherwise be a proper matter for shareholder
action. To be timely, a shareholder's notice shall be
delivered to the Secretary at the principal executive offices
of the Corporation not later than the close of business on the
60th day nor earlier than the close of business on the 90th
day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the
date of the annual meeting is more than 30 days before or more
than 60 days after such anniversary date, notice by the
shareholder to be timely must be so delivered not earlier than
the close of business on the 90th day prior to such annual
meeting and not later than the close of business on the later
of the 60th day prior to such annual meeting or the 10th day
following the day on which public announcement of the date of
such meeting is first made by the Corporation. In no event
shall the public announcement of an adjournment of an annual
meeting commence a new time period for the giving of a
shareholder's notice as described above. Such shareholder's
notice shall set forth (A) as to each person whom the
shareholder proposes to nominate for election or reelection as
a director all information relating to such person that is
required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a
nominee and to serving as a director if elected); (B) as to
any other business that the shareholder proposes to bring
before the meeting,
<PAGE> 14
a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business
at the meeting and any material interest in such business of
such shareholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (C) as to the shareholder
giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and
address of such shareholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the
class and number of shares of the Corporation which are owned
beneficially and of record by such shareholder and such
beneficial owner.
(3) Notwithstanding anything in the
second sentence of paragraph (a)(2) of this Bylaw to the
contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is
increased and there is no public announcement by the
Corporation naming all of the nominees for director or
specifying the size of the increased Board of Directors at
least 70 days prior to the first anniversary of the preceding
year's annual meeting, a shareholder's notice required by this
Bylaw shall also be considered timely, but only with respect
to nominees for any new positions created by such increase, if
it shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close
of business on the 10th day following the day on which such
public announcement is first made by the Corporation.
(b) Special Meetings of Shareholders. Only such
business shall be conducted at a special meeting of
shareholders as shall have been brought before the meeting
pursuant to the Corporation's notice of meeting. Nominations
of persons for election to the Board of Directors may be made
at a special meeting of shareholders at which directors are to
be elected pursuant to the Corporation's notice of meeting (A)
by or at the direction of the Board of Directors or (B)
provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any shareholder
of the Corporation who is a shareholder of record at the time
of giving of notice provided for in this Bylaw, who shall be
entitled to vote at the meeting and who complies with the
notice procedures set forth in this Bylaw. In the event the
Corporation calls a special meeting of shareholders for the
purpose of electing one or more directors to the Board of
Directors, any such shareholder may nominate a person or
persons (as the case may be), for election to such position(s)
as specified in the Corporation's notice of meeting, if the
shareholder's notice required by paragraph (a)(2) of this
Bylaw shall be delivered to the Secretary at the principal
executive offices of the Corporation not earlier than the
close of business on the 90th day prior to such special
meeting and not later than the close of business on the later
of the 60th day prior to such special meeting or the 10th day
following the day on which public announcement is first made
of the date of the special meeting and of the nominees
proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period
for the giving of a shareholder's notice as described above.
- 2 -
<PAGE> 15
(c) General.
(1) Only such persons who are nominated
in accordance with the procedures set forth in this Bylaw
shall be eligible to serve as directors, except as otherwise
provided in Article II below. Only such business shall be
conducted at a meeting of the shareholders as shall have been
brought before the meeting in accordance with the procedures
set forth in this Bylaw. Except as otherwise provided by law,
the Charter or these Bylaws, the Chairman of the meeting shall
have the power and duty to determine whether a nomination or
any business proposed to be brought before the meeting was
made or proposed, as the case may be, in accordance with the
procedures set forth in this Bylaw and, if any proposed
nomination or business is not in compliance with this Bylaw,
to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this Bylaw, "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.
(3) Notwithstanding the foregoing
provisions of this Bylaw, a shareholder shall also comply with
all applicable requirements of the Exchange Act and the rules
and regulations thereunder with respect to the matters set
forth in this Bylaw. Nothing in this Bylaw shall be deemed to
affect any rights (A) of shareholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act or (B) of the holders of the
Corporation's Series A Redeemable Nonparticipating Stock or
any series of Preferred Stock to elect directors under
specified circumstances.
- 3 -
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NO. 4
TO
LICENSE AGREEMENT
THIS AMENDMENT NO. 4 TO LICENSE AGREEMENT (the "Amendment") is
entered into this 26th day of June, 1996, by and between SHONEY'S INVESTMENTS,
INC., a Nevada corporation with offices at Suite 1400, 300 South Fourth Street,
Las Vegas, Nevada 89101 ("Licensor"), and SHOLODGE FRANCHISE SYSTEMS, INC.
(formerly known as Shoney's Lodging, Inc.), a Tennessee corporation with
offices at 217 West Main Street, Gallatin, Tennessee 37066 ("Licensee").
ShoLodge, Inc. (formerly known as Gulf Coast Development, Inc.), a Tennessee
corporation with offices at 217 West Main Street, Gallatin, Tennessee 37066 and
the parent corporation of Licensee ("ShoLodge"), is executing this Amendment
for the purposes set forth in the Existing License Agreement (as hereinafter
defined).
W I T N E S E T H:
WHEREAS, Licensor and Licensee entered into that certain
License Agreement on October 25, 1991 (the "Original License Agreement")
pursuant to which Licensor granted to Licensee a license to use the service
mark SHONEY'S INN (and design) which was registered on February 16, 1982 with
the United States Patent and Trademark Office (the "USPTO") at Registration No.
1,190,289; and
WHEREAS, Licensor and Licensee entered into that certain
Amendment No. 1 to License Agreement on September 16, 1992 (the "First
Amendment") pursuant to which Licensor added the service mark SHONEY'S INN
(block letters) which was registered by Licensor on August 4, 1992 with the
USPTO at Registration No. 1,705,676 to be licensed to Licensee pursuant to the
terms and conditions of the Original License Agreement; and
WHEREAS, Licensor and Licensee entered into that certain
Amendment No. 2 to License Agreement on March 18, 1994 (the "Second Amendment")
pursuant to which certain Tennessee counties were added to the "Territory"
covered by the Original License Agreement; and
WHEREAS, Licensor and Licensee entered into that certain
Amendment No. 3 to License Agreement on March 13, 1995 (the "Third Amendment")
(the Original License Agreement as amended by the First Amendment, by the
Second Amendment and by the Third Amendment is hereinafter referred to as the
"Existing License Agreement") pursuant to which Licensor added the service mark
SHONEY'S SUITES (block letters) for which an intent-to-use application was
filed with the USPTO on January 23, 1995 and the service mark SHONEY'S INN &
SUITES (block letters) for which an intent-to-use application as filed with the
USPTO on February 6, 1995 to be licensed to Licensee pursuant to the terms and
conditions of the Original License Agreement; and
WHEREAS, the parties hereto desire to modify and amend the
Existing License Agreement in certain other respects as set forth herein.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and covenants
contained herein and in the Existing License Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Licensor and Licensee agree as follows:
1. The Existing License Agreement is hereby amended by
inserting the following sentence at the end of Section 4.4(c):
Licensor shall not object to a proposed site solely
because a Shoney's Restaurant is not located in close
proximity to such site.
2. The Existing License Agreement is hereby amended by
deleting the existing Section 4.5(d) in its entirety and inserting in lieu
thereof the following:
(d) Licensee shall not, and shall not permit any
of its franchisees to, offer or provide any food or
food service for either on or off premises
consumption at any Motel, without the prior written
consent of Licensor, except as provided in this
paragraph 4.5(d). Notwithstanding anything to the
contrary contained herein, Licensee and its
franchisees shall be allowed (i) to operate in any
Motel vending machines selling soft drinks, coffee,
snacks and similar items, (ii) to serve guests on a
complimentary basis during breakfast hours (from 6:00
a.m. to 10:00 a.m.) coffee, juice, tea and similar
breakfast beverages and no more than three (3)
breakfast "breads" such as donuts, bagels, muffins,
sweet rolls, danish and similar items and one bowl
containing one type of fresh whole fruit, and (iii)
so long as Licensee or its franchisee (as applicable)
shall have first offered the catering work to the
adjacent "Shoney's Restaurant" operator, if any, to
hire a caterer or to assist in hiring a caterer to
serve special menu items to specific
banquet/convention groups meeting at any Motel;
provided, however, neither Licensee nor its
franchisees shall be permitted to operate at any
Motel a full service kitchen or to prepare food for
such banquet/convention group at any Motel (other
than preparation by the caterer incidental to the
serving of such food). No hot breakfast foods,
cereals, cut fruit or products showing brand names
(such as Dunkin Donuts) shall be allowed, although
brand name products may be used as long as the brand
name itself is not displayed. The intent of this
paragraph is that Licensee and its franchisees may
serve the breakfast items described herein only for
the convenience of guests and must not be perceived
as serving food prepared by, or in competition with,
a "Shoney's Restaurant" except as expressly provided
in this paragraph 4.5(d). Licensee agrees, and shall
require its franchisees to agree, to place menus for
"Shoney's Restaurants" (which must be approved by
Licensor and any expense borne by the adjacent
restaurant operator) in each guest room of all Motels
and shall not allow any other restaurant or food
service organization to place promotional material in
the guest rooms of any Motels without the prior
written consent of Licensor.
- 2 -
<PAGE> 3
3. Except as herein specifically amended, all terms and
provisions of the Existing License Agreement shall remain in full force and
effect.
4. This Amendment may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this
Amendment all as of the day and date first above written.
LICENSOR:
SHONEY'S INVESTMENTS, INC.
By: /s/ Robert M. Langford
--------------------------------
Title: Vice President
--------------------------------
LICENSEE:
SHOLODGE FRANCHISE SYSTEMS, INC.
By: /s/ James M. Grout
--------------------------------
Title: Vice-Chairman
--------------------------------
SHOLODGE, INC.
By: /s/ James M. Grout
--------------------------------
Title: Executive Vice President
--------------------------------
- 3 -
<PAGE> 1
EXHIBIT 11
SHOLODGE, INC AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
PRIMARY AND ASSUMING FULL DILUTION
<TABLE>
<CAPTION>
12 WEEKS ENDED 28 WEEKS ENDED
------------------------------------------------------------------
JULY 14, JULY 9, JULY 14, JULY 9,
1996 1995 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY:
EARNINGS APPLICABLE TO COMMON STOCK (PRIMARY):
FROM CONTINUING OPERATIONS,
BEFORE EXTRAORDINARY ITEMS 3,039,482 9,836,922 $5,033,923 $14,640,261
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES (14,127) (45,382)
EXTRAORDINARY LOSS, NET OF INCOME TAXES (190,388) (708,195)
------------------------------------------------------------------
NET EARNINGS $3,039,482 $9,632,407 $5,033,923 $13,886,684
==================================================================
SHARES:
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 8,494,133 8,526,118 8,443,028 8,591,683
==================================================================
PRIMARY EARNINGS PER SHARE:
FROM CONTINUING OPERATIONS,
BEFORE EXTRAORDINARY ITEMS $0.36 $1.15 $0.60 $1.70
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES ($0.00) $0.00
EXTRAORDINARY LOSS, NET OF INCOME TAXES ($0.02) ($0.08)
------------------------------------------------------------------
NET EARNINGS $0.36 $1.13 $0.60 $1.62
==================================================================
FULLY DILUTED:
EARNINGS APPLICABLE TO COMMON STOCK (PRIMARY):
FROM CONTINUING OPERATIONS,
BEFORE EXTRAORDINARY ITEMS $3,039,482 $9,836,922 $5,033,923 $14,640,261
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES (14,127) (45,382)
EXTRAORDINARY LOSS, NET OF INCOME TAXES (190,388) (708,195)
------------------------------------------------------------------
NET EARNINGS $3,039,482 $9,632,407 $5,033,923 $13,886,684
INTEREST (LESS TAX) ON CONVERTIBLE
SUBORDINATED DEBENTURES $588,396 586,471 $1,372,925 1,368,433
ADJUSTED EARNINGS APPLICABLE TO COMMON STOCK:
FROM CONTINUING OPERATIONS,
BEFORE EXTRAORDINARY ITEMS $3,627,878 $10,423,393 $6,406,848 $16,008,694
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES (14,127) (45,382)
EXTRAORDINARY LOSS, NET OF INCOME TAXES (190,388) (708,195)
------------------------------------------------------------------
NET EARNINGS $3,627,878 $10,218,878 $6,406,848 $15,255,117
==================================================================
SHARES:
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 8,494,133 8,526,118 8,443,028 8,591,683
SHARES ISSUABLE UPON CONVERSION OF CONVERTIBLE
SUBORDINATED DEBENTURES 2,316,602 2,316,602 2,316,602 2,316,602
------------------------------------------------------------------
10,810,735 10,842,720 10,759,630 10,908,285
==================================================================
FULLY DILUTED EARNINGS PER SHARE:
FROM CONTINUING OPERATIONS,
BEFORE EXTRAORDINARY ITEMS $0.34 $0.96 $0.60 $1.47
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES ($0.00) ($0.01)
EXTRAORDINARY LOSS, NET OF INCOME TAXES ($0.02) ($0.06)
------------------------------------------------------------------
NET EARNINGS $0.34 $0.94 $0.60 $1.40
==================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY
FINANCIAL STATEMENTS FOR THE QUARTER ENDED JULY 14, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUL-14-1996
<CASH> 6,637,142
<SECURITIES> 0
<RECEIVABLES> 3,414,909
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,069,137
<PP&E> 227,709,677
<DEPRECIATION> 30,099,795
<TOTAL-ASSETS> 227,921,169
<CURRENT-LIABILITIES> 46,637,983
<BONDS> 90,066,822
0
0
<COMMON> 1,000
<OTHER-SE> 85,573,683
<TOTAL-LIABILITY-AND-EQUITY> 227,921,169
<SALES> 15,248,007
<TOTAL-REVENUES> 15,248,007
<CGS> 0
<TOTAL-COSTS> 10,282,202
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 424,028
<INCOME-PRETAX> 4,816,482
<INCOME-TAX> 1,777,000
<INCOME-CONTINUING> 3,039,482
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,039,482
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.34
</TABLE>
