<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended May 14, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period to
----------- -----------
Commission file number 0-4377
--------------
SHONEY'S, INC.
(Exact name of registrant as specified in its charter)
Tennessee 62-0799798
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1727 Elm Hill Pike, Nashville, TN 37210
(Address of principal executive (Zip Code)
offices)
Registrants telephone number, including area code (615)391-5201
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
------ ----
As of June 23, 1995, there were 41,461,213 shares of
Shoney's, Inc. $1 par value common stock outstanding.
==================================================================<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SHONEY'S, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
May 14, October 30,
1995 1994
--------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,028,346 $ 4,229,784
Notes and accounts receivable, less allowance for doubtful
accounts of $1,681,000 in 1995 and $1,276,000 in 1994 13,779,110 16,541,039
Inventories 35,682,872 37,434,318
Deferred income taxes and other current assets 26,180,257 27,676,167
Net current assets of discontinued operations 9,792,141 8,690,783
----------- -----------
Total current assets 90,462,726 94,572,091
Property, plant and equipment, at cost 673,916,912 656,002,252
Less accumulated depreciation and amortization (277,431,623) (262,824,928)
----------- -----------
Net property, plant and equipment 396,485,289 393,177,324
Other assets:
Net non-current assets of discontinued operations 58,175,106 56,836,660
Deferred charges and other intangible assets 6,674,225 6,512,591
Other assets 5,624,250 5,631,788
----------- -----------
Total other assets 70,473,581 68,981,039
----------- -----------
$ 557,421,596 $ 556,730,454
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 29,770,840 $ 41,789,157
Federal and state income taxes 3,758,427 3,764,329
Other accrued liabilities 68,944,101 60,805,868
Reserve for litigation settlement 23,742,816 23,803,836
Debt and capital lease obligations due within one year 12,430,427 66,599,140
----------- -----------
Total current liabilities 138,646,611 196,762,330
Long-term senior debt and capital lease obligations 374,571,561 332,486,107
Zero coupon subordinated convertible debentures 84,494,241 80,790,563
Reserve for litigation settlement 50,042,434 61,673,834
Deferred credits:
Income taxes 17,825,405 15,477,405
Income and other liabilities 6,616,156 6,304,456
Shareholders' equity (deficit):
Common stock, $1 par value: authorized 100,000,000 shares;
issued 41,446,671 in 1995 and 41,185,290 in 1994 41,446,671 41,185,290
Additional paid-in capital 60,080,500 57,509,644
Retained earnings (deficit) (216,301,983) (235,459,175)
----------- -----------
Total shareholders' equity (deficit) (114,774,812) (136,764,241)
----------- -----------
$ 557,421,596 $ 556,730,454
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
-2-
<PAGE>
SHONEY'S, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Twenty-eight Weeks Ended
May 14, May 15,
1995 1994
--------------- --------------
<S> <C> <C>
Revenues
Net sales $ 519,103,883 $ 519,252,847
Franchise fees 12,750,220 13,706,509
Other income 901,466 6,231,167
----------- -----------
532,755,569 539,190,523
Costs and expenses
Cost of sales 457,280,912 449,382,342
General and administrative expenses 32,245,926 29,814,304
Interest expense 21,600,374 23,555,642
Restructuring expenses 1,699,873
----------- -----------
Total costs and expenses 512,827,085 502,752,288
Income from continuing operations before income taxes and
cumulative effect of change in accounting principle 19,928,484 36,438,235
Provision for income taxes 7,573,000 13,670,000
----------- -----------
Income from continuing operations before cumulative
effect of change in accounting principle 12,355,484 22,768,235
Income from discontinued operations, net of tax 6,801,708 8,300,484
Cumulative effect of change in accounting for income taxes 4,468,386
----------- -----------
Net income $ 19,157,192 $ 35,537,105
=========== ===========
Earnings per common share
Primary:
Income from continuing operations before cumulative
effect of change in accounting principle $ 0.30 $ 0.55
Income from discontinued operations 0.16 0.20
Cumulative effect of change in accounting for income taxes 0.11
---- ----
Net income $ 0.46 $ 0.86
==== ====
Fully diluted:
Income from continuing operations before cumulative
effect of change in accounting principle $ 0.30 $ 0.53
Income from discontinued operations 0.16 0.18
Cumulative effect of change in accounting for income taxes 0.10
---- ----
Net income $ 0.46 $ 0.81
==== ====
Weighted average shares outstanding
Primary 41,447,375 41,329,524
Fully diluted 41.447,375 46,559,701
Common shares outstanding 41,446,671 41,126,018
Dividends per share NONE NONE
</TABLE>
See notes to consolidated condensed financial statements.
-3-
<PAGE>
SHONEY'S, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Twelve Weeks Ended
May 14, May 15,
1995 1994
--------------- --------------
<S> <C> <C>
Revenues
Net sales $ 234,556,691 $ 234,739,458
Franchise fees 5,668,301 5,968,196
Other income (678,346) 1,322,915
----------- -----------
239,546,646 242,030,569
Costs and expenses
Cost of sales 205,530,751 198,535,458
General and administrative expenses 14,561,728 12,555,405
Interest expense 9,433,835 10,097,102
Restructuring expenses 1,141,548
----------- -----------
Total costs and expenses 230,667,862 221,187,965
Income from continuing operations before income taxes 8,878,784 20,842,604
Provision for income taxes 3,374,000 7,822,000
----------- -----------
Income from continuing operations 5,504,784 13,020,604
Income from discontinued operations, net of tax 2,988,818 3,844,073
----------- -----------
Net income $ 8,493,602 $ 16,864,677
=========== ===========
Earnings per common share
Primary:
Income from continuing operations $ 0.13 $ 0.31
Income from discontinued operations 0.07 0.09
---- ----
Net income $ 0.20 $ 0.41
==== ====
Fully diluted:
Income from continuing operations $ 0.13 $ 0.30
Income from discontinued operations 0.07 0.08
---- ----
Net income $ 0.20 $ 0.38
==== ====
Weighted average shares outstanding
Primary 41.521,552 41,430,511
Fully diluted 41,521,552 46,649,849
Common shares outstanding 41,446,671 41,126,018
Dividends per share NONE NONE
</TABLE>
See notes to consolidated condensed financial statements.
-4-
<PAGE>
SHONEY'S, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Twenty-eight Weeks Ended
May 14, May 15,
1995 1994
-------------- -------------
<S> <C> <C>
Operating activities
Net income $ 19,157,192 $ 35,537,105
Adjustments to reconcile net income
to net cash provided by operating
activities:
Income from discontinued
operations, net of tax (6,801,708) (8,300,484)
Depreciation and amortization 22,036,680 20,433,315
Amortization of deferred charges
and other non-cash charges 4,019,970 5,831,327
Realized and unrealized loss (gain)
on marketable securities and
sale of other assets 1,491,837 (2,928,040)
Cumulative effect of change
in accounting for income taxes (4,468,386)
Change in deferred income taxes 2,348,000 3,728,000
Changes in operating assets and
liabilities 7,645,008 6,208,892
---------- ----------
Net cash provided by continuing
operating activities 49,896,979 56,041,729
Net cash provided by discontinued
operating activities 9,841,521 12,635,412
---------- ----------
Net cash provided by operating activities 59,738,500 68,677,141
Investing activities
Cash required for property, plant and equipment (33,015,586) (40,860,606)
Cash required for assets held for sale (5,453,866) (7,768,312)
Proceeds from disposal of property, plant
and equipment 2,921,604 2,088,190
Cash required for other assets (356,967) (30,635)
----------- ----------
Net cash used by investing activities (35,904,815) (46,571,363)
Financing activities
Payments on long-term debt and
capital lease obligations (94,610,725) (51,638,709)
Proceeds from long-term debt 78,000,000 50,000,000
Net proceeds from (payments on)
short-term borrowings 4,918,000 (6,492,000)
Payments on litigation settlement (11,692,420) (13,296,640)
Cash required for debt issue costs (1,005,342) (583,923)
Proceeds from exercise of employee stock options 1,355,364 2,883,344
---------- ----------
Net cash used by
financing activities (23,035,123) (19,127,928)
---------- ----------
Increase in cash $ 798,562 $ 2,977,850
========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
-5-
<PAGE>
SHONEY'S, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
May 14, 1995
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions to
Form 10-Q. As a result, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements.
The Company, in management's opinion, has included all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation of the results of operations. Certain reclassifications
have been made in the consolidated condensed financial statements to
conform to the 1995 presentation.
Operating results for the twelve and twenty-eight week periods ended
May 14, 1995 are not necessarily indicative of the results that may be
expected for all or any balance of the fiscal year ending October 29,
1995.
NOTE 2 - DISCONTINUED OPERATIONS AND RESTRUCTURING
On January 16, 1995, the Company's Board of Directors announced a
reorganization designed to improve the performance and growth of the
Shoney's Restaurant concept. The reorganization includes the
divestiture of certain non-core lines of business including Lee's
Famous Recipe, Pargo's and Fifth Quarter restaurants, as well as Mike
Rose Foods, Inc., a private label manufacturer of food products. The
divestiture process is expected to be completed by the end of fiscal
1995.
For the quarter ended May 14, 1995, the discontinued businesses
represented 12.8% of consolidated net property, plant and equipment,
13.0% of consolidated revenues, and 20.9% of consolidated earnings
before interest and taxes. The Company expects that these discontinued
lines of business will be disposed of for amounts in excess of their
carrying values. Certain one-time charges associated with the
reorganization will be accrued as they are incurred. However, the
Company expects the net result of the divestitures and the
restructuring will be a gain once the sales are consummated.
Severance pay of $1.1 million incurred as a result of the management
reorganization was included in restructuring expenses in the second
quarter of 1995. Severance pay of $1.5 million was included in
restructuring expenses for the twenty-eight weeks ended May 14, 1995.
There were no comparable expenses in the first or second quarters of
1994.
For financial reporting purposes, the results of operations of the
lines of business to be divested have been treated as discontinued
operations in the accompanying financial statements and are presented
net of any related income tax expense. Prior year financial statements
have been reclassified to conform to this method of presentation.
-6-
<PAGE>
NOTE 3 - CHANGES IN ACCOUNTING POLICIES
Effective November 1, 1993, the Company adopted FASB Statement No. 109
"Accounting for Income Taxes" through a cumulative effect adjustment
resulting in an increase to net income of approximately $4.5 million
or $.10 per share (fully diluted). Statement No. 109 changes the
Company's method of accounting for income taxes from the deferred
method to the liability method. The liability method requires the
recognition of deferred income tax liabilities and assets for the
expected future tax consequences of temporary differences between the
tax bases and financial reporting bases of assets and liabilities (see
Note 5).
Effective November 1, 1993, the Company also adopted FASB Statement No.
115, "Accounting for Certain Investments in Debt and Equity
Securities". This Statement requires that debt and equity securities
be carried at fair value unless the Company has the positive intent and
ability to hold debt securities to maturity. Debt and equity securities
must be classified into one of three categories: 1) held-to maturity,
2) available-for-sale or 3) trading securities. Each category has
different accounting treatment for the change in fair values. There
was no cumulative effect from the adoption of Statement No. 115, since
at the time of adoption, the Company held no investments in debt or
equity securities.
NOTE 4 - EARNINGS PER SHARE
Primary earnings per share have been computed using the weighted
average number of shares of common stock and common stock equivalents
outstanding during each period presented. Common stock equivalents
include all dilutive outstanding stock options. For the second quarter
and first half of 1994, fully diluted earnings per share also includes
the assumed conversion of the zero coupon subordinated convertible
debentures. This calculation adjusts earnings for interest that would
not be paid if the debentures were converted. The primary and fully
diluted earnings per share for the second quarter and first half of
1995 were computed using the weighted average number of shares of
common stock and common stock equivalents outstanding during the
period. No consideration was given to the convertible debentures for
either the second quarter or first half of 1995 as they had an
anti-dilutive effect.
NOTE 5 - INCOME TAXES
Income taxes for the twelve and twenty-eight week periods ended May 14,
1995 and May 15, 1994 were provided based on the Company's estimate of
its effective tax rates (38.0% and 37.5%, respectively) for the entire
respective fiscal years. The Company's estimate of its effective tax
rate for the 1995 fiscal year increased from 1994 due primarily to the
expiration of the Targeted Jobs Tax Credit in December 1994. The
statutory federal income tax rate was 35% for both periods presented.
Effective November 1, 1993, the Company changed its method of
accounting for income taxes from the deferred method to the liability
method as required by FASB Statement No. 109, "Accounting for Income
Taxes" (see Note 3). As permitted under the new rules, prior years'
financial statements were not restated. The cumulative effect of
adoption of the Statement increased deferred tax assets and net income
by $4.5 million or $.10 per common share. This amount was reflected in
the first quarter of fiscal 1994 as the cumulative effect of a change
in accounting for income taxes.
-7-
<PAGE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets
and liabilities as of October 30, 1994 were as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Reserve for lawsuit settlement $ 31,420,209
Reserves for self insurance 9,449,874
Other - net 4,287,636
----------
Deferred tax assets - net 45,157,719
----------
Deferred tax liabilities:
Tax over book depreciation 19,244,064
Capital contribution 22,501,840
Other - net 1,067,275
----------
Deferred tax liability 42,813,179
----------
Net deferred tax asset $ 2,344,540
==========
</TABLE>
No valuation allowance is considered necessary, as management believes
that the deferred tax assets will ultimately be realized. Management's
conclusion is based, in part, on future taxable income that will result
from the reversal of existing taxable temporary differences.
Additionally, management expects to have future taxable income from
operations, excluding the reversal of temporary differences.
NOTE 6 - SENIOR DEBT
In July 1993, the Company entered into a $125 million reducing
revolving credit facility with a syndicate of financial institutions.
The facility had a four year, three month term expiring October 22,
1997, with reductions in the aggregate credit facility beginning in
1995. All material assets of the Company not otherwise pledged
(including all common shares of a wholly-owned real estate company
which owns 107 of the Company's restaurant properties) have been
pledged as collateral for the facility. The interest rate for this
facility was at floating rates (the London Interbank Offered Rate
("LIBOR") plus 2%).
During the third quarter of fiscal 1994, the Company and the financial
institutions amended this credit facility to allow the Company to
redeem its 12% subordinated debentures issued in the Company's 1988
recapitalization. The credit facility was increased to a maximum of
$270 million, the interest rate remained at LIBOR plus 2% and the
maturity was extended to October 1999. The Company redeemed the $145.7
million of 12% subordinated debentures at par on July 2, 1994. At May
14, 1995, the Company had borrowed $257.5 million under this facility
and the interest rate was 8.2%.
-8-
<PAGE>
Senior fixed rate debt of $60 million was due April 22, 1995 and was
retired through additional borrowing under the Company's reducing
revolving credit facility ($50 million) and from cash provided by
operating activities ($10 million).
The Company's senior debt requires satisfaction of certain financial
ratios and tests; imposes limitations on capital expenditures; limits
the ability to incur additional debt, leasehold obligations and
contingent liabilities; prohibits dividends and distributions on common
stock; prohibits mergers, consolidations or similar transactions; and
includes other affirmative and negative covenants.
NOTE 7 - RESERVE FOR LITIGATION SETTLEMENT
On January 25, 1993, the Company received final court approval of a
settlement of a three and one-half year old class action race
discrimination lawsuit against the Company and its former senior
chairman. Under the terms of the settlement, the Company has agreed
to pay $105 million in claims. In addition, the Company agreed to pay
$25.5 million in plaintiffs' attorneys fees and an estimated $4 million
in applicable payroll taxes and administrative costs. Under the terms
of the consent decree, payments are made quarterly and substantially
all payments will be completed by March 1, 1998.
During 1994, the Company obtained an IRS private letter ruling which
clarified that certain portions of the settlement payments were not
subject to federal payroll taxes that had been previously accrued by
the Company. The reserve for litigation settlement was reduced by $1.7
million in the fourth quarter of fiscal 1994 to adjust for this change
in estimate for accrued payroll taxes due on the settlement.
NOTE 8 - LITIGATION
The Company is a defendant in a federal court suit filed on December
19, 1994 by one of its Captain D's franchisees who claims that the
Company imposes a "tying" arrangement by requiring franchisees to
purchase food products from the Company's commissary. The complaint
seeks damages for an alleged class of similarly situated plaintiffs in
an amount not to exceed $500 million and treble damages. The same
plaintiff has also filed a state court suit making essentially the same
claims; however, in that suit, the plaintiff did not make a class
action claim. On December 16, 1994 counsel for the plaintiff advised
the Company that the federal court case described above would be filed
unless the Company settled the pending state court case by purchasing
the plaintiff's franchised Captain D's restaurant for $1.65 million,
plus assumption of certain equipment leases. The Company rejected the
demand and the federal court lawsuit was filed.
The Company also is a defendant in a federal court suit filed on
December 30, 1994 by two plaintiffs who are franchisees of six Shoney's
Restaurants. The complaint alleges that the Company imposes a "tying"
arrangement by requiring Shoney's Restaurant franchisees to purchase
their food products from the Company's commissary by not providing
product specifications in order to select alternative vendors. They
further allege that the Company has engaged in fraud, breach of
contract, and violations of the Tennessee Consumer Protection Act
regarding the establishment and operation of the Shoney's Restaurant
cooperative advertising program. One of the plaintiffs also
individually asserts a breach of contract claim regarding a franchise
territory transfer. The complaint does not specify the amount of
damages sought; however, the plaintiffs seek treble damages for both
their anti-trust claims and Tennessee Consumer Protection Act claims.
They also seek punitive damages on their fraud claim.
-9-
<PAGE>
The plaintiffs in each of these federal court suits purport to act on
behalf of similarly situated classes of plaintiffs; however, there has
been no motion filed to certify either of the cases as a class action
nor has either case been certified as a class action.
Management believes it has substantial defenses to the claims made in
each of these cases and intends to vigorously defend both cases. In
the opinion of management, the ultimate liability with respect to
either case will not materially affect the operating results or the
financial position of the Company.
The Company is a party to other legal proceedings incidental to its
business. In the opinion of management, the ultimate liability with
respect to these actions will not materially affect the operating
results or the financial position of the Company.
NOTE 9 - SALE OF SHONEY'S LODGING, INC. AND RELATED INVESTMENTS
Effective February 16, 1994, the Company sold its minority ownership
interests in four Shoney's Inns to ShoLodge, Inc. ("ShoLodge") in
exchange for 90,909 common shares of ShoLodge. The shares received
were recorded at their fair value on the date of the transaction of
approximately $2.4 million resulting in a gain of $1.7 million in the
quarter ended February 20, 1994. The ShoLodge common shares were
classified as trading securities under FASB Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (see
Note 3). The change in fair value of the ShoLodge common shares
subsequent to the transaction is reflected in the results of
operations.
The Company also owns certain warrants to acquire ShoLodge common stock
which were obtained in the 1992 sale of the Company's lodging division
to ShoLodge. In connection with the sale of the Company's minority
motel interests described in the preceding paragraph, the Company
received future registration rights with respect to the shares that may
be acquired upon exercise of the warrants. Under the provisions of
FASB Statement No. 115, certain of these warrants were classified as
trading securities during the first two quarters of both 1994 and 1995
and adjusted to their fair value. The resulting gains of approximately
$1.1 million and $.6 million in the first and second quarters of 1994,
respectively, and gains of approximately $.9 million and $.2 million
in the first and second quarters of 1995, respectively, are reflected
in the results of operations.
Once classified as a trading security, the warrants are carried at fair
value with increases and decreases in fair value reflected in the
results of operations. The fair value of the ShoLodge warrants and the
ShoLodge common stock held by the Company declined by approximately
$81,000 during the first quarter and by approximately $2.5 million
during the second quarter of 1995. The fair value of the ShoLodge
common stock and the ShoLodge warrants classified as trading securities
was $3.3 million at May 14, 1995.
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of
the Company's consolidated results of operations and financial
condition. The discussion should be read in conjunction with the
consolidated condensed financial statements and notes thereto. The
second quarter and first half of both fiscal 1995 and 1994 covered
periods of twelve and twenty-eight weeks, respectively.
On January 16, 1995, the Company's Board of Directors announced
a reorganization designed to improve the performance and growth of the
Shoney's Restaurant concept. The reorganization includes the
divestiture of certain non-core lines of business including Lee's Famous
Recipe, Pargo's and Fifth Quarter restaurants, as well as Mike Rose
Foods, Inc., a private label manufacturer of food products. The
divestiture process is progressing on schedule and is expected to be
completed by the end of fiscal 1995.
For financial reporting purposes, the results of operations of
the lines of business to be divested have been treated as discontinued
operations in the accompanying financial statements and are presented
net of related income tax expense. Prior year financial statements have
been reclassified to conform to this method of presentation.
For the first half of fiscal 1995, the discontinued lines of
business represented 12.8% of consolidated net property, plant and
equipment, 13.0% of consolidated revenues and 20.9% of consolidated
earnings before interest and taxes if the Company had not adopted the
discontinued operations accounting treatment. The Company expects that
these discontinued lines of business will be disposed of for amounts in
excess of their carrying values. Certain one-time charges associated
with the reorganization will be accrued as they are incurred. However,
the Company expects the net result of the divestitures and the
restructuring will be a gain once the sales of these lines of business
are consummated.
Under the terms of the Company's various lending agreements,
proceeds from the divestitures of these businesses generally would be
required to be used to reduce the Company's existing senior
indebtedness. In connection with the divestiture process, the Company
intends to request modifications to certain of its credit agreements
that, if approved by its lenders, would permit the Company to utilize
the divestiture proceeds to (1) fund the planned improvements and growth
of the Shoney's Restaurants and (2) retire existing senior indebtedness.
Since the reorganization announcement, the Company has focused
on development of the performance improvement plan for the Shoney's
Restaurant concept. The performance improvement plan is focusing on all
aspects of restaurant operations and restaurant support functions
including distribution, purchasing, restaurant development and general
corporate services. The Shoney's Restaurants had declines in comparable
store sales and resulting lower operating margins in both the second
quarter and first half of fiscal 1995 when compared to fiscal 1994. The
Company anticipates Shoney's Restaurants operating margins will be less
than the prior year for the remainder of fiscal 1995, or until the
benefits of the performance improvement plan begin to have a positive
effect on comparable store sales and operating margins.
-11-
<PAGE>
Revenues from continuing operations for the second quarter of
fiscal 1995 decreased 1.0% ($2.4 million) to $239.5 million as compared
to the first quarter of fiscal 1994. For the first half of fiscal 1995,
revenues from continuing operations decreased 1.2% ($6.4 million) to
$532.7 million as compared to the same period of fiscal 1994. An
analysis of the decrease in revenues is shown below.
<TABLE>
<CAPTION>
12 Weeks Ended 28 Weeks Ended
May 14, 1995 May 14, 1995
$ Millions $ Millions
-------------- -------------
<S> <C> <C>
Restaurant revenue $ 6.1 $ 12.8
Commissary and other sales (6.2) (12.9)
Franchise fees ( .3) (1.0)
Other Income (2.0) (5.3)
----- ------
$ (2.4) $ (6.4)
===== ======
</TABLE>
The Company's continuing operations opened 13 restaurants during
the first half of fiscal 1995, including 11 Shoney's and two Barbwires,
and closed three Shoney's units. Franchisees for the Company's
continuing operations opened 10 units during the first half of fiscal
1995 and closed 45 units (including six units purchased by the Company).
Sixteen of the franchise closures were related to the Chicago-area
Shoney's Restaurant franchisee which had filed for Chapter 11
bankruptcy. Comparable store sales of Company-owned restaurants in the
Company's continuing operations decreased 1.3% for the second quarter,
including a menu price increase of .1%. For the first half of fiscal
1995, comparable store sales of Company-owned restaurants in the
Company's continuing operations declined 1.2%, including a menu price
increase of .4%.
Commissary sales decreased 13% ($6.1 million) and 11% ($11.6
million), respectively, during the second quarter and first half of 1995
as compared to the corresponding periods of 1994. When compared to
restaurant sales, these sales have a higher percentage of food costs and
a lower percentage of operating expenses. There is no restaurant labor
associated with these sales. Franchise fees relating to the Company's
continuing operations (Shoney's and Captain D's restaurants) also
declined $.3 million (5%) and $1.0 million (7%) in the second quarter
and first half of 1995 when compared to the prior year. The decreases
in both commissary sales and franchise fees are primarily the result of
a net decrease in the number of franchised restaurants related to the
Company's continuing operations and a decline in comparable store sales
at franchised Shoney's Restaurants which more than offset comparable
store sales gains at franchised Captain D's units.
Other income decreased $5.3 million in the first half of 1995
when compared with the first half of 1994 as the result of several
factors. During the first quarter of 1994, the Company received $.9
million from the settlement of certain class action securities
litigation against RJR Nabisco, Inc. and others. In addition, during
the first quarter of fiscal 1994, the Company sold its minority
ownership interests in four Shoney's Inns to ShoLodge, Inc. ("ShoLodge")
and the resulting gain of $1.7 million was included in other income.
In conjunction with this sale, the Company also received future
registration rights for shares of ShoLodge stock that may be acquired by
the Company upon the exercise of certain warrants that it owns. Under
the provisions of FASB Statement No. 115, certain of these warrants were
classified as trading securities and adjusted to fair value resulting in
gains of $1.1 million and $.1 million for the first and second quarters
of fiscal 1994, respectively, which was included in other income (see
Note 9--Sale of Shoney's Lodging, Inc. and Related Investments). In
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<PAGE>
the first quarter of fiscal 1995, the value of the ShoLodge shares and
warrants increased $.8 million. During the second quarter of fiscal
1995, the market value of the ShoLodge shares and warrants declined,
resulting in a charge to other income of $2.3 million.
Cost of sales for continuing operations for the second quarter
of fiscal 1995 increased $7.0 million over the same quarter in fiscal
1994 and as a percentage of revenues were 85.8% in 1995 as compared to
82.0% in the second quarter 1994. Cost of sales for continuing
operations for the first half of 1995 increased $7.9 million over the
same period in 1994 and as a percentage of revenues were 85.8% in 1995
as compared to 83.3% for the same period of 1994. Food and supplies
decreased as a percentage of revenues principally due to the decline in
commissary sales. Restaurant labor increased as a percentage of
revenues because of higher labor cost at the restaurant level and the
decline in commissary sales (which have no restaurant labor in cost of
sales). During the second quarter, operating expenses increased as a
percentage of revenues primarily due to higher depreciation expense and
various costs related to the implementation of the Shoney's improvement
plan in fiscal 1995. In addition, during the second quarter of 1994,
the settlement of a lawsuit against a former insurance carrier for the
Company reduced insurance expense and there was no comparable item in
1995.
General and administrative expenses increased as a percentage
of revenues from 5.2% in the second quarter of 1994 to 6.1% in the
second quarter of 1995. General and administrative expenses as a
percentage of revenues for the first half of 1995 were also 6.1%, as
compared to 5.5% in the first half of 1994. This increase was primarily
due to consulting fees related to assisting management with the
development of the Shoney's Restaurant performance improvement program.
Restructuring charges of $1.7 million in the first half of 1995
were principally related to severance pay incurred as part of the
Company's overall restructuring plan. Other restructuring charges will
be accrued as they are incurred or when they can be reasonably
estimated.
Interest expense for the second quarter of 1995 declined
approximately $.7 million due to lower effective interest rates ($.5
million) and a decline in the average debt outstanding ($.2 million).
For the first half of 1995, interest expense declined approximately $2.0
million due to lower interest rates ($1.2 million) and a decline in the
average outstanding debt ($.8 million).
The effective income tax rates for the first quarter of 1995 and
1994 were 38% and 37.5%, respectively. The increase in the effective
tax rate for fiscal 1995 is primarily due to the expiration of the
Targeted Jobs Tax Credit in December 1994. Effective November 1, 1993,
the Company changed its method of accounting for income taxes from the
deferred method to the liability method required by FASB Statement No.
109, "Accounting for Income Taxes" (see Note 3--Changes in Accounting
Policies). As permitted under the new rules, prior years' financial
statements were not restated. The cumulative effect of adoption of the
Statement in the first quarter of 1994 was to increase deferred tax
assets and net income by $4.5 million or $.10 per common share.
Following the reorganization announcement in January, management
elected to complete construction of new restaurants in process for the
restaurant concepts to be divested. The Company opened three Pargo's
restaurants in the first half of 1995. Revenues of the discontinued
operations for the first half of 1995 increased 2% as a result of the
additional store openings which were partially offset by comparable
store sales declines in all of the divested restaurant concepts. Net
income from discontinued operations for the first half of 1995 declined
17% principally due to lower operating margins for Lee's Famous Recipe
and Mike Rose Foods, Inc.
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<PAGE>
Cash provided from continuing operations decreased $6.1 million
to $49.9 million for the first half of 1995 compared to $56.0 million
for the first half of 1994. This decrease was due primarily to a
reduction in net income, after adjustments for non-cash gains and
losses. Cash used by investing activities in 1995 was $10.7 million
less than 1994 as cash expenditures for property, plant and equipment
were reduced during the second quarter of 1995 as the Company focused
its attention on the Shoney's Restaurant improvement plan instead of
opening new restaurants or remodeling existing restaurants. Cash from
discontinued operations was $2.8 million lower in 1995 ($9.8 million as
compared to $12.6 million in 1994) due primarily to a reduction in net
income and an increase in working capital for the discontinued
operations.
Significant financing activities in the first half of 1995
included completion of a $28 million mortgage financing during the first
quarter of 1995, payment in April 1995 of the final installment of $60
million on the senior fixed rate debt, a $4.9 million increase in short-
term borrowings under the Company's unsecured lines of credit, along
with payments of $11.7 million under the terms of the litigation
settlement (see Note 7--Reserve for Litigation Settlement). The Company
had net borrowings of $17.5 million on the Company's $270 million
Reducing Revolving Credit Facility ("Revolver") and had borrowed $257.5
million under the Revolver as of May 14, 1995.
At May 14, 1995, the Company had cash and cash equivalents of
approximately $5.0 million and unsecured lines of credit totalling $30
million under which the Company had borrowings of $8.7 million
outstanding. Capital expenditures for fiscal 1995 are expected to be
approximately $75 million including expenditures committed for
restaurants properties included in net assets of discontinued
operations.
As part of the overall Shoney's Restaurant improvement plan
including the planned divestiture of certain non-core businesses, the
Company intends to request various modifications to its credit
agreements. These modifications will include amendments to various
financial and other loan covenants to reflect elements of the Company's
strategic plan and the planned divestiture of the four non-core
businesses. Management expects the implementation of the Shoney's
Restaurants improvement plan initially will result in lower margins in the
Shoney's Restaurants until the results of the improvement plan generate
increases in comparable store sales and operating margins. If the
current trends of declining comparable store sales and lower profit
margins continue through the end of the fiscal year, it is possible
that the Company would violate some of its existing financial covenants
before the end of the fiscal year. Management has considered these
trends in its requested modifications of its debt covenants previously
described. Based on meetings with its lenders and on-going discussions
with its lead lender, the Company is confident that the requested
modifications will be approved and expects to meet its needs for debt
service, capital expenditures (excluding those for land and buildings
which are expected to be met through mortgage financing arrangements),
the payments required by the settlement of the class action litigation
and general corporate purposes through cash generated by the Company's
operations and from the Company's Revolver (see Note 6--Senior Debt).
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<PAGE>
PART II- OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
Item 3 of Amendment No. 1 to the Company's Annual Report on
Form 10-K, filed with the Commission on February 27, 1995 is
incorporated herein by this reference. See also Note 8 to the Notes
to Consolidated Condensed Financial Statements at pages 9-10 of this
Quarterly Report on Form 10-Q.
ITEM 2. CHANGES IN SECURITIES.
As of April 18, 1995, the Company and Harris Trust and Savings
Bank (the "Rights Agent") amended the amended and restated rights
agreement, dated as of May 25, 1994, relating to certain common stock
purchase rights (the "Rights") issued by the Company. The terms of the
amendment to the agreement and to the Rights were summarized in the
Company's Current Report on Form 8-K filed with the Commission on
May 4, 1995. For a complete description of the changes to the Rights,
reference is made to the Company's Current Report on Form 8-K filed with
the Commission on May 4, 1995, which is incorporated herein by this
reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
(a) The annual meeting of the Company (the "Annual Meeting")
was held on April 18, 1995. At that time, there were present, in
person or by proxy, 36,137,002 shares of the Company's common stock.
(b) At the Annual Meeting, one item that was submitted to
a vote of shareholders was the election of directors. Proxies for the
Annual Meeting were solicited pursuant to Regulation 14A under the
Securities Exchange Act of 1934. There was no solicitation in
opposition to management's nominees for director as listed in the
proxy statement and all such nominees were elected.
(c) In addition to the election of directors, there were
submitted to a vote of the shareholders: (1) a proposal by a
shareholder recommending the Company prepare an equal opportunity
report on the Company's policies and programs regarding certain
employment and purchasing matters; (2) a proposal by a shareholder
recommending that the rights granted to shareholders under the
Company's shareholder rights plan be redeemed; and (3) a proposal by
a shareholder recommending that the Board of Directors of the Company
have quarterly meetings with representatives of the National
Association of Shoney's, Inc. Franchisees for the next two years.
The results of that voting are as follows:
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<PAGE>
<TABLE>
<CAPTION>
Votes
---------------------------------------- Broker
Proposal For Against Abstentions Non-votes
<C> <C> <C> <C>
-------- --------- ------- ----------- ---------
Shareholder Proposal --
Recommending Report re
employment and purchasing
matters 6,115,711 22,553,041 2,062,557 5,405,693
Shareholder Proposal --
Recommending redemption
of shareholder rights 13,970,316 16,515,086 252,107 5,399,493
Shareholder Proposal --
Recommending Board meetings
with franchise representatives 11,008,182 19,171,792 551,535 5,405,493
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) In accordance with the provisions of Item 601 of
Regulation S-K, the following have been furnished as Exhibits to
this Quarterly Report on Form 10-Q:
3(i), 4.1 Charter of Shoney's, Inc., as amended, filed as
Exhibit 4.1 to Post Effective Amendment No. 3 to
the Company's Registration Statement on Form S-8
(File No. 33-605) filed with the Commission on
October 31, 1988, and incorporated herein by this
reference.
3(ii), 4.2 Amended and Restated Bylaws of Shoney's, Inc., filed
as Exhibit 3(ii) and 4.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended
October 30, 1994 filed with the Commission on
January 30, 1995, and incorporated herein by this
reference.
4.3 Amended and Restated Rights Agreement, dated as
of May 25, 1994, between Shoney's, Inc. (the
"Company") and Harris Trust and Savings Bank, as
Rights Agent, filed as Exhibit 4 to the Company's
Current Report on Form 8-K filed with the
Commission on June 9, 1994 and incorporated
herein by this reference.
4.4 Amendment No. 1 dated as of April 18, 1995 to
Amended and Restated Rights Agreement, dated as
of May 25, 1994, between Shoney's, Inc. (the
"Company") and Harris Trust and Savings Bank, as
Rights Agent, filed as Exhibit 4 to the Company's
Current Report on Form 8-K filed with the
Commission on May 4, 1995 and incorporated
herein by this reference.
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<PAGE>
4.5 Indenture dated as of April 1, 1989 between the
Company and Sovran Bank/Central South, as Trustee
relating to $201,250,000 in principal amount of
liquid yield option notes due 2004, filed as
Exhibit 4.8 to Amendment No. 1 to the Company's
Registration Statement on Form S-3 filed with the
Commission on April 3, 1989 (No. 33-27571), and
incorporated herein by this reference.
4.6 Revolving Credit Agreement dated as of July 13,
1988 between the Company and First American
National Bank, filed as Exhibit 4.1 and 19.1 to
the Company's Current Report on Form 8-K filed
with the Commission on December 3, 1991, and
incorporated herein by this reference.
4.7 Modification Agreement No. 1 dated as of March 5,
1991 to Revolving Credit Agreement, dated as of
July 13, 1988 between the Company and First
American National Bank, filed as Exhibit 4.2 and
19.2 to the Company's Current Report on Form 8-K
filed with the Commission on December 3, 1991, and
incorporated herein by this reference.
4.8 Alternative Rate Agreement dated as of June 4,
1992 supplementing that certain Revolving Credit
Agreement dated as of July 13, 1988 between the
Company and First American National Bank, filed as
Exhibit 4.36 and 10.29 to Post Effective Amendment
No. 5 to the Company's Registration Statement on
Form S-8 (File No. 2-64257) filed with the
Commission on January 25, 1993, and incorporated
herein by this reference.
4.9 Note Issuance Agreement, dated as of October 1,
1989, among the Company, Sovran Bank, N.A., as
Note Agent and Placement Agent and Sovran Bank /
Central South, as Escrow Agent, filed as Exhibit
19.3 and 28.3 to the Company's Current Report on
Form 8-K filed with the Commission on December 3,
1991, and incorporated herein by this reference.
4.10 Reimbursement Agreement, dated as of October 1,
1989, together with the Standby Note relating
thereto, among the Company, Sovran Bank / Central
South, Long Term Credit Bank of Japan, Limited,
New York Branch, Kredeitbank, N.V., New York
Branch and Sovran Bank / Central South, as Agent,
filed as Exhibit 19.4 and 28.4 to the Company's
Current Report on Form 8-K filed with the
Commission on December 3, 1991, and incorporated
herein by this reference.
4.11 Modification Agreement No. 1 dated as of July 21,
1993 to Reimbursement Agreement, dated as of
October 1, 1989, together with the Standby Note
relating thereto, among the Company, Sovran Bank
/ Central South, Long Term Credit Bank of Japan,
Limited, New York Branch, Kredeitbank, N.V., New
York Branch and Sovran Bank / Central South, as
Agent, filed as Exhibit 4.4 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended August 1, 1993 filed with the Commission on
September 15, 1993, and incorporated herein by
this reference.
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<PAGE>
4.12 Modification Agreement No. 2 dated as of June 8,
1994 to Reimbursement Agreement, dated as of
October 1, 1989, together with the Standby Note
relating thereto, among the Company, NationsBank
of Tennessee, N.A. (formerly Sovran Bank / Central
South), Long Term Credit Bank of Japan, Limited,
New York Branch, Kredeitbank, N.V., New York
Branch and NationsBank of Tennessee, N.A., as
Agent, filed as Exhibit 4.30 to the Company's Annual
Report on Form 10-K for the fiscal year ended October
30, 1994 filed with the Commission on January 30,
1995, and incorporated herein by this reference.
4.13 Note Issuance Agreement, dated as of October 1,
1990, among the Company, Sovran Bank, N.A., as
Note Agent and Placement Agent and Sovran Bank /
Central South, as Escrow Agent, filed as Exhibit
19.5 and 28.5 to the Company's Current Report on
Form 8-K filed with the Commission on December 3,
1991, and incorporated herein by this reference.
4.14 Reimbursement Agreement, dated as of October 1,
1990, together with the Standby Note relating
thereto, between the Company and Sovran Bank /
Central South, filed as Exhibit 19.6 and 28.6 to
the Company's Current Report on Form 8-K filed
with the Commission on December 3, 1991, and
incorporated herein by this reference.
4.15 Modification Agreement No. 1 dated as of July 21,
1993 to Reimbursement Agreement, dated as of
October 1, 1990, together with the Standby Note
relating thereto, between the Company and Sovran
Bank / Central South, filed as Exhibit 4.5 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended August 1, 1993 filed with the
Commission on September 15, 1993, and incorporated
herein by this reference.
4.16 Modification Agreement No. 2 dated as of April 1,
1994 to Reimbursement Agreement, dated as of
October 1, 1990, together with the Standby Note
relating thereto, between the Company and
NationsBank of Tennessee, N.A. (formerly Sovran
Bank / Central South), filed as Exhibit 4.34 to the
Company's Annual Report on Form 10-K for the fiscal
year ended October 30, 1994 filed with the Commission
on January 30, 1995, and incorporated herein by this
reference.
4.17 Amended and Restated Note Issuance Agreement,
dated as of November 1, 1993, among the Company,
NationsBank of Virginia, N.A., as Note Agent and
Placement Agent and NationsBank of Tennessee, as
Escrow Agent, filed as Exhibit 4.36 to the
Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1993 filed with the
Commission on January 31, 1994, and incorporated
herein by this reference.
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<PAGE>
4.18 Reimbursement Agreement, dated as of October 1,
1991, together with the Standby Note relating
thereto, between the Company and National
Bank of Canada, New York Branch, filed as Exhibit
28.10 to the Company's Current Report on Form 8-K
filed with the Commission on December 3, 1991, and
incorporated herein by this reference.
4.19 Assignment, Assumption and Modification Agreement
dated as of November 4, 1993 relating to
Reimbursement Agreement, dated as of October 1,
1991, among the Company, NationsBank of Georgia,
N.A. and National Bank of Canada, New York Branch,
filed as Exhibit 4.38 to the Company's Annual
Report on Form 10-K for the fiscal year ended
October 31, 1993 filed with the Commission on
January 31, 1994, and incorporated herein by this
reference.
4.20 Loan Agreement dated as of September 24, 1992
between the Company and CIBC, Inc., filed as
Exhibit 4.43 and 10.36 to Post Effective Amendment
No. 5 to the Company's Registration Statement on
Form S-8 (File No. 2-64257) filed with the
Commission on January 25, 1993, and incorporated
herein by this reference.
4.21 Modification Agreement No. 1 dated as of October
25, 1992 to Loan Agreement dated as of September
24, 1992 between the Company and CIBC, Inc., filed
as Exhibit 4.44 and 10.37 to Post Effective
Amendment No. 5 to the Company's Registration
Statement on Form S-8 (File No. 2-64257) filed
with the Commission on January 25, 1993, and
incorporated herein by this reference.
4.22 Modification Agreement No. 2 dated as of July 21,
1993 to Loan Agreement dated as of September 24,
1992 between the Company and CIBC, Inc., filed as
Exhibit 4.6 to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 1, 1993
filed with the Commission on September 15, 1993,
and incorporated herein by this reference.
4.23 Loan Agreement dated as of April 21, 1993 between
the Company and NationsBank of Tennessee, N.A.,
filed as Exhibit 4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended May 9,
1993 filed with the Commission on June 23, 1993,
and incorporated herein by this reference.
4.24 Modification Agreement No. 1 dated as of July 21,
1993 to Loan Agreement dated as of April 21, 1993
between the Company and NationsBank of Tennessee,
N.A., filed as Exhibit 4.7 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended August 1, 1993 filed with the Commission on
September 15, 1993, and incorporated herein by
this reference.
4.25 Loan Agreement dated as of December 1, 1994
between the Company and NationsBank of Tennessee,
N.A., filed as Exhibit 4.43 to the Company's Annual
Report on Form 10-K for the fiscal year ended October
30, 1994 filed with the Commission on January 30,
1995, and incorporated herein by this reference.
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<PAGE>
4.26 Reducing Revolving Credit Agreement, dated as of
July 21, 1993, among the Company, various
financial institutions now or hereafter parties
thereto and Canadian Imperial Bank of Commerce,
New York Agency, as agent, filed as Exhibit 4.1 to
the Company's Quarterly Report on Form 10-Q for
the quarter ended August 1, 1993 filed with the
Commission on September 15, 1993, and incorporated
herein by this reference.
4.27 Modification Agreement No. 1 dated as of July 21,
1993 to Reducing Revolving Credit Agreement, dated
as of July 21, 1993, among the Company, various
financial institutions now or hereafter parties
thereto and Canadian Imperial Bank of Commerce,
New York Agency, as agent, filed as Exhibit 4.8 to
the Company's Quarterly Report on Form 10-Q for
the quarter ended August 1, 1993 filed with the
Commission on September 15, 1993, and incorporated
herein by this reference.
4.28 Modification Agreement No. 2 dated as of December
21, 1993 to Reducing Revolving Credit Agreement,
dated as of July 21, 1993, among the Company,
various financial institutions now or hereafter
parties thereto and Canadian Imperial Bank of
Commerce, New York Agency. Filed as Exhibit 4.46
to the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1993, filed with
the Commission on January 31, 1994, and
incorporated herein by this reference.
4.29 Modification Agreement No. 3 dated as of May 3,
1994 to Reducing Revolving Credit Agreement, dated
as of July 21, 1993, among the Company, various
financial institutions now or hereafter parties
thereto and Canadian Imperial Bank of Commerce,
New York Agency, filed as Exhibit 99.1 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended May 15, 1994 filed with the
Commission on June 29, 1994 and incorporated
herein by this reference.
4.30 Modification Agreement No. 4 dated as of October
27, 1994 to Reducing Revolving Credit Agreement,
dated as of July 21, 1993, among the Company,
various financial institutions now or hereafter
parties thereto and Canadian Imperial Bank of
Commerce, New York Agency, filed as Exhibit 4.48
to the Company's Annual Report on Form 10-K for the
fiscal year ended October 30, 1994 filed with the
Commission on January 30, 1995, and incorporated
herein by this reference.
4.31 Modification Agreement No. 5 dated as of January
18, 1995 to Reducing Revolving Credit Agreement,
dated as of July 21, 1993, among the Company,
various financial institutions now or hereafter
parties thereto and Canadian Imperial Bank of
Commerce, New York Agency, filed as Exhibit 4.49
to the Company's Annual Report on Form 10-K for
the fiscal year ended October 30, 1994 filed with
the Commission on January 30, 1995, and incorporated
herein by this reference.
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<PAGE>
4.32 Modification Agreement No. 6 dated as of April
1, 1995 to Reducing Revolving Credit Agreement,
dated as of July 21, 1993, among the Company,
various financial institutions now or hereafter
parties thereto and Canadian Imperial Bank of
Commerce, New York Agency.
10.1 License Agreement, dated as of October 28, 1991,
between Shoney's Investments, Inc. and Shoney's
Lodging, Inc., filed as Exhibit 28.7 to the
Company's Current Report on Form 8-K filed with
the Commission on December 3, 1991, and
incorporated herein by this reference.
10.2 Amendment No. 1 dated as of September 16, 1992 to
License Agreement, dated as of October 28, 1991,
between Shoney's Investments, Inc. and ShoLodge
Franchise Systems, Inc. (formerly Shoney's
Lodging, Inc.), filed as Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1993 filed with the
Commission on January 31, 1994, and incorporated
herein by this reference.
10.3 Amendment No. 2 dated as of March 18, 1994 to
License Agreement, dated as of October 28, 1991,
between Shoney's Investments, Inc. and ShoLodge
Franchise Systems, Inc. (formerly Shoney's
Lodging, Inc.).
10.4 Amendment No. 3 dated as of March 13, 1995 to
License Agreement, dated as of October 28, 1991,
between Shoney's Investments, Inc. and ShoLodge
Franchise Systems, Inc. (formerly Shoney's
Lodging, Inc.).
10.5 Stock Purchase and Warrant Agreement, dated as of
October 28, 1991, between Shoney's Investments,
Inc. and Gulf Coast Development, Inc., filed as
Exhibit 28.8 to the Company's Current Report on
Form 8-K filed with the Commission on December 3,
1991, and incorporated herein by this reference.
10.6 Agreement dated as of September 8, 1992 between
the Company and Raymond L. Danner, filed as
Exhibit 10.41 to Post Effective Amendment No. 5 to
the Company's Registration Statement on Form S-8
(File No. 2-64257) filed with the Commission on
January 25, 1993, and incorporated herein by this
reference.
10.7 Consent Decree entered by the United States
District Court for the Northern District of
Florida on January 25, 1993 in Haynes, et. al v.
Shoney's, Inc., et. al, filed as Exhibit 28 to the
Company's Current Report on Form 8-K filed with
the Commission on February 3, 1993, and
incorporated herein by this reference.
10.8 Shoney's, Inc. 1981 Stock Option Plan, filed as
Exhibit 4.7 to Post Effective Amendment No. 3 to
the Company's Registration Statement on Form S-8
(File No. 2-84763) filed with the Commission on
January 25, 1993, and incorporated herein by this
reference.
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<PAGE>
10.9 Shoney's, Inc. Stock Option Plan, filed as Exhibit
4.7 to Post Effective Amendment No. 4 to the
Company's Registration Statement on Form
S-8 (File No. 2-64257) filed with the Commission
on April 11, 1990, and incorporated herein by this
reference.
10.10 Shoney's, Inc. Employee Stock Purchase Plan, filed
as Exhibit 4.7 to Post Effective Amendment No. 4
to the Company's Registration Statement on Form
S-8 (File No. 33-605) filed with the Commission
on October 26, 1989, and incorporated herein by
this reference.
10.11 Shoney's, Inc. Employee Stock Bonus Plan, filed as
Exhibit 10.9 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31,
1993 filed with the Commission on January 31,
1994, and incorporated herein by this reference.
10.12 Shoney's, Inc. Directors' Stock Option Plan, filed
as Exhibit 4.38 to the Company's Registration
Statement on Form S-8 (File No. 33-45076) filed
with the Commission on January 14, 1992, and
incorporated herein by this reference.
10.13 Shoney's Ownership Plan 1977, filed as Exhibit
10.47 to Post Effective Amendment No. 5 to the
Company's Registration Statement on Form S-8 (File
No. 2-64257) filed with the Commission on January
25, 1993, and incorporated herein by this
reference.
10.14 Captain D's Ownership Plan 1976, filed as Exhibit
10.48 to Post Effective Amendment No. 5 to the
Company's Registration Statement on Form S-8 (File
No. 2-64257) filed with the Commission on January
25, 1993, and incorporated herein by this
reference.
10.15 Captain D's Ownership Plan 1978-1979, filed as
Exhibit 10.49 to Post Effective Amendment No. 5 to
the Company's Registration Statement on Form S-8
(File No. 2-64257) filed with the Commission on
January 25, 1993, and incorporated herein by this
reference.
10.16 Shoney's, Inc. Supplemental Executive Retirement
Plan, filed as Exhibit 10.14 to the Company's Annual
Report on Form 10-K for the fiscal year ended October
30, 1994 filed with the Commission on January 30,
1995, and incorporated herein by this reference.
10.17 Employment Agreement dated as of January 13, 1995
between the Company and Taylor H. Henry, filed
as Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 30, 1994
filed with the Commission on January 30, 1995, and
incorporated herein by this reference.
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<PAGE>
10.18 Employment Agreement dated as of January 17, 1995
between the Company and Charles E. Porter, filed
as Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 30, 1994
filed with the Commission on January 30, 1995, and
incorporated herein by this reference.
10.19 Employment Agreement dated as of January 17, 1995,
between the Company and W. Craig Barber, filed
as Exhibit 10.17 to Amendment No. 1 to the Company's
Annual Report on Form 10-K for the fiscal year ended
October 30, 1994 filed with the Commission on February
27, 1995, and incorporated herein by this reference.
10.20 Employment Agreement dated as of April 11, 1995,
between the Company and C. Stephen Lynn.
11 Statement regarding computation of per share earnings.
27 Financial Data Schedule.
(b) On May 4, 1995, the Company filed a Current Report
on Form 8-K, reporting under Item 5 thereof an amendment to the Company's
shareholder rights plan. For a complete description of this amendment,
reference is made to Part II, Item 2 of this Quarterly Report on Form
10-Q and to the Company's Current Report on Form 8-K filed with the
Commission on May 4, 1995, which is incorporated herein by this
reference.
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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 both on
behalf of the registrant and in his capacity as principal financial
officer of the registrant.
SHONEY'S, INC.
Date: June 28, 1995 By:/s/ W. Craig Barber
---------------------------
W. Craig Barber
Senior Executive Vice President
and Chief Financial Officer
(Principal Financial and
Chief Accounting Officer)
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<PAGE>
MODIFICATION AGREEMENT NO. 6
TO
REDUCING REVOLVING
CREDIT AGREEMENT
This MODIFICATION AGREEMENT NO. 6 (the "Modification Agreement
No. 6"), dated as of April 1, 1995, to the Reducing Revolving Credit
Agreement, dated as of July 21, 1993, as amended by Modification
Agreement No. 1 to Reducing Revolving Credit Agreement, dated as of
July 21, 1993, by Modification Agreement No. 2 to Reducing Revolving
Credit Agreement, dated as of December 21, 1993, and by Modification
No. 3 to Reducing Revolving Credit Agreement, dated as of May 3, 1994,
by Modification Agreement No. 4 to Reducing Revolving Credit Agreement,
dated as of October 27, 1994, and by Modification Agreement No. 5 to
Reducing Revolving Credit Agreement, dated as of January 18, 1995
(collectively, the "Existing Credit Agreement"), among SHONEY'S, INC.,
a Tennessee corporation (the "Borrower"), CIBC INC., acting through its
Atlanta Office and various other financial institutions, which are now,
or in accordance with Section 10.10 of the Existing Credit Agreement
hereafter become, parties thereto (collectively, the "Lenders" and,
individually, a "Lender"), and CANADIAN IMPERIAL BANK OF COMMERCE, a
Canadian chartered bank acting through its New York Agency, as Agent
and Collateral Agent (the "Agent" and the "Collateral Agent",
respectively) for the Lenders;
W I T N E S S E T H:
WHEREAS, the Borrower has requested that certain provisions of
the Existing Credit Agreement be amended in certain respects as set
forth herein; and
WHEREAS, the Lenders are willing to amend certain provisions
of the Existing Credit Agreement and to take or permit the taking of
certain actions as set forth herein, but only on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the agreements herein
contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Definitions. Unless otherwise defined
herein or the context otherwise requires, capitalized terms used in
this Modification Agreement No. 6, including its preamble and recitals,
have the following meanings (such meanings to be equally applicable to
the singular and plural forms thereof):
<PAGE>
"Agent has the meaning assigned to such term in the preamble.
"Borrower" has the meaning assigned to such term in the
preamble.
"Collateral Agent" has the meaning assigned to such term in
the preamble.
"Existing Credit Agreement" has the meaning assigned to such
term in the preamble.
"Lenders" and "Lender" have the respective meanings assigned
to such terms in the preamble.
"Modification Agreement No. 6" has the meaning assigned to
such term in the preamble.
"Modification Effective Date" has the meaning assigned to such
term in Section 3.1.
SECTION 1.2. Other Definitions. Unless otherwise defined
herein or the context otherwise requires, capitalized terms used in
this Modification Agreement No. 6, including its preamble and recitals,
have the meanings provided in the Existing Credit Agreement.
ARTICLE II
AMENDMENT OF EXISTING CREDIT AGREEMENT
AS OF THE MODIFICATION EFFECTIVE DATE
Effective on (and subject to the occurrence of) the
Modification Effective Date, the provisions of the Existing Credit
Agreement referred to below are hereby amended in accordance with this
Article II. Except as expressly so amended, the Existing Credit
Agreement shall continue in full force and effect in accordance with
its terms.
SECTION 2.1. Modification of Article VII (Covenants).
Article VII of the Existing Credit Agreement is hereby modified as
follows:
SECTION 2.1.1 Section 7.2.8 of the Existing Credit
Agreement is hereby amended by deleting the "and" after clause
(d) and the "." after clause (e), by adding "; and" after
clause (e), and by adding the following clause (f):
-2-
<PAGE>
"(f) the Guaranty of certain reimbursement
obligations of Shoney's Inn of Baton Rouge pursuant
to the Letter of Credit, Reimbursement and Guaranty
Agreement between Shoney's Inn of Baton Rouge, the
Borrower and First Union National Bank of North
Carolina dated as of April 1, 1995."
ARTICLE III
CONDITIONS TO EFFECTIVENESS
SECTION 3.1. Modification Effective Date. This
Modification Agreement No. 6 shall become effective as of the date
first above written, when all of the conditions set forth in Sections
3.1.1 and 3.1.2 shall have been satisfied (the "Modification
Effective Date").
SECTION 3.1.1. Resolutions, etc. The Agent shall
have received from the Borrower, a certificate, dated the
Modification Effective Date, of its Secretary or any Assistant
Secretary as to:
(a) resolutions of its Board of Directors
then in full force and effect authorizing the
execution, delivery, and performance of this
Modification Agreement No. 6 and each other Loan
Document to be executed by it;
(b) the incumbency and signatures of the
officers of the Borrower authorized to act with
respect to this Modification Agreement No. 6 and each
other Loan Document to be executed by it (upon which
certificate the Agent and each Lender may
conclusively rely until the Agent shall have received
a further certificate of the Secretary of the
Borrower canceling or amending such prior
certificate, which further certificate shall be
reasonably satisfactory to the Agent).
SECTION 3.1.2. Execution of Counterparts. The Agent
shall have received counterparts of this Modification
Agreement No. 6 duly executed by the Borrower, the Agent, and
the Required Lenders.
SECTION 3.1.3. Compliance with Warranties; No Default
etc. The Agent shall have received from an Authorized Officer
of the Borrower a certificate, dated the date first above
written, stating that
(a) the representations and warranties set
forth in Article VI of the Existing Credit Agreement
(excluding, however, those contained in Section 6.7
thereof) and the representations and warranties set
forth in each of the other Loan Documents, in each
case as modified in accordance herewith, are true and
correct in all material
-3-
<PAGE>
respects with the same effect as if then made (unless
stated to relate solely to an earlier date, in which
case such representations and warranties were true
and correct as of such earlier date);
(b) except as disclosed by the Borrower
to the Agent and the Lenders pursuant to Section 6.7
of the Existing Credit Agreement:
(i) no labor controversy,
litigation, arbitration or governmental
investigation or proceeding is pending or, to
the knowledge of the Borrower, threatened
against the Borrower or any of its
Subsidiaries which might have a Materially
Adverse Effect; and
(ii) no development has occurred
in any labor controversy, litigation,
arbitration or governmental investigation or
proceeding disclosed pursuant to Section 6.7
of the Existing Credit Agreement which might
have a Materially Adverse Effect; and
(c) no Default has occurred and is
continuing, and neither the Borrower nor any of its
Subsidiaries is in material violation of any law or
government regulation or court order or decree.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1. Cross References. References in this
Modification Agreement No. 6 to any article or section are, unless
otherwise specified, to such article or section of this Modification
Agreement No. 6.
SECTION 4.2. Instrument Pursuant to Existing Credit
Agreement; Limited Waiver. This Modification Agreement No. 6 is a Loan
Document executed pursuant to the Existing Credit Agreement and shall
(unless otherwise expressly indicated therein) be construed,
administered, and applied in accordance with all of the terms and
provisions of the Existing Credit Agreement. Any term or provision of
and any modification effected by this Modification Agreement No. 6 may
be modified in any manner by an instrument in writing executed by the
Borrower and the Required Lenders (or the Agent on behalf of and with
the consent of the Required Lenders). Except as expressly amended
hereby, all of the representations, warranties, terms, covenants and
conditions of the Existing Credit Agreement shall remain unmodified and
unwaived. The modifications set forth herein shall be limited precisely
as provided for herein to the provisions expressly modified herein and
shall not be deemed to be a waiver of, amendment of, consent to or
modification of any
-4-
<PAGE>
other term or provision of any other Loan Document or of any
transaction or further or future action on the part of the Borrower
which could require the consent of any of the Lenders under the
Existing Credit Agreement.
SECTION 4.3. Successors and Assigns. This Modification
Agreement No. 6 shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
SECTION 4.4. Counterparts. This Modification Agreement No.
6 may be executed by the parties hereto in several counterparts which
shall be executed by the Borrower, each of the Required Lenders and the
Agent, as the case may be, all of which shall be deemed to be an
original and which shall constitute together but one and the same
agreement.
SECTION 4.5. Event of Default. It is understood and agreed
that any breach of any representation or warranty or covenant contained
herein shall constitute an Event of Default.
IN WITNESS WHEREOF, the parties hereto have caused this
Modification Agreement No. 6 to be executed by the respective officers
hereunder duly authorized as of the day and year first above written.
SHONEY'S, INC.
By:
--------------------------
Title: Treasurer
CANADIAN IMPERIAL BANK OF
COMMERCE, acting through
its NEW YORK AGENCY, as
Agent
By:
-------------------------
Title: Authorized Signatory
CIBC INC., acting through
its Atlanta Office
By:
-------------------------
Title: Authorized Signatory
-5-
<PAGE>
NATIONSBANK OF TENNESSEE, N.A.
By:
---------------------------
Title:
-----------------------
THE BANK OF NEW YORK
By:
---------------------------
Title:
-----------------------
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD.
By:
---------------------------
Title:
-----------------------
THE BANK OF NOVA SCOTIA
By:
---------------------------
Title:
-----------------------
THE MITSUBISHI TRUST AND
BANKING CORPORATION
By:
---------------------------
Title:
-----------------------
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By:
---------------------------
Title:
-----------------------
THE FUJI BANK, LIMITED
By:
---------------------------
Title:
-----------------------
-6-
<PAGE>
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By:
---------------------------
Title:
-----------------------
KREDIETBANK N.V.
By:
---------------------------
Title:
-----------------------
THE BANK OF TOKYO TRUST COMPANY
By:
---------------------------
Title:
-----------------------
FIRST AMERICAN NATIONAL BANK
By:
---------------------------
Title:
-----------------------
ALLIED IRISH BANK
By:
---------------------------
Title:
-----------------------
MERCHANTILE BANK OF ST.
LOUIS, N.A.
By:
---------------------------
Title:
-----------------------
PNC BANK, KENTUCKY, INC.
By:
---------------------------
Title:
-----------------------
-7-
<PAGE>
THE ROYAL BANK OF SCOTLAND
By:
---------------------------
Title:
-----------------------
GIROCREDIT BANK
By:
---------------------------
Title:
-----------------------
THE SUMITOMO BANK, LIMITED
By:
---------------------------
Title:
-----------------------
-8-
<PAGE>
AMENDMENT NO. 2
TO
LICENSE AGREEMENT
THIS AMENDMENT NO. 2 TO LICENSE AGREEMENT (the "Amendment")
is entered into this 18th day of March, 1994, by and between SHONEY'S
INVESTMENTS, INC., a Nevada corporation with offices at Suite 1400, 300
South Fourth Street, I-as 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 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") (the Original License Agreement as amended by the First
Amendment is hereinafter referred to as the "Existing License
Agreement") 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, certain geographic areas described in Exhibit C to
the Existing License Agreement were excluded from the "Territory"
covered thereby pursuant to Section 1.6 thereof; and
WHEREAS, Licensee pursuant to an agreement dated as of March
15, 1994, has obtained the consent necessary to be allowed to add the
Tennessee counties of Anderson, Blount, Hamblen, Loudon, Knox. Roane
and Sevier (the "Added Counties") to the Territory; and
WHEREAS, the parties hereto desire to include in the
"Territory" encompassed by the Existing License Agreement the Added
Counties; and
WHEREAS, the parties hereto desire to modify and amend the
royalty fees payable from Licensee to Licensor based on the Gross
Revenues (as defined in the Existing License Agreement) for any Motel
(as defined in the Existing License Agreement) located within the Added
Counties; and
<PAGE>
WHEREAS, the parties hereto desire to modify and amend the
Existing License Agreement in certain other respects as set forth
herein.
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
deleting existing Section 1.5 in its entirety and substituting in lieu
thereof the following:
Section 1.5. Gross Revenues. "Gross Revenues" shall
mean the aggregate gross amount of all revenues from
whatever source derived, whether in the form of cash,
credit, agreements to pay or other consideration, and
whether or not payment is received at the time of
sale or any such amounts prove uncollectible, which
arise from or are derived by Licensee or by any other
person (including subtenants and concessionaires)
from the use or occupancy of motel rooms and meeting
rooms in, on, from or through a Motel, excluding only
sales and other tax receipts, the collection of which
is required by law; provided, however, should
Licensee collect royalties from the operator of a
Motel calculated on any revenues which are not
included in the definition of "Gross Revenues" set
forth above, then such additional revenues shall be
included in the definition of "Gross Revenues" for
purposes of this Agreement with respect to such
Motel.
2. The Existing License Agreement is hereby amended by
inserting the following sentence at the end of Section 4. 1. (a)(ii):
Notwithstanding the foregoing, and in lieu of the royalty fees
described in the preceding sentence, with respect to any Motel
located in the Tennessee counties of Anderson, Blount,
Hamblen, Loudon, Knox, Roane or Sevier, Licensee shall pay to
Licensor royalty fees equal to .3571429 of one percent
(0.3571429%) multiplied by the Gross Revenues of each such
Motel accrued during the first ten (10) years of operation of
each such Motel.
3. The Existing License Agreement is hereby amended by
inserting the following sentence at the end of Section 4.5(d):
Notwithstanding anything to the contrary contained herein,
Licensee and its franchisees shall be allowed to operate in
any Motel vending machines selling soft drinks, coffee and
snacks and to serve guests during breakfast hours coffee,
juice, milk, tea, hot chocolate and similar breakfast
beverages.
-2-
<PAGE>
4. Exhibit C to the Existing License Agreement is hereby
amended by deleting the following counties in the State of Tennessee
from paragraph I of the initial paragraph of Exhibit C thereto:
Anderson County, Blount County, Hamblen County, Loudon County, Knox
County, Roane County and Sevier County, it being the intent of this
Amendment that such seven (7) counties now be included within the
Territory encompassed by the Existing License Agreement.
5. It is expressly understood, acknowledged and agreed
that Licensor makes no representations or warranties with respect to
the consent obtained to operate and license the operation of "Shoney's
Inns" within the Added Counties.
6. Except as herein specifically amended, all terms and
provisions of the Existing License Agreement shall remain in full force
and effect.
7. 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:
------------------------
Title:
---------------------
LICENSEE:
SHOLODGE FRANCHISE SYSTEMS, INC.
By:
------------------------
Title:
---------------------
SHOLODGE, INC.
By:
------------------------
Title:
---------------------
-3-
<PAGE>
AMENDMENT NO. 3
TO
LICENSE AGREEMENT
THIS AMENDMENT NO. 3 TO LICENSE AGREEMENT (the "Amendment") is
entered into this 13 day of March, 1995 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 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 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 (the "First Mark"); 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 granted to Licensee a license
to use the service mark SHONEY'S INN (block letters) which was
registered on August 4, 1992 with the USPTO at Registration No.
1,705,676 (the "Second Mark"); 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 the parties modified and amended the
Original Agreement to expand the definition of "Territory" therein to
include certain additional counties in the State of Tennessee and to
make certain other modifications to the terms of the Original
Agreement;
WHEREAS, the Original Agreement, the First Amendment and the
Second Amendment may be referred to hereinafter together as the License
Agreement; and
WHEREAS, Licensor has filed with the USPTO intent-to-use
applications to register the service marks SHONEY'S SUITES (block
letters) and SHONEY'S INN & SUITES (block letters) for "motel
<PAGE>
services" (the "New Marks"), copies of which are attached hereto as
Exhibit A; and
WHEREAS, pursuant to the provisions of Section 1.4 of the
License Agreement, Licensor and Licensee desire to further amend the
License Agreement so as to grant to Licensee the same rights with
respect to the New Marks as Licensee was granted under the License
Agreement with respect to the First Mark and the Second Mark;
NOW, THEREFORE, in consideration of the premises and covenants
contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Licensor and
Licensee agree as follows:
1. The License Agreement is hereby amended by deleting
the first sentence of Section 1.4 thereof in its entirety and inserting
in lieu thereof the following replacement sentence:
"Licensed Mark" shall mean 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,
the service mark "SHONEY'S INN" (block letters) which
was registered on August 4, 1992 with the USPTO at
Registration No. 1,705,676, the service mark
"SHONEY'S SUITES" (block letters) for which an
intent-to-use application for registration 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 for registration
was filed with the USPTO on February 6, 1995, and all
common law rights therein.
2. The License Agreement is hereby further amended by
deleting the fourth sentence of Section 4.4(d) thereof in its entirety
and inserting in lieu thereof the following replacement sentence:
"Licensor shall not object to a form of agreement
because of the fees, royalties or advertising fees
proposed to be charged thereunder, provided that the
royalty fees are not less than one percent (1%) and
the royalty fees, advertising fees and reservation
system fees charged by Licensee for SHONEY'S INN,
SHONEY'S SUITES, and SHONEY'S INN & SUITES franchises
do not exceed five percent (5%), two percent (2%) and
one and one-half percent (1.5%), respectively."
3. Except as herein specifically amended, all terms and
provisions of the License Agreement shall remain in full force and
effect.
-2-
<PAGE>
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
agreement all as of the day and date first above written.
LICENSOR: LICENSEE:
SHONEY'S INVESTMENTS, INC. SHOLODGE FRANCHISE SYSTEMS, INC.
By: By:
----------------------- ----------------------------
Title: Title:
------------------- -------------------------
SHOLODGE, INC.
By:
----------------------------
Title:
-------------------------
-3-
<PAGE>
EXHIBIT A
TO
AMENDMENT NO. 3 TO LICENSE AGREEMENT
Copies of Intent-to-Use Applications for
SHONEY'S SUITES and SHONEY'S INN & SUITES
(Omitted)
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of this
11th day of April, 1995, between SHONEY'S, INC., a Tennessee
corporation, whose principal place of business is located at 1727 Elm
Hill Pike, Nashville, Tennessee 37210 (the "Employer"), and C. STEPHEN
LYNN, a resident of Oklahoma County, Oklahoma, whose address is 6907
Avondale Drive, Nichols Hills, Oklahoma 73116 (the "Employee").
1. TERM OF EMPLOYMENT.
1.1 Employment. Employer hereby employs Employee,
and Employee hereby accepts employment with Employer, for the
Employment Term (as hereinafter defined). Notwithstanding anything to
the contrary in this Agreement and subject to the other provisions of
this Agreement, Employee's employment is at the will of Employer.
1.2 Employment Term. The term of this Agreement and the
Employment Term shall be three (3) years, commencing on May 1, 1995,
and terminating on April 30, 1998, unless sooner terminated as herein
provided or extended pursuant to Section 1.3 hereof or by a subsequent
amendment or extension of this Agreement executed by both parties
hereto.
1.3 Extension Because of Change in Control. In the event of a
Change in Control (as hereinafter defined), the Employment Term shall
automatically be extended for two (2) calendar years on the date of
the Change in Control, at which time Employee shall be entitled to
exercise the rights and receive the benefits of this Agreement that
are described in Section 4.2.1 and Section 4.3. For purposes of this
Agreement, a "Change in Control" of Employer shall mean a change in
control of a nature that would be required to be reported in response
to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act");
provided, however, that, without limitation, such a Change in Control
shall be deemed to have occurred if during the Employment Term: (a) any
"person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities
of Employer representing more than fifty percent (50%) of the combined
voting power of Employer's then outstanding voting securities; or (b)
all or substantially all of the assets of the Employer are sold,
exchanged or otherwise transferred (other than to secure debt owed by
the Employer); or (c) the Employer's shareholders approve a plan of
liquidation or dissolution; or (d) individuals who at the
_____ Employer
(Initial Here)
_____ Employee
<PAGE>
beginning of the Employment Term constitute members of the Board of
Directors of Employer cease for any reason other than at the request
or with the concurrence of the Employee to constitute a majority
thereof unless the election, or the nomination for election by
Employer's shareholders, of each new director was approved by a vote
of at least a majority of the directors then still in office who were
directors at the beginning of the Employment Term.
2. DUTIES OF EMPLOYEE.
2.1 General Duties. Employee is hereby employed as the Chairman
of the Board and Chief Executive Officer of Employer with such duties
and responsibilities as Employer's Board of Directors shall designate,
which shall be those duties and responsibilities customarily
prescribed for persons in the position of the Employee. He shall do and
perform all services, acts, or things necessary or advisable to manage
and conduct the business of Employer, subject always to the policies
set forth by Employer's Board of Directors, in accordance with any and
all governing rules and regulations of regulatory agencies.
2.2 Devotion of Entire Time to Employer's Business. Employee
will devote his entire productive time, ability, and attention during
normal business hours to the business of Employer during the
Employment Term. Employee shall not, directly or indirectly, render
any services of a business, commercial, or professional nature to any
other person or organization, whether for compensation or otherwise,
without the prior written consent of Employer's Board of Directors;
provided, however, that the foregoing shall not preclude reasonable
participation as a member in community, civic, or similar
organizations, or the pursuit of personal investments that neither
interfere nor conflict with his normal business activities for Employer.
3. COMPENSATION AND BENEFITS OF EMPLOYEE.
3.1 Salary. As compensation for his services hereunder,
Employee shall receive a base salary (the "Base Salary"), which shall
be payable in accordance with the general payroll practices of
Employer, and which shall be in the following annual amounts for the
periods indicated:
Period Salary
-------------- ----------
May 1, 1995 - April 30, 1996 $450,000.00
May 1, 1996 - April 30, 1997 $500,000.00
May 1, 1997 - April 30, 1998 $550,000.00
The Employer's Board of Directors shall not decrease the Employee's
_____ Employer
(Initial Here)
_____ Employee
-2-
<PAGE>
Base Salary for any period within the Employment Term below the amount
set forth above that is payable during such period.
3.2 Bonuses. Employee shall be entitled to an annual bonus,
the amount of which shall be determined by the Human Resources and
Compensation Committee of Employer's Board of Directors (the
"Committee"); provided, however, that the bonus during the first year
of the Employment Term shall not be less than $300,000. The amount of
such bonus during the second and third years of the Employment Term
shall be determined in accordance with a formula to be agreed upon by
Employer and Employee and approved by the Committee that reflects the
financial performance of the Employer and the Employee's contributions
thereto.
3.3 Restricted Stock.
3.3.1 Shares. Subject to all of the conditions
(including, without limitation, the time of vesting and right to
receive) and restrictions set forth in this Section 3.3.1, Employer
hereby grants to Employee an award of 50,000 shares (the "Restricted
Shares") of the Employer's $1.00 par value common stock (the "Shares").
The Restricted Shares shall become vested in, and shall be distributed
to, the Employee in three (3) installments on each of the dates set
forth below (each of which shall be referred to as a "Distribution
Date," with the three (3) dates being collectively referred to as the
"Distribution Dates") in the following respective amounts:
Number of
Distribution Date Shares
----------------- ---------
April 11, 1996 16,500
April 11, 1997 16,500
April 11, 1998 17,000
------
Total 50,000
======
Immediately following each Distribution Date, the Employer shall
promptly cause its transfer agent to issue a certificate to the
Employee evidencing the Restricted Shares that became distributable to
the Employee on the Distribution Date. The Employer's obligation to
cause the issuance of any stock certificate to Employee shall be
subject to any applicable federal, state, or local tax withholding
requirements. If, prior to a Distribution Date, the Employee's
employment is terminated pursuant to Section 4.1.2 or Section 4.2.2,
all rights of the Employee in any Restricted Shares awarded under this
Section 3.3.1 that, as of the date of such termination, have not become
distributable to the Employee shall thereupon immediately terminate and
become forfeited. Employee shall not have any rights as a shareholder
with respect to any Restricted Shares until the issuance of a stock
_____ Employer
(Initial Here)
_____ Employee
-3-
<PAGE>
certificate evidencing the Restricted Shares. The number of Restricted
Shares awarded the Employee under this Section 3.3.1 shall be
proportionately adjusted to reflect any stock dividend, stock split or
share combination of the Shares or any recapitalization of the Employer
occurring prior to a Distribution Date. Except as provided in the
preceding sentence, no adjustment shall be made on the issuance of a
stock certificate to the Employee as to any dividends or other rights
for which the record date occurred prior to a Distribution Date. The
right of the Employee to receive the Restricted Shares shall not be
assignable or transferable otherwise than by will or the laws of
descent and distribution. If in the opinion of its counsel, the
issuance of any Shares hereunder shall not be lawful for any reason,
including the inability of the Employer to obtain from any regulatory
body having jurisdiction or authority deemed by such counsel to be
necessary for such issuance, the Employer shall not be obligated to
issue any such Restricted Shares, but, in such event, shall be
obligated to provide Employee with cash or non-cash consideration
having equivalent after tax value which is acceptable to the Employee
in the exercise of Employee's reasonable discretion. Upon receipt of
Restricted Shares at a time when there is not in effect under the
Securities Act of 1933, as amended, a current registration statement
relating to the Restricted Shares, the Employee shall represent and
warrant in writing to the Employer that the Restricted Shares are being
acquired for investment and not with a view to the distribution thereof
and shall agree to the placement of a legend on the certificate or
certificates representing the Restricted Shares evidencing the
restrictions on transfer under said Act and the issuance of stop-
transfer instructions by the Employer to its transfer agent with
respect thereto. No Restricted Shares shall be issued hereunder unless
and until the then applicable requirements of the Securities Act of
1933, the Tennessee Business Corporation Act, the Tennessee Securities
Act of 1980, as any of the same may be amended, the rules and
regulations of the Securities and Exchange Commission and any other
regulatory agencies and laws having jurisdiction over or applicability
to the Employer, and the rules and regulations of any securities
exchange on which the Shares may be listed, shall have been fully
complied with and satisfied. Employer shall use its best efforts to
cause all such requirements to be promptly and completely satisfied.
3.3.2 Cash Component. Upon the issuance of a certificate
for any Restricted Shares pursuant to Section 3.3.1, Employee shall be paid
a cash bonus by the Employer. The bonus payable pursuant to the preceding
sentence shall be determined by subtracting the Restricted Share Value from
the Restricted Share Gross Up. "Restricted Share Value" shall mean the
fair market value of any Restricted Shares on the date that they become
_____ Employer
(Initial Here)
_____ Employee
-4-
<PAGE>
distributable to the Employee. "Restricted Share Gross Up" shall mean
an amount equal to the result derived by dividing: (a) the Restricted
Share Value by (b) the Tax Factor. "Tax Factor" shall mean the greater
of: (i) sixty-four percent (64%); or (ii) the difference between one
hundred percent (100%) and the highest marginal individual income tax
rate set forth in the Internal Revenue Code of 1986, as amended, in the
year in which the Employee receives the portion of the Restricted
Shares with respect to which this bonus is being calculated.
3.4 Options to Purchase Stock. Employee shall be
granted, on the dates indicated below, options to purchase Shares in
the respective amounts and at the respective exercise prices.
Number of Exercise
Date Shares Price
---------------- ---------- ---------
November 1, 1995 250,000 $15.25 per share
November 1, 1996 125,000 FMV(1)
November 1, 1996 75,000 $16.75 per share
November 1, 1996 50,000 $18.50 per share
Each of the options to be granted pursuant to this Section 3.4 shall
vest at a cumulative rate of 20% per year, on the first and each
succeeding anniversary date following the respective grant date, and
have a term of 10 years from the date of the grant within which the
option, subject to its having vested, may be exercised. Except as the
terms of such options as set forth in this Section 3.4 may be
inconsistent therewith, the terms and conditions applicable to the
options to be granted pursuant to this Section 3.4 shall otherwise be
those contained in the Shoney's, Inc. 1981 Stock Option Plan, the terms
and conditions of which are incorporated herein by this reference.
3.5 Relocation.
3.5.1 Relocation Expenses. In connection with the
relocation of Employee from Oklahoma City, Oklahoma to Nashville,
- ---------
(1) "FMV" means the closing price of the Shares on the grant
date (November 1, 1996) of the option as reported by the New York Stock
Exchange ("NYSE"); provided that, if there shall be any material
alteration in the present system of reporting sales prices of such
Shares, or if the Shares shall no longer be listed on the NYSE, the
market value of the Shares as of November 1, 1996 shall be determined
in such a method as shall be reasonably determined by the Committee.
Should the NYSE be closed on November 1, 1996, the price shall be
determined as of the last trading date immediately preceding such date.
_____ Employer
(Initial Here)
_____ Employee
-5-
<PAGE>
Tennessee, Employer shall pay and/or reimburse Employee for all
reasonable expenses paid or incurred for the following:
(a) Moving the personal effects and household goods of
Employee and Employee's family to Employee's new residence in
Nashville, Tennessee.
(b) Storing the personal effects and household goods of
Employee and Employee's family for a period not to exceed twelve (12)
months.
(c) All reasonable out of pocket costs of relocating Employee
and Employee's family that are mutually agreed upon in advance between
Employee and the Chairperson of the Committee, it being the intent that
the Employee not incur any unreimbursed cost that results directly from
his relocation.
3.5.2 Residences. Not later than fifteen (15) days
after the date of this Agreement, Employer shall purchase or cause to
be purchased Employee's residence (6907 Avondale Drive, Nichols Hills,
Oklahoma) and Employee's second residence (The Coves at Grand Lake,
Afton, Oklahoma). The amount to be paid to the Employee for each of
the residences shall be an amount equal to the greater of: (a)
Employee's documented cost basis in such residence; or (b) the
appraised fair market value of such residence.
3.6 Life Insurance. Employer, on Employee's behalf and at
Employee's direction, shall pay the standard premiums (up to a maximum
of $35,000 per year) on a whole-life insurance policy or policies
insuring the life of Employee. Any such policy or policies shall be
owned by Employee (or by Employee's irrevocable life insurance trust),
and Employee (or the trustee of Employee's irrevocable life insurance
trust, as the case may be) shall be entitled to designate the
beneficiary thereof.
3.7 Use of Automobile. Employer shall provide to
Employee, at the option of Employee, with either the use of an
automobile pursuant to Employer's automobile policy (of make, model,
and year of manufacture commensurate with the position of Employee) or
a cash car allowance of $7100 per year. Employer shall pay all
expenses of operating, maintaining and repairing the automobile and
shall procure and maintain automobile liability insurance in respect
thereof, with such coverage insuring Employee for bodily injury and
property damage.
3.8 Medical Benefits. Employer shall provide Employee with
medical insurance (which Employer may self insure) benefits in
accordance with the established benefit policies of the Employer.
_____ Employer
(Initial Here)
_____ Employee
-6-
<PAGE>
3.9 Disability Insurance Benefits. Employer shall provide
Employee with disability insurance benefits in accordance with
the established benefit policies of Employer that provide disability
insurance benefits to Employee in an amount equal to seventy percent
(70%) of Employee's annual cash compensation (salary plus bonus).
3.10 Expenses. Employer shall reimburse Employee for all
reasonable and necessary business expenses of Employee incurred in the
conduct of his duties hereunder. Employee shall comply with all
applicable policies of Employer with respect to documentation and
approval of such expenses.
3.11 Vacations. Employee shall be entitled to an annual paid
vacation commensurate with Employer's established vacation policy for
executive officers. The timing of paid vacations shall be scheduled
in a reasonable manner by the Employee.
3.12 Other Benefit Programs. Employee shall be entitled to
participate in all employee benefit, bonus, and similar programs,
including, without limitation, programs of insurance, deferred
compensation arrangements, and all other benefits made available by
Employer to senior management personnel. During the Employment Term,
so long as any additional benefit is made available to senior
management personnel of Employer, such benefit shall be provided to
Employee.
4. TERMINATION OF EMPLOYMENT; SEVERANCE.
4.1 By Employer.
4.1.1 Termination Without Cause. Employer's Board of
Directors may terminate Employee's employment, with or without cause,
at any time by giving written notice of such termination to Employee,
such termination of employment to be effective on a date specified in
such notice; provided, however, that only in the event of such a
termination without cause, Employee shall be entitled to receive the
greater of: (a) an amount equal to the Base Salary and bonus paid or
accrued on Employee's behalf for the fiscal year of Employer
immediately prior to the fiscal year in which the termination took
place; or (b) the amount due Employee for Base Salary during the balance
of the then current Employment Term. Payments shall be made in the case
of the preceding item (a), in twenty-six (26) equal bi-weekly payments
using Employer's regular payroll periods or, in the case of the preceding
item (b), over the balance of the Employment Term at the same time as
current wages and bonuses are normally payable. Employee's participation
in all benefit programs other than those described in Sections 3.6, 3.7,
3.8 and 3.9 shall cease as of the date of termination. Employee's
_____ Employer
(Initial Here)
_____ Employee
-7-
<PAGE>
participation in the benefit programs described in Sections 3.6, 3.7,
3.8 and 3.9 shall continue until the earlier of: (a) such time as
Employee is employed by another employer and (in the case of all
benefit programs other than that described in Section 3.7) is covered
or permitted to be covered by benefit plans of another employer; or (b)
the expiration of then current Employment Term.
4.1.2 Termination for Cause. If Employee is
terminated for cause, Employer shall have no further obligation
whatsoever to Employee hereunder (with the exception of the obligation
to pay Employee's Base Salary and any earned bonus accrued through the
date of termination of employment) and Employee's participation in all
benefit programs shall cease as of the date of termination. For
purposes of this Agreement, "cause" shall mean any one of the
following:
(i) Employee's personal dishonesty;
(ii) Employee's willful misconduct;
(iii) breach of fiduciary duty to Employer (or any of
Employer's subsidiaries) involving personal profit by
Employee;
(iv) conviction of Employee for any felony or crime
involving moral turpitude;
(v) material intentional breach by Employee of any
provision of this Agreement; or
(vi) unsatisfactory performance by Employee of the duties
designated for Employee by Employer's Board of
Directors, if such unsatisfactory performance is a
result of alcohol or drug abuse by Employee.
4.2 Termination by Employee.
4.2.1 Termination After Change in Control. In the event a
Change in Control occurs, Employee, at any time within ninety (90) days
after such Change in Control, may terminate his employment with Employer
by giving not less than sixty (60) nor more than ninety (90) days' prior
written notice of such termination to Employer. In the event that
Employee terminates his employment pursuant to this Section 4.2.1, he
shall be entitled to receive the greater of: (a) an amount equal to two
(2) times the Base Salary and bonus paid or accrued on Employee's behalf
for the fiscal year of Employer immediately prior to the fiscal year in
which the termination took place; or (b) the amount due Employee for
Base Salary during the balance of the then current Employment
_____ Employer
(Initial Here)
_____ Employee
-8-
<PAGE>
Term. Payments shall be made in the case of the preceding item (a),
in fifty-two (52) equal bi-weekly payments using Employer's regular
payroll periods or, in the case of the preceding item (b), over the
balance of the Employment Term at the same time as current wages and
bonuses are normally payable. Employee's participation in all benefit
programs other than those described in Sections 3.6, 3.7, 3.8 and 3.9
shall cease as of the date of termination. Employee's participation
in the benefit programs described in Sections 3.6, 3.7, 3.8 and 3.9
shall continue until the earlier of: (a) such time as Employee is
employed by another employer and (in the case of all benefit programs
other than that described in Section 3.7) covered or permitted to be
covered by benefit plans of another employer; or (b) the expiration of
then current Employment Term.
4.2.2 Termination Other than after Change in Control.
Employee may terminate his employment with Employer at any time without
further obligation whatsoever by either party hereunder (with the
exception of Employer's obligation to pay Employee's Base Salary and any
earned bonus accrued through the date of termination of employment and
except for the obligations and covenants of Employee pursuant to
Sections 5.1, 5.2 and 5.3, which shall survive termination as specified
therein) by giving not less than sixty (60) nor more than ninety (90)
days' prior written notice of such termination to Employer.
4.3 Effect of Termination on Stock Options. In the
event of any termination of this Agreement and the Employment Term
pursuant to Section 4.1.2 or Section 4.2.2, all stock options held by
Employee that are vested prior to the effective date of the termination
shall be exercisable in accordance with their terms, and all stock
options held by Employee that are not vested prior to the effective
date of the termination shall lapse and be void. All stock options
granted to the Employee shall provide (through amendment or otherwise)
that, in the event of any termination of Employee's employment pursuant
to Section 4.1.1 or Section 4.2.1, then, in addition to any other
rights of Employee hereunder, all such options shall become fully
vested and shall be immediately exercisable in accordance with their
respective terms upon such a termination.
5. COVENANT NOT TO COMPETE; NON-DISCLOSURE; NON-SOLICITATION.
5.1 Covenant Not to Compete. Employee acknowledges that
Employer's business is built upon the confidence of its customers,
suppliers, employees, and the general public, and that Employee will
acquire confidential knowledge that should not be divulged or used for
his own benefit. In the event of any termination of Employee's
employment pursuant to Sections 4.1.2, 4.2.1 or 4.2.2,
_____ Employer
(Initial Here)
_____ Employee
-9-
<PAGE>
Employee covenants and agrees that, for a period of one year following
the termination of his employment under this Agreement, he will not,
without the prior written consent of the Employer, engage in, own,
manage, operate, control, or participate in any food service business
that conducts or franchises activities which are the same as or
substantially similar to the restaurant concepts and operations of
Employer (determined as of the date on which Employee's employment
hereunder terminated) as an employer, employee, principal, partner,
director, agent, or otherwise, directly or indirectly, anywhere in the
United States of America. Employee understands and acknowledges that
his violation of this covenant not to compete would cause irreparable
harm to Employer and Employer would be entitled to an injunction by any
court of competent jurisdiction enjoining and restraining Employee from
any employment, service, or other act prohibited by this Agreement.
Employee and Employer recognize and acknowledge that the scope, area
and time limitations contained in this Agreement are reasonable. In
addition, Employee and Employer recognize and acknowledge that the
scope, area and time limitations are properly required for the
protection of the business interests of Employer due to Employee's
status and reputation in the industry and the knowledge to be acquired
by Employee through his association with Employer's business and the
public's close identification of Employee with Employer and Employer
with Employee. The parties agree that nothing in this Agreement shall
be construed as prohibiting Employer from pursuing any other remedies
available to it for any breach or threatened breach of this covenant
not to compete, including, without limitation, the recovery of damages
from Employee or any other person or entity acting in concert with
Employee. Employee also agrees that, in the event he breaches this
covenant not to compete, Employee will pay reasonable attorneys fees
and expenses incurred by Employer in enforcing this covenant not to
compete and that the one (1) year period of time during which Employee
shall be restricted from certain activities hereunder shall be extended
for a period of time equal to any period(s) of time during which
Employee engages in any conduct that violates this Section 5.1, the
purpose of this provision being to secure for the benefit of the
Employer the entire period of time being bargained for by the Employer
for the restriction upon the Employee's activities. Employee
acknowledges and understands that, as consideration for his execution
of this Agreement and his agreement with the terms of this covenant not
to compete, Employee will receive employment by Employer in accordance
with this Agreement. Employer acknowledges that Employee's execution
of this Agreement and agreement with the terms of this covenant not to
compete is consideration for Employer's agreement to employ Employee
pursuant to this Agreement. If any part of this covenant not to
compete is found to be unreasonable, then it may be amended by
appropriate order of a court of competent jurisdiction to the
_____ Employer
(Initial Here)
_____ Employee
-10-
<PAGE>
extent deemed reasonable.
5.2 Non-disclosure of Information. Employee recognizes and
acknowledges that, as a result of his employment by Employer, he will
become familiar with and acquire knowledge of confidential information
and certain trade secrets that are valuable, special, and unique assets
of Employer. Employee agrees that any such confidential information
and trade secrets are the property of Employer. Therefore, Employee
agrees that, for and during the entire Employment Term, any such
confidential information and trade secrets shall be considered to be
proprietary to Employer and kept as the private records of Employer and
will not be divulged to any firm, individual, or institution except
pursuant to and within the course and scope of Employee's employment
hereunder. Further, upon termination of Employee's employment, the
Employment Term and/or this Agreement for any reason whatsoever,
Employee agrees that he will continue to treat as private and
proprietary to Employer any such confidential information and trade
secrets and will not release any such confidential information and
trade secrets to any person, firm, or institution, or use them to the
detriment of Employer. The parties agree that nothing in this Agreement
shall be construed as prohibiting Employer from pursuing any remedies
available to it for any breach or threatened breach of this Section
5.2, including, without limitation, the recovery of damages from
Employee or any person or entity acting in concert with Employee.
5.3 Non-solicitation. Employee recognizes and acknowledges that,
as a result of his employment by Employer, he will become familiar with
and acquire knowledge of confidential information and certain other
information regarding the employees of the Employer. Therefore, Employee
agrees that, for a period of two (2) years from the date of termination
of Employee's employment, the Employment Term and/or this Agreement,
whichever is later, Employee shall not encourage, solicit or otherwise
attempt to persuade any person in the employment of the Employer to end
his/her employment with the Employer or to violate any confidentiality,
non-competition or employment agreement that such person may have with
the Employer or any policy of the Employer. Furthermore, neither
Employee nor any person acting in concert with the Employee nor any of
Employee's affiliates shall, for a period of one (1) year from the date
of termination of Employee's employment, the Employment Term and/or
this Agreement, whichever is later, employ any person who has been an
employee of Employer unless that person has ceased to be an employee of
Employer for at least six (6) months. The parties agree that nothing
in this Agreement shall be construed as prohibiting Employer from
pursuing any remedies available to it for any breach or threatened
breach of this Section 5.3, including, without limitation, the recovery
of damages from Employee or any person or entity acting in concert
_____ Employer
(Initial Here)
_____ Employee
-11-
<PAGE>
with Employee. Employer shall receive injunctive relief without the
necessity of posting bond or other security, such bond or other
security being hereby waived by Employee.
6. DEATH OR DISABILITY OF EMPLOYEE.
6.1 Death of Employee. In the event Employee dies during the
Employment Term, this Agreement and the Employment Term shall terminate
upon Employee's death. Employee's estate shall be entitled only to any
Base Salary earned but not paid plus any bonus accrued by Employer for
Employee through the date of death, plus an amount equal to the Base
Salary and bonus paid or accrued on Employee's behalf for the fiscal
year of Employer immediately prior to the fiscal year in which the
Employee's death occurred. Such payment shall be paid in lump sum to
the Employee's estate within ninety (90) days after the Employee's death.
6.2 Disability of Employee. Employer has disability insurance
insuring its officers, and Employee is included under such disability
insurance. In the event of the Disability (as hereinafter defined) of
Employee, this Agreement and the Employment Term shall terminate. Upon
a termination resulting from the Disability of Employee, Employee shall
be entitled to receive (i) any Base Salary earned but not paid through
the date that Employee becomes eligible for disability payments under
such disability insurance, and (ii) an amount equal to the Base Salary
and bonus received by Employee in the last full fiscal year of Employer
immediately prior to the Disability of Employee, which amount shall be
payable, at the option of Employee, in a lump sum payment or in equal
installments paid in accordance with the general payroll policies of
Employer over a period not to exceed three (3) years from the
effective date of a termination due to the Disability of Employee;
provided, however, that Employee shall not be entitled to any payments
under this Section 6.2 in the event this Agreement is terminated
pursuant to Section 4.1.2 hereof regardless of whether the "cause" for
which this Agreement is terminated pursuant to Section 4.1.2 also may
constitute a Disability. For purposes of this Agreement, a
"Disability" of Employee shall occur if (i) Employee suffers any mental
or physical condition that materially impairs Employee's ability to
perform the essential functions of his duties hereunder for a period of
ninety (90) consecutive days and (ii) thereafter, Employee, within
fifteen (15) days after Employee receives written notice from Employer
requesting that Employee resume his duties hereunder, is unable or
refuses to do so.
7. GENERAL PROVISIONS.
7.1 No Mitigation. Except as expressly provided to the
_____ Employer
(Initial Here)
_____ Employee
-12-
<PAGE>
contrary herein, Employee shall not be required to mitigate damages or
the amount of any payment provided for under this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment
provided for under this Agreement be reduced by any compensation earned
by Employee as a result of employment by another employer after
Employee's termination or resignation.
7.2 Notices. Any notices to be given hereunder by
either party to the other may be effected by personal delivery in
writing or by mail, registered or certified, postage prepaid with
return receipt requested. Mailed notices shall be addressed to the
parties at the addresses appearing in the introductory paragraph of
this Agreement (to the attention of the Secretary in the case of
notices to Employer), but each party may change such address by written
notice in accordance with this Section 7.1. Notices delivered
personally shall be deemed communicated at the time of actual receipt;
mailed notices shall be deemed communicated as of the third day
following deposit in the United States Mail.
7.3 Entire Agreement. This Agreement supersedes
any and all other agreements, either oral or in writing, between the
parties hereto with respect to the employment of Employee by Employer
and contains all of the covenants and agreements between the parties
with respect to such employment in any manner whatsoever. Each party
to this Agreement acknowledges that no representations, inducements,
promises, or agreements, orally or otherwise, have been made by any
party, or anyone acting on behalf of any party, which are not embodied
herein and that no other agreement shall be valid or binding unless in
writing and signed by the party against whom enforcement of such
agreement is sought. Any modification of this Agreement will be
effective only if it is in writing signed by the party against whom
enforcement of such modification is sought.
7.4 Partial Invalidity. If any provision in this
Agreement is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, the remaining provisions shall nevertheless
continue in full force without being impaired or invalidated in any
way.
7.5 Law Governing Agreement. This Agreement shall
be governed by and construed in accordance with the laws of the State
of Tennessee.
7.6 Waiver of Jury Trial. Employer and Employee
hereby expressly waive any right to a trial by jury in any action or
proceeding to enforce or defend any rights under this Agreement, and
agree that any such action or proceeding shall be tried before a court
and not a jury. Employee and Employer hereby agree that any
_____ Employer
(Initial Here)
_____ Employee
-13-
<PAGE>
action or proceeding to enforce any claim arising out of this Agreement
shall be brought and maintained in any state or federal court having
subject matter jurisdiction and located in Nashville, Tennessee.
Employee irrevocably waives, to the fullest extent permitted by law,
any objection that he may have or hereafter have to the laying of the
venue of any such action or proceeding brought in any court located in
Nashville, Tennessee, and any claim that any such action or proceeding
brought in such a court has been brought in an inconvenient forum.
7.7 Miscellaneous. Failure or delay of either
party to insist upon compliance with any provision hereof will not
operate as and is not to be construed to be a waiver or amendment of
the provision or the right of the aggrieved party to insist upon
compliance with such provision or to take remedial steps to recover
damages or other relief for noncompliance. Any express waiver of any
provision of this Agreement will not operate and is not to be construed
as a waiver of any subsequent breach, irrespective of whether occurring
under similar or dissimilar circumstances. Employee acknowledges and
represents that the services to be rendered by him are unique and
personal. Accordingly, Employee may not assign any of his rights or
delegate any of his duties or obligations under this Agreement. The
rights and obligations of Employer under this Agreement shall inure to
the benefit of and shall be binding upon the successors and assigns of
Employer.
IN WITNESS WHEREOF, Employee has hereunto affixed his hand and
Employer has caused this Agreement to be executed by its duly
authorized officer as of the day and year first above written.
EMPLOYEE: EMPLOYER:
/s/ C. Stephen Lynn SHONEY'S, INC.
- ---------------------------
C. STEPHEN LYNN
By: /s/ Victoria B. Jackson
-------------------------
Title: Chairperson - Human
Resources and Compensation
Committee
-14-
<PAGE>
<TABLE>
<CAPTION>
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE - EXHIBIT 11
Twenty-eight Weeks Ended
May 14, May 15,
1995 1994
------------ ------------
<S> <C> <C>
Earnings per Common Share - Primary
Average Shares outstanding 41,342,515 40,948,818
Net effect of dilutive stock options-based on the treasury
stock method using average market price 104,860 380,706
---------- ----------
Totals 41,447,375 41,329,524
========== ==========
Income from continuing operations before cumulative
effect of change in accounting principle $12,355,484 $ 22,768,235
Income from discontinued operations 6,801,708 8,300,484
Cumulative effect of change in accounting for income taxes 4,468,386
---------- ----------
Net income $19,157,192 $ 35,537,105
========== ==========
Per Share amount:
Income from continuing operations before cumulative
effect of change in accounting principle $ .30 $ .55
Income from discontinued operations .16 .20
Cumulative effect of change in accounting for income taxes .11
---------- ----------
Net income $ .46 $ .86
========== ==========
Earnings per Common Share - Fully Diluted:
Average shares outstanding 41,342,515 40,948,818
Net effect of dilutive stock options-based on the treasury
stock method using the average market price 104,860 391,560
Assumed conversion of 8.5% zero coupon convertible debentures (A) 5,219,323
---------- ----------
Totals 41,447,375 46,559,701
========== ==========
Income from continuing operations before cumulative effect
of change in accounting principle $12,355,484 $22,768,235
Add 8.5% zero coupon convertible debentures interest,
net of income tax (A) 2,136,502
---------- ----------
Total from continuing operations before cumulative effect
of change in accounting principle 12,355,484 24,904,737
Income from discontinued operations 6,801,708 8,300,484
Cumulative effect of change in accounting for income taxes 4,468,386
---------- ----------
Net income $19,157,192 $37,673,607
========== ==========
Per Share amount:
Income from continuing operations before cumulative
effect of change in accounting principle $ .30 $ .53
Income from discontinued operations .16 .18
Cumulative effect of change in accounting for income taxes .10
---------- ----------
Net income $ .46 $ .81
========== ==========
(A) For the first half fiscal 1995, both primary and fully diluted earnings per share utilized
average shares outstanding and common stock equivalents. No consideration was given to the convertible
debentures as they had an anti-dilutive effect.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE - EXHIBIT 11
Twelve Weeks Ended
May 14, May 15,
1995 1994
------------ ------------
<S> <C> <C>
Earnings per Common Share - Primary
Average Shares outstanding 41,424,805 41,088,812
Net effect of dilutive stock options-based on the treasury
stock method using average market price 96,747 341,699
---------- ----------
Totals 41,521,552 41,430,511
========== ==========
Income from continuing operations $ 5,504,784 $13,020,604
Income from discontinued operations 2,988,818 3,844,073
---------- ----------
Net income $ 8,493,602 $16,864,677
========== ==========
Per Share amount:
Income from continuing operations $ .13 $ .31
Income from discontinued operations .07 .09
---------- ----------
Net income $ .20 $ .41
========== ==========
Earnings per Common Share - Fully Diluted:
Average shares outstanding 41,424,805 41,088,812
Net effect of dilutive stock options-based on the treasury
stock method using the average market price 96,747 346,200
Assumed conversion of 8.5% zero coupon convertible debentures (A) 5,214,837
---------- ----------
Totals 41,521,552 46,649,849
========== ==========
Income from continuing operations $ 5,504,784 $ 13,020,604
Add 8.5% zero coupon convertible debentures interest,
net of income tax (A) 922,841
---------- ----------
Total from continuing operations 5,504,784 13,943,445
Income from discontinued operations 2,988,818 3,844,073
---------- ----------
Net income $ 8,493,602 $ 17,787,518
========== ==========
Per Share amount:
Income from continuing operations $ .13 $ .30
Income from discontinued operations .07 .08
---------- ----------
Net income $ .20 $ .38
========== ==========
(A) For the second quarter of fiscal 1995, both primary and fully diluted earnings per share utilized
average shares outstanding and common stock equivalents. No consideration was given to the convertible
debentures as they had an anti-dilutive effect.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS
SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL
STATEMENTS OF SHONEY'S, INC.
FOR THE PERIOD ENDED MAY 14,
1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-29-1995
<PERIOD-START> OCT-31-1994
<PERIOD-END> MAY-14-1995
<CASH> 5,028,346
<SECURITIES> 0
<RECEIVABLES> 15,460,486
<ALLOWANCES> 1,681,376
<INVENTORY> 35,682,872
<CURRENT-ASSETS> 90,462,726
<PP&E> 673,916,912
<DEPRECIATION> 277,431,623
<TOTAL-ASSETS> 557,421,596
<CURRENT-LIABILITIES> 138,646,611
<BONDS> 0
<COMMON> 41,446,671
0
0
<OTHER-SE> (156,221,483)
<TOTAL-LIABILITY-AND-EQUITY> 557,421,596
<SALES> 519,103,883
<TOTAL-REVENUES> 532,755,569
<CGS> 457,280,912
<TOTAL-COSTS> 512,827,085
<OTHER-EXPENSES> 33,945,799
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,600,374
<INCOME-PRETAX> 19,928,484
<INCOME-TAX> 7,573,000
<INCOME-CONTINUING> 12,355,484
<DISCONTINUED> 6,801,708
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,157,192
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
</TABLE>
