<PAGE>
==================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-K/A
(Mark one)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year Ended October 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
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
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $1 per share New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Liquid Yield Option Notes, Due 2004 New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to Form 10-K. [X]
As of January 17, 1995, there were 37,559,091 shares of Shoney's,
Inc., $1 par value common stock held by non-affiliates with an
aggregate market value of $488,268,183.
As of January 17, 1995, there were 41,382,363 shares of Shoney's,
Inc. $1 par value common stock outstanding.
==================================================================
<PAGE>
PART I
ITEM 1. BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS.
Shoney's, Inc. operates and franchises a chain of 1,878
restaurants in 37 states and Canada. The diversified food service
chain consists of five restaurant divisions - Shoney's, Captain
D's, Lee's Famous Recipe, Pargo's and Steakhouses. Systemwide
sales for fiscal 1994 were approximately $2.07 billion. Based on
sales, Shoney's, Inc. is the 17th largest chain restaurant
operator. <F1> Shoney's Restaurants are family restaurants
offering full table service and a broad menu. Captain D's and
Lee's Famous Recipe are quick-service restaurants specializing in
seafood and chicken, respectively. The Company also operates three
casual dining restaurants, as follows: Fifth Quarter - a special
occasion steakhouse, BarbWire's - a country & western style
steakhouse and Pargo's - a contemporary casual dining restaurant
featuring fresh, made-from-scratch dishes.
The Company's commissary includes five distribution centers
that support restaurant operations by providing most of the
necessary food and supplies. In addition, the commissary includes
certain manufacturing operations for meat products and prepackaged
cole slaw.
Mike Rose Foods, Inc. is a private-label manufacturer of salad
dressings, condiments and dry blended products for the food-service
industry. This operation provides products to the Company's
restaurant concepts and to third-party customers.
The Company's fiscal year ends on the last Sunday in October.
Fiscal year 1994 included 52 weeks while fiscal year 1993 included
53 weeks. As a result, the comparisons between the most recent
fiscal years is affected due to the reduced number of days in
fiscal year 1994.
REORGANIZATION. On January 16, 1995, the Company's Board of
Directors announced a reorganization designed to improve the
performance of and grow the Shoney's Restaurant concept. The
reorganization will include 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. The divestiture
process is expected to be completed within 6 to 12 months from the
date of the reorganization announcement.
The discontinued lines of business had net property, plant and
equipment of $56.8 million at October 30, 1994, and had annual
revenues of $145.8 million and earnings before interest and taxes
of $20.9 million for the 1994 fiscal year. In fiscal 1994, these
discontinued lines of business represented approximately 12.6% of
net property, plant and equipment, 12.5% of
- -----------
<F1> Based on 1994 annual survey for U.S. food service revenues
published by Nation's Restaurant News (August 1, 1994).
-1-
<PAGE>
consolidated revenues and 15% 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 and divestitures will be accrued as they are
incurred. However, the Company expects the net result will be a
gain once the sales of these lines of business are consummated.
SHONEY'S RESTAURANTS
CONCEPT. Shoney's Restaurants are full-service, family dining
restaurants that are generally open 18 hours each day, and serve
breakfast, lunch, and dinner. Shoney's menu is diversified to
appeal to a broad spectrum of customer tastes. The menu includes
traditional items such as hamburgers, sandwiches, chicken, seafood,
a variety of pasta and stir-fry dishes, and steaks as well as
desserts. Shoney's also offers its signature features of the soup,
salad and fruit bar and the all-you-care-to-eat breakfast bar.
In addition to its regular menu, Shoney's Restaurants often
feature promotional menu items offering special entrees for a
limited time. These promotional menu items are used to promote new
guest trials and generate greater frequency from existing guests.
Promotions also serve as a vehicle to test new items that, if
popular, may be added to the regular menu. The Company, in
conjunction with its franchisees, is continually modifying the menu
to adapt to new food trends, shifts in consumer demands (e.g., more
interest in health conscious dining) and to keep the menu appealing
to our guests. Management believes that the Shoney's concept
offers greater operational stability than some of its competitors
because of the wide variety offered in the menu.
Shoney's seeks to differentiate itself from competing
restaurants by offering excellent service, warm hospitality and
attractive prices to afford a high-quality overall dining
experience. Shoney's Restaurants place significant emphasis on the
quality of food ingredients, proper preparation methods and
attractive food presentation. Buildings are generally brick veneer
or dryvit exteriors which usually include exterior awnings along
with halide lighting for greater visibility at night. The
Company's franchise agreements require that all Shoney's
Restaurants conform to express standards of appearance, service,
food quality and menu content.
HISTORY. Shoney's Restaurants have been in operation since
1952. There are 922 restaurants in the system, 361 company-owned
and 561 franchised, operating in 34 states as of October 30, 1994.
During 1994, a Shoney's Restaurant was opened for the first time in
Vermont. During fiscal 1994, the Company opened 20 units with a
net increase of 15 units and franchisees opened 30 units with a net
decrease of 8 units.
Sales at company-owned units for the 52 week fiscal year 1994
were $541,446,000 compared to $533,893,000 for the 53 week fiscal
year 1993. The Shoney's concept accounted for 46% of the Company's
revenues in fiscal 1994. Pretax income for the 1994 fiscal year
was $50,906,000. Comparable store sales for fiscal 1994 decreased
.9%, including a menu price increase of 1.8%. The average unit
sales of company-owned units in 1994 were $1,548,000.
-2-
<PAGE>
The Company continued its aggressive capital expenditure
program for the Shoney's Restaurants in 1994. Overall capital
expenditures in 1994 for Shoney's Restaurants were $53,723,000,
with $18,429,000 for remodeling of 77 units compared to the overall
expenditure of $42,382,000 in 1993, with $4,787,000 for remodeling
of 30 units. The remodel program continues to produce acceptable
results and the Company will continue the aggressive remodel
program for Shoney's Restaurants in 1995 with another 70 units
scheduled.
The Company introduced a 120 seat building for Shoney's
Restaurants during 1994. This prototype will be used in smaller
markets and in other areas that the standard 176 seat configuration
would not be practical. The costs for the smaller unit is
approximately 25% less than the standard building.
Annualized sales of company-owned units opened during 1994
were $1,597,000. The average cost of land, buildings and equipment
for the 1994 units was $1,247,000 each. The average sales-to-
investment ratio of the 1994 units was 1.3 to 1.
The advertising program during 1994 focused on food
promotions. The marketing staff has been strengthened and
reorganized on a geographic basis to better target advertising and
promotional programs. Marketing strategies are being designed to
increase both guest frequency and new guest trials.
CAPTAIN D'S
CONCEPT. Captain D's are quick-service seafood restaurants
and offer in-store or drive-through service. They are generally
open every day from 11 a.m. until 11 p.m, serving lunch and dinner.
The typical Captain D's has 90 seats and employs 20 people,
including five management personnel.
Captain D's menu is designed to capitalize on the trend toward
increased per capita consumption of fish and seafood in the U.S.
that has developed in response to increased public awareness of the
benefits of fish and seafood in a well-balanced diet. To broaden
the menu's appeal, Captain D's also offers a variety of non-
seafood items. The menu includes fried, broiled and baked fish, a
variety of chicken and shrimp dishes, fried clams, stuffed crabs,
seafood and tossed salads, baked potatoes, french fries, hush
puppies, green beans, cole slaw, fried okra and a selection of
desserts. Captain D's is constantly striving to develop appealing
new menu items and improve the quality of existing items. New
products include a premium fried shrimp, shrimp creole, broiled
salmon, and blackened fish.
Through an aggressive worldwide purchasing operation conducted
by the Company, Captain D's has reduced its dependence on Cod fish
(for which price and supply have been uncertain in recent years) by
the introduction and use of other high quality whitefish that have
a more predictable supply and price. The Company's commissary
operation purchases bulk quantities of fish and seafood for
distribution to company-owned units along with franchised
-3-
<PAGE>
Captain D's who elect to purchase their food from the Company.
This combined buying power permits the Company to obtain favorable
pricing and sources of supply for fish and seafood, which are in
limited worldwide supply.
The Company's operational strategy for Captain D's is to
increase comparable store sales through the continued introduction
and promotion of distinctive, high quality menu items, emphasis on
fast and reliable service, and maintaining a strong commitment to
high food quality.
HISTORY. Captain D's began operation in 1969 when the Company
opened the first unit in Nashville, Tennessee. There are 643
Captain D's restaurants in 24 states, including 332 company-owned
and 311 franchised units as of October 30, 1994. Captain D's has
the highest average unit volume ($736,000) of any major quick-
service seafood chain.
Sales at company-owned units for the 52 week fiscal year 1994
were $244,535,000 compared to $245,360,000 for the 53 week fiscal
year 1993. The Captain D's concept accounted for 21% of the
Company's revenues in fiscal 1994. Pretax income for the 1994
fiscal year was $20,384,000. Comparable store sales for fiscal
1994 increased 3.9%, including a 2.0% menu price increase.
Captain D's outstanding performance in fiscal 1994 continued
the outstanding performance of fiscal 1993. This performance is
based on the successful operating strategy initiated late in fiscal
1992. This plan, based on extensive customer research, was
designed to increase market share and increase same store sales.
It includes advertising, store remodeling, introduction of new
products and seasonal promotions of a variety of products.
During 1994, Captain D's remodeled 51 company-owned units.
Remodeled units include more windows, enhanced interior and
exterior lighting, brighter colors, neon signs, self-serve drinks
and improved menu boards. Additional landscaping and new, more
visible signage have improved the exterior appearance and street
appeal of the stores.
During fiscal 1994, the division began installing new point-
of-sale computer systems in company-owned units. This system will
provide managers with a variety of daily management reports and
other tools to better manage store inventory, employee scheduling,
and payroll. This system also will enhance store productivity and
permit managers more time for customer service and employee
supervision and training.
OTHER RESTAURANT CONCEPTS
LEE'S FAMOUS RECIPE
CONCEPT. Lee's Famous Recipe are quick-service restaurants
specializing in chicken and offer in-store or drive-through
service. The typical Lee's restaurant seats 64 customers and
generally is open every day from 11:00 a.m. to 11:00 p.m.
-4-
<PAGE>
Lee's menu includes three kinds of chicken (including two
kinds of fried chicken and roast chicken), eleven vegetables and
salads, freshly baked biscuits and a variety of home-style
desserts. Lee's has continually experimented with new products and
enhancements to existing menu items to maintain the competitive
appeal of its products.
Lee's buys fresh chicken in each of its markets to ensure only
the highest quality products are served. All chicken is prepared
for cooking in the store and stringent standards for quality and
freshness are observed.
Management training is an important element of Lee's
operational success. During 1994 Lee's developed nine new training
videotapes for store level operations personnel and ten
supplemental training guides will be introduced in 1995. In
addition, a new manager certification program was introduced which
ensures all new Lee's managers meet stringent training and
experience requirements. Lee's management believes that superior
training produces stronger operational execution, more consistent
food quality and, most importantly, satisfied customers.
The Company's operational strategy for Lee's has been driven
by its consistent performance in satisfying its loyal customers.
Lee's managers are focused on operational details and delivering
quality food and service.
HISTORY. Lee's Famous Recipe was acquired by Shoney's, Inc.
in fiscal 1982, and the Company opened its first units in 1983.
Growth of company-owned units has been focused on controlled
expansion of existing core markets. This approach reduces unit
level operating costs by leveraging advertising and supervisory
costs with existing units. There are 285 Lee's restaurants in 17
states and Canada, including 60 company-owned and 225 franchised
units as of October 30, 1994.
Lee's reported record sales of $39,411,000 for the 52 week
fiscal year 1994, an increase of 7.7% from sales of $36,586,000 for
the 53 week fiscal year 1993. Pretax income for the 1994 fiscal
year was $3,027,000. After five years of consecutive increases,
Lee's pretax margin declined from 8.2% in 1993 to 7.7% in 1994 as
food and labor costs were not offset by menu price increases.
Overall, chicken prices were approximately 3% higher in 1994 than
1993 with only 2% of that cost passed through in menu prices.
Recently, chicken prices have declined as compared to the prior
year and, if they remain at current levels, could contribute to
higher margins for Lee's in 1995.
Comparable store sales increased by 2.5% in 1994, resulting in
a real sales gain of .5% after adjusting for an increase in menu
prices. The average unit sales of company-owned units in 1994 was
$661,000.
-5-
<PAGE>
PARGO'S
CONCEPT. Pargo's are mid-scale, casual dining restaurants
that serve fresh, made-from-scratch entrees designed to cater to a
diverse range of customer tastes. Pargo's goal is to become the
"favorite neighborhood restaurant" in each of its markets.
Management training and development efforts are focused on
achieving a "customer centered" operational approach at each unit.
Pargo's menu includes a variety of appetizers, beef, seafood
and chicken entrees, specialty burgers and sandwich platters, pasta
dishes, daily homemade soups, garden fresh salads, and fresh
breads. The menu also features a number of "Heart Healthy"
offerings to better serve our customers who are interested in lower
fat, lower cholesterol entrees. Pargo's provides a warm
environment for families by offering balloons, coloring books and
crayons for children, a special children's menu with value pricing,
and a "kids eat free" program featured one day each week. Pargo's
menu includes daily specials, a daily "fresh catch" entree, and
periodic food promotional events (featuring a regional cuisine such
as caribbean or cajun inspired dishes).
HISTORY. Pargo's was founded in 1983 and acquired by the
Company in March 1986. There are 15 Pargo's in six states,
including two franchised units. Three new units opened in 1994 in
Greenville, North Carolina; Virginia Beach, Virginia and
Chesapeake, Virginia. The management of Pargo's has reviewed the
operational strategy for the concept during the last two years to
prepare for more growth. Five of the 13 company-owned units (38%)
have been opened in the last two years and the current plans are to
open four new Pargo's in fiscal 1995.
Pargo's sales for the 52 week fiscal year 1994 increased 32%
to $29,984,000 compared to $22,758,000 in the 53 week fiscal year
1993. Pretax income for the 1994 fiscal year rose 28% to
$2,531,000 compared to $1,984,000 in 1993. Comparable store sales
for fiscal 1994 declined 1.2%, including a menu price increase of
.8%. The average unit sales of company-owned units in 1994 was
$2,532,000.
STEAKHOUSES
CONCEPT. Steakhouses include ten Fifth Quarter and three
BarbWire's restaurants. Fifth Quarters are special occasion
steakhouses and BarbWire's are country & western themed
steakhouses. BarbWire's was introduced last year as a vehicle to
convert selected, under-performing Shoney's restaurants to a new
casual dining concept. Both steakhouse concepts are open 12 hours
daily, seven days a week and serve lunch and dinner.
As part of the Company's reorganization (see page 1), the
Company will divest the Fifth Quarter division during 1995 to focus
on its core lines of business. The BarbWire's concept will be
retained because of its strategic relationship with the core
Shoney's Restaurants.
-6-
<PAGE>
BarbWire's offers a variety of mesquite grilled USDA choice
steaks which are cut and aged at the Company's own meat processing
facilities. In addition, BarbWire's offers mesquite grilled
chicken, seafood and burgers, soup, salads, baked potatoes,
homestyle french fries and homemade desserts. Children have a
special menu (which folds into a cowboy hat) with a beverage and
ice cream included with each entree.
The Fifth Quarter's menu includes a wide range of USDA choice
steaks and chops, a variety of chicken and seafood entrees, and
its signature slow-cooked prime rib. Fifth Quarter's also offer
burgers, sandwiches, soups, a host of appetizers and side items, an
extensive salad bar, and a full selection of desserts.
HISTORY. BarbWire's was founded in 1993 when the first unit
opened in Nashville, Tennessee as a conversion from an existing
Shoney's restaurant. Two of the three BarbWire's units are
conversions of company-owned Shoney's restaurants. The BarbWire's
conversions generally have doubled the sales volumes of the
converted Shoney's restaurants with an incremental remodeling
investment of $650,000. Additionally, since the units converted
were in existing Shoney's markets, sales of nearby Shoney's units
also increased after the conversions. The average unit sales
volume of the only unit open all year was $2.1 million. Seven
additional BarbWire's are planned for fiscal 1995.
The Fifth Quarter restaurants began operation in 1973 and
operate ten units, principally in the southeast. The units are
generally stucco exteriors with tudor-style architectural elements.
Interiors are stucco and brick and generally include memorabilia
and photos relevant to each unit's marketplace. Fifth Quarter
restaurants are converting to hickory smoked grills to produce more
flavorful steaks, chicken and grilled fish items. Sales of grilled
steaks have increased at the five units where the new grills were
installed. No new units have been built since November, 1991. The
average unit sales of Fifth Quarters in 1994 were $2,209,000.
Sales for the 52 week fiscal year 1994 of Fifth Quarter and
BarbWire's were $22,094,000 and $3,233,000, respectively. Overall
sales for the Steakhouses Division in 1994 were $25,327,000
compared to $23,383,000 for the 53 week fiscal year 1993. Pretax
income for the Fifth Quarter restaurants in the 1994 fiscal year was
$2,183,000. BarbWire's restaurants reported breakeven operating
results for fiscal year 1994 as a result of start-up costs and other
costs incurred to prepare for future concept expansion. Comparable
store sales for the Fifth Quarter concept in fiscal 1994 decreased
3.1%, including a menu price increase of .3%.
MANUFACTURING AND COMMISSARY OPERATIONS
OPERATIONS AND STRATEGY. The Manufacturing and Commissary
Operations include five distribution facilities and two
manufacturing plants. The Manufacturing Operations include the
meat processing facility and Mike Rose Foods, Inc. The objective
of the Manufacturing and Commissary Operations is to provide
company-owned and franchised restaurants with a reliable source of
quality food products at the lowest practical cost. The Company
utilizes central
-7-
<PAGE>
purchasing of all major food, supply and equipment items for its
restaurants to achieve consistent food quality and control costs.
The Company's ability to maintain consistent quality
throughout its restaurant systems depends in part upon the ability
to acquire food products and related items from reliable sources.
When the supply of certain products is uncertain or prices are
expected to rise significantly, the Company may enter into purchase
contracts or purchase bulk quantities for future use. There were
no material long-term contracts for any food products and adequate
alternative sources are believed to be available for most products.
Certain items, however, are purchased under agreements with vendors
based on the Company's annual expected usage. Such agreements
generally include a pricing schedule for the period covered by the
agreement(s).
Mike Rose Foods, Inc., a wholly-owned subsidiary, is a private-
label manufacturer of salad dressings, condiments and dry blended
products. Mike Rose Foods provides products to the Company's
restaurant concepts and manufactures products to specification for
third-party customers. Mike Rose Foods is a full-service custom
manufacturer with kitchens, testing laboratories and research
facilities located at its Nashville, Tennessee plant.
HISTORY. During 1994, the Company made significant
investments in its Manufacturing and Commissary Operations. A new
distribution facility in Wichita, Kansas replaced the Dallas, Texas
distribution facility. By relocating to Wichita, the Company will
reduce freight costs by $500,000 annually. The meat processing
facility was expanded to 60 million pounds of throughput capacity
and quick freezing equipment was upgraded. The new processing and
freezing equipment at this facility will also permit the Company to
add new products such as soups and vegetables.
Total revenues for Commissary Operations, including
intercompany sales, were $524,407,000 for the 52 week fiscal year
1994 compared to sales of $518,694,000 for the 53 week fiscal year
1993. Comparable store growth and new unit growth of company-owned
and franchised units provide further opportunities for revenue
growth for Commissary Operations. Since 1989, the number of
franchised restaurants that are serviced by the Company's
distribution centers has expanded from 349 to 649.
Total revenues for Mike Rose Foods, including intercompany
sales, were $77,695,000 for the 52 week fiscal year 1994 compared
to sales of $74,260,000 for the 53 week fiscal year 1993.
Intercompany sales for Mike Rose Foods were $27,770,000 and
$27,352,000 for fiscal years 1994 and 1993, respectively.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. Note 1 of
the Notes to Consolidated Financial Statements at pages 29-30 of
Item 8 of this Annual Report on Form 10-K is incorporated herein by
this reference.
-8-
<PAGE>
(c) NARRATIVE DESCRIPTION OF BUSINESS.
(i)-(ii) See (a) above
(iii) Essential supplies and raw materials are available
from several sources and the Company is not dependent upon any
single source of supplies or raw materials.
(iv) The Company considers the Shoney's, Shoney's Inn,
Captain D's, Lee's Famous Recipe, Fifth Quarter, Pargo's and
BarbWire's names and designs to be of substantial economic
benefit to its business. It accordingly deems very significant
to its business the right that it holds to operate and license
restaurant and/or motel operations under these names.
(v) Minor seasonal variations are not significant to the
Company's business.
(vi) The practice of the Company and the industry with
regard to working capital items is not significant to the
Company's business.
(vii) No material part of the Company's business is
dependent upon a single customer or a few customers.
(viii) Backlog of orders is not significant to the
Company's business.
(ix) No material portion of the Company's business is
subject to renegotiation of profits or termination of
contracts or subcontracts at the election of the government.
(x) The Company's business is highly competitive
(usually by means of price, product quality and service) and
the Company competes with a number of national and regional
restaurant chains as well as locally owned restaurants that
specialize in the sale of seafood, sandwiches, fried chicken
and other prepared foods. The Company is unable to determine
its relative competitive position in the industry.
(xi) No material amount has been spent in any of the
last three (3) fiscal years on Company-sponsored research and
development activities or on customer sponsored research
activities relating to the development of new products,
services or techniques or the improvement of existing
products, services or techniques.
(xii) No material amounts were or will be required to be
spent to comply with environmental protection regulations.
(xiii) As of October 30, 1994, the Company employed
approximately 30,000 persons.
-9-
<PAGE>
ITEM 2. PROPERTIES.
The following table sets forth certain information regarding
the Company's restaurant and other properties, <F2> including those
under construction, as of October 30, 1994:
<TABLE>
<CAPTION>
Number of Properties <F3>
Use Total Owned Leased
--- ----- ----- ------
<S> <C> <C> <C>
Office and Commissaries <F4> 10 8 2
Shoney's Restaurants 361 243 118
Captain D's Restaurants 332 232 100
Lee's Famous Recipe Restaurants 60 48 12
Pargo's Restaurants 13 5 8
Fifth Quarter Restaurants 10 5 5
BarbWire's Restaurants 3 3 0
Restaurants Under Construction 6 4 2
--- --- ---
795 548 247
=== === ===
</TABLE>
LEASES
Most of the leases of the Company's restaurant properties are
for periods of approximately 15 years, usually with renewal options
ranging from 5 to 15 years. They provide for minimum rentals,
totalling approximately $8,886,000 in fiscal year 1994, net of
sublease rentals, plus an amount equal to a percentage of sales,
generally 3% to 6% in excess of an agreed sales volume. The Company
is also required to pay property taxes and insurance under most of
the leases. Seventy-nine (79) of the leases expire prior to
October 25, 1999; however, 64 of these leases provide for renewal
options. In fiscal 1994, aggregate rental expense for the 162
restaurant properties not capitalized was approximately $4,562,000,
net of sublease rentals. Notes 6 and 9 of the Notes to
Consolidated Financial Statements on pages 35-38 and 41-48,
respectively, of Item 8 in this Annual Report on Form 10-K are
incorporated herein by reference.
- ---------
<F2> The Company's 779 restaurant properties in operation as of
October 30, 1994 were located in 25 states.
<F3> In addition, the Company owns or leases 73 properties that
are in turn leased to others and 47 parcels of land.
<F4> The Company's principal offices and commissary at
Nashville, Tennessee comprise four buildings of approximately
171,000 square feet on twenty acres of land owned by the Company.
The Company also operates commissaries in Ripley, West Virginia;
Macon, Georgia; Atlanta, Georgia and Wichita, Kansas. The Company's
private label manufacturer of salad dressings and condiments
occupies a facility of approximately 151,000 square feet on 8 acres
of company-owned land in Nashville, Tennessee.
-10-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
J&J SEAFOOD, INC. v. SHONEY'S, INC. - On December 19, 1994,
suit was instituted against the Company in the United States District
Court for the Middle District of Tennessee by J&J Seafood, Inc.
("J&J"), a franchisee of one of the Company's Captain D's restaurants.
The complaint alleges violations of Sections 1 and 2 of the Sherman
Anti-trust Act and a violation of the Tennessee Consumer Protection
Act based upon claims that the Company imposes a "tying" arrangement
by requiring franchisees to purchase food products from the
Company's commissary. The plaintiff purports to act on behalf of
a similarly situated class of plaintiffs; however, there has been
no motion filed to certify the case as a class action nor has the
case been certified as a class action. The complaint seeks damages
for the alleged class in an amount not to exceed $500 million and
treble damages.
The claims asserted in the federal court case are essentially
the same as certain claims made by the same plaintiff in a case
filed against the Company in the Chancery Court for Davidson County,
Tennessee; however, in the state court case, the claims are made
only by J&J (as distinguished from being made on behalf of a class).
On December 16, 1994 counsel for J&J advised the Company that the
federal court case described in the preceding paragraph would be
filed unless the Company settled the pending state court case by
purchasing J&J's franchised restaurant for $1.65 million, plus
assumption of certain equipment leases. The Company rejected the
demand and the federal court lawsuit was filed.
Management believes it has substantial defenses to the claims
and intends to vigorously defend both J&J's state and federal court
actions. In the opinion of management, the ultimate liability with
respect to this litigation will not materially affect the operating
results or the financial position of the Company.
RONALD COOK AND STEPHEN C. SANDERS v. SHONEY'S, INC. - On
December 30, 1994, suit was instituted against the Company in the
United States District Court for the Middle District of Tennessee by
Ronald Cook and Stephen C. Sanders, who are franchisees of six of
the Company's Shoney's Restaurants. The Company was served with the
suit on January 19, 1995. The complaint alleges causes of action
for fraud, violations of Sections 1 and 2 of the Sherman Anti-trust
Act, RICO, violations of the Tennessee Consumer Protection Act, and
breach of contract. The thrust of plaintiffs' claim is that the
Company has violated the federal anti-trust laws by imposing a
"tying" arrangement requiring Shoney's Restaurant franchisees to
purchase their food products from the Company's commissary by not
providing them with product specifications to be used in
selecting 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 Company's Shoney's Restaurants cooperative
advertising program. Mr. Cook also asserts an individual cause of
action for breach of contract regarding a franchise territory transfer.
The plaintiffs purport to act on behalf of a similarly situated
class of plaintiffs; however, there has been no motion filed to
certify the case as a class action nor has the case been certified
-11-
<PAGE>
as a class action. The complaint does not specify the amount of
damages sought; however, the plaintiffs seek treble damages for
both their anti-trust claims and the Tennessee Consumer Protection
Act claims. They also seek punitive damages on their fraud claim.
Management believes it has substantial defenses to the claims
and intends to vigorously defend this litigation. In the opinion of
management, the ultimate liability with respect to this litigation
will not materially affect the operating results or the financial
position of the Company.
OTHER LITIGATION - 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of the fiscal year covered by this
Annual Report on Form 10-K, no matter was submitted to a vote of
security holders, through the solicitation of proxies or otherwise.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The Company, in accordance with General Instruction G(3) to
Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K, 17
C.F.R. Section 229.401, furnishes the following information with regard
to its executive officers as an additional item in Part I of this
Annual Report on Form 10-K. The following officers are those that
the Company currently deems to be "executive officers", as defined
by the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Name Office Age
- ----- ------- ---
<S> <C> <C>
Taylor H. Henry Chairman of the Board and Chief Executive Officer 58
Charles E. Porter President 51
W. Craig Barber Senior Executive Vice President and 39
Chief Financial Officer
Ronald E. Walker Executive Vice President-Captain D's 44
Harry C. Klapheke, Jr. Division President-Lee's Famous Recipe 46
Kevin Henderson Division President-Steakhouses 44
Robert A. Cooper, Jr. Division President-Pargo's 45
Daniel E. Staudt Division President-Manufacturing and Distribution 45
H. Benny Ball Executive Vice President-Human Resources 46
David L. Dobbs Executive Vice President-Purchasing 43
Charles P. Vaughn, Jr. Vice President-Franchising and Development 34
F.E. McDaniel, Jr. Vice President and Secretary/Treasurer 38
V. Michael Payne Vice President and Controller 43
</TABLE>
There is no family relationship among the above or any of the
directors of the Company.
-12-
<PAGE>
Mr. Henry joined the Company in 1974 and held the position of
Vice President - Finance and Chief Financial Officer until March,
1991 when his title was changed to Senior Vice President - Finance
and Chief Financial Officer. He was elected as a member of the Board
of Directors in June, 1989. He served as Senior Vice President -
Finance and Chief Financial Officer until December, 1992, when he
was elected to his present position.
Mr. Porter was in charge of the Company's manufacturing and
distribution operations from 1982 until December, 1991, although
his title was changed to President of that division in March, 1991.
He was elected Division President - Captain D's in December, 1991.
He was elected President of the Company in January, 1995.
Mr. Barber joined the Company and was elected Assistant
Treasurer in July, 1983. He was elected Treasurer in August, 1988
and served in that position until December, 1992, when he was
elected Vice President - Finance and Chief Financial Officer. He
was elected Senior Executive Vice President and Chief Financial
Officer in January, 1995.
Mr. Walker has held various positions since joining the
Company in 1980, becoming Director of Franchise Operations for the
Captain D's Division in December 1984. He was elected Vice
President of Franchise Operations in December 1986 and promoted to
his present position in January, 1995.
Mr. Klapheke was Director of Marketing for Lee's Famous Recipe
from July 1982 to November 1990. Since November 1990, he has
served as Vice President, Marketing - Lee's Famous Recipe. In
April 1993, he became Vice President of Marketing and Franchising
and was elected to his present position in August, 1994.
Mr. Henderson joined the Company in January, 1986 and was
named Group Vice President of the dinner house division in
December, 1986. He became Division President - Steakhouses in
June, 1990.
Mr. Cooper has worked in the Pargo's concept since 1983. He
served as an area supervisor when the Company acquired that concept
in 1986 and served as director of operations from 1987 until his
election as Division President in December, 1991.
Mr. Staudt joined the Company in 1972. He served as Director
of the Nashville commissary from 1983 until November, 1988, when he
was elected Vice President. He was elected Executive Vice
President - Commissary Operations in December, 1991 and became
Division President - Manufacturing and Distribution in May, 1994.
Mr. Ball joined the Company in 1982 as Director of Personnel
Services. He was named Senior Vice President - Personnel in
December, 1989 and Executive Vice President - Human Resources in
March, 1993.
-13-
<PAGE>
Mr. Dobbs joined the Company's accounting division in 1976 and
served as controller of the Shoney's division. He was assistant
director of franchise field services for the Shoney's Division
prior to becoming director of franchise field services in 1985. He
held that position until 1986, when he became executive director of
purchasing. He was elected Vice President - Purchasing in December,
1987 and Executive Vice President - Purchasing in December, 1991.
Mr. Vaughn joined the Company in 1982 as a site analyst in the
real estate department. He was elected a Vice President in August,
1990 and he was promoted to Vice President - Franchising and
Development in February, 1994.
Mr. McDaniel has served in various accounting and financial
positions since joining the Company in 1981. He was elected
Assistant Secretary in December, 1984 and Secretary in August,
1988. He was elected to the additional position of Treasurer in
December, 1992. He was elected a Vice President of the Company in
March, 1994.
Mr. Payne joined the Company's accounting department in May
1973. He served in various accounting positions before being
appointed Corporate Controller in 1981. He was elected Vice
President and Controller of the Company in December, 1992.
-14-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) MARKET INFORMATION. The Company's common stock is traded
on the New York Stock Exchange under the symbol "SHN." The
following table sets forth the high and low trading prices of the
Company's common stock as reported by the New York Stock Exchange
during each of the fiscal quarters of the prior two fiscal years:
<TABLE>
<CAPTION>
Stock Stock
No. of Market Market
Weeks High Low
----- ------ ------
<S> <C> <C> <C>
1994
First Quarter 16 25 5/8 19 3/4
Second Quarter 12 24 5/8 17 1/8
Third Quarter 12 18 1/8 13 1/2
Fourth Quarter 12 15 7/8 13 3/8
--
52
==
1993
First Quarter 16 26 18 3/4
Second Quarter 12 25 5/8 18 3/8
Third Quarter 12 21 1/4 16 1/2
Fourth Quarter 13 23 3/4 19
--
53
==
</TABLE>
(b) HOLDERS. There were 8,334 shareholders of record as of
January 17, 1995.
(c) DIVIDENDS. The Company has not paid a dividend on its
common shares since the Company's 1988 recapitalization, at which
time, the Company paid a $19.97 per share special distribution.
The Company currently intends to retain all earnings to support the
development and growth of the Company's restaurant concepts and to
retire its outstanding debt obligations. The Company's senior debt
issues: (1) require satisfaction of certain financial ratios and
tests (which become more restrictive each year); (2) impose
limitations on capital expenditures; (3) limit the ability to incur
additional debt, leasehold obligations and contingent liabilities;
(4) prohibit dividends and distributions on common stock; (5)
prohibit mergers, consolidations or similar transactions; and (6)
include other affirmative and negative covenants.
-15-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
FIVE YEAR FINANCIAL SUMMARY
(in thousands except per share data)
Fiscal year ended October 1994 1993(a) 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $1,166,224 $1,139,933 $1,062,271 $ 992,387 $ 929,498
Costs and expenses
Cost of sales 966,898 941,356 873,330 812,282 757,174
General and administrative 61,606 60,738 58,921 56,892 54,286
Litigation settlement (1,700) - 124,500
- -----------------------------------------------------------------------------------------------------------
1,026,804 1,002,094 1,056,751 869,174 811,460
Income before interest expense,
income taxes, extraordinary charge,
and cumulative effect of change in
accounting principle 139,420 137,839 5,520 123,213 118,038
Interest expense 41,237 44,466 51,901 63,907 71,082
- -----------------------------------------------------------------------------------------------------------
Income (loss) before income taxes,
extraordinary charge, and cumulative
effect of change in accounting
principle 98,183 93,373 (46,382) 59,306 46,956
Income taxes 35,589 35,363 (19,805) 21,279 17,374
- -----------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary
charge and cumulative effect of
change in accounting principle 62,594 58,010 (26,577) 38,027 29,582
Extraordinary charge on early
extinguishment of debt (1,037)
Cumulative effect of change in
accounting for income taxes 4,468
- -----------------------------------------------------------------------------------------------------------
Net income (loss) $ 66,025 $ 58,010 $ (26,577)(b) $ 38,027 $ 29,582
===========================================================================================================
Weighted average shares
outstanding (fully diluted) 46,520 45,644 41,049 46,112 45,095
Per share data
Net income (loss)-fully diluted $ 1.51(c) $ 1.35 $ (.65)(b) $ .90 $ .73
Dividends -- -- -- -- --
Total assets $ 557,916 $ 528,092 $ 469,185 $ 431,806 $ 399,844
Long-term debt and obligations
under capital leases $ 414,165 $ 390,054 $ 460,717 $ 542,544 $ 579,070
Shareholders' equity (deficit) $ (136,764) $ (209,988) $ (290,497) $ (265,075) $ (320,794)
Number of restaurants at year-end
Company-owned 779 766 749 737 715
Franchised 1,099 1,099 1,054 967 928
- -----------------------------------------------------------------------------------------------------------
Total restaurants 1,878 1,865 1,803 1,704 1,643
===========================================================================================================
</TABLE>
Notes: (a) - 53 week year.
(b) - Net income before special charge for settlement of
lawsuit was $50,663 or $1.14 per share (see Note 11
to the consolidated financial statements).
(c) - Income before extraordinary charge and cumulative effect
of change in accounting principle was $1.43 per share.
-16-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION.
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 financial statements and notes
thereto.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity is cash provided by
operating activities which totalled $138.1 million in 1994, an
increase of $30.3 million, or 28%, compared to 1993. This increase
was primarily attributable to a decrease in food inventory
(principally fish), an increase in depreciation and amortization
and an increase in cash flow from accounts receivable and deferred
income taxes, which were partially offset by a decrease in accrued
expenses. Cash provided by operating activities in 1993 decreased
$6.0 million when compared to 1992 and was primarily attributable
to an increase in food inventory (principally fish), which was
partially offset by an increase in operating income.
Cash used by investing activities increased in 1994 over 1993
principally due to an $11.9 million increase in capital
expenditures for restaurant remodelings. Cash used by investing
activities increased in 1993 over 1992 principally due to increased
capital expenditures for restaurant remodelings ($9.3 million) and
for new restaurant properties ($7.3 million).
The Company is highly leveraged and therefore seeks to
minimize its interest costs by constantly evaluating alternative
financing arrangements. In July 1993, the Company entered into a
$125 million reducing revolving credit facility expiring October
1997, with reductions in the aggregate credit facility beginning in
1995. This facility was secured by all material assets of the
Company not otherwise pledged. The Company borrowed $25 million
and repaid $10 million under this facility during 1993. This
facility had a floating interest rate, generally 2% over the London
Interbank Offered Rate ("LIBOR"), which was 5.2% at October 31, 1993.
During 1994, the Company's $125 million reducing revolving
credit facility was amended to facilitate redemption of the
Company's outstanding 12% subordinated debentures, which had been
issued in connection with the Company's 1988 recapitalization. The
credit facility was increased to a maximum of $270 million and its
term was extended from 1997 to 1999. The Company's $145.7 million
of outstanding 12% debentures were redeemed at par in July 1994.
The reducing revolving credit facility continues to have a floating
rate of interest (2% over LIBOR) and was 7% at October 30, 1994.
Based on a 7% interest rate, refinancing of the 12% subordinated
debt results in annual interest savings of approximately $7
million. The Company had $240 million outstanding under this
facility at October 30, 1994.
The Company maintains an interest rate risk management program
to limit its exposure to rising short-term interest rates on its
variable rate debt. At October 30, 1994, the Company
-17-
<PAGE>
held interest rate cap agreements for $50 million (notional amount)
for two years and at a maximum LIBOR rate of 7%. These agreements
limit the Company's maximum LIBOR interest rate to 7% on $50
million of its variable rate debt until October 1996.
Also, during 1994 the Company made scheduled payments of $100
million on its senior debt-fixed rate loan, principally from
increased borrowing under the reducing revolving credit facility.
These payments reduced the senior fixed rate debt outstanding to
$60 million, which is due April 1995. The interest rate on this
issue is fixed at 9.78%, with semiannual interest payments each
April and October. The Company has a combination of interest rate
swap agreements, which expire on various dates through April 1995,
that effectively convert the interest rate of this remaining debt
to 6.3%.
During 1993, the Company made the remaining scheduled payments
of $45 million on the original $585 million of bank borrowings
related to the Company's 1988 recapitalization. Principal payments
made on indebtedness during 1992 were $89.4 million, which included
scheduled payments of $30 million and prepayments of $55 million on
the Company's original $585 million of recapitalization bank debt.
The Company's lending agreements contain covenants that impose
limitations on capital expenditures and require satisfaction of
certain financial ratios and tests (such ratios and tests become
more restrictive each year). The covenants also prohibit the
Company from incurring additional indebtedness except under two
existing unsecured lines of credit totalling $30 million (with
$26.2 million available under the lines at October 30, 1994) or
from mortgage financing arrangements. The Company had borrowed
$61.3 million under mortgage financing arrangements at October 30,
1994 with an effective interest rate of 6.9%. On December 21, 1994,
the Company completed a mortgage financing arrangement for $28
million with a floating rate of LIBOR plus 1.25% At December 21,
1994, the effective interest rate for this financing arrangement
was 7.31%. Substantially all of the proceeds from this financing
arrangement were used to reduce the balance outstanding under the
Company's reducing revolving credit facility, and thereby improve
the Company's overall liquidity. The Company is currently
prohibited from paying dividends by its lending agreements.
Proceeds from employee stock options decreased $10.6 million
in 1994 compared with 1993 principally because many of the
outstanding options were at prices in excess of the market price of
the Company's stock during a significant portion of 1994. Proceeds
from employee stock options increased $5.2 million during 1993
principally as a result of the exercise of options granted during
the recapitalization in July 1988, which were to expire in July
1993. Litigation settlement payments of $24.9 million and $22.4
million, respectively, were made during 1994 and 1993 as required
by the consent decree approved in January 1993 (see Note 11 to the
consolidated financial statements).
The Company expects to meet its needs for debt service,
capital expenditures (excluding those for land and buildings which
are expected to be met through mortgage financings), the litigation
settlement and other general corporate purposes through cash
generated by the
-18-
<PAGE>
Company's operations, the Company's reducing revolving credit
facility and its other available lines of credit.
REVENUES
The components of the net increase in revenues during fiscal
1994 and 1993 of $26.3 million (2%) and $77.7 million (7%),
respectively, are summarized as follows:
<TABLE>
<CAPTION>
1994 1993
Amount Amount
(millions) (millions)
----------------------------------------------------------------
<S> <C> <C>
Sales from restaurants opened
or acquired during the year $ 20.6 $ 27.0
Higher sales prices 14.7 10.7
Sales at prior year prices (1.8) (3.8)
Restaurant sales for 53rd week (14.8) 14.8
Manufacturing, franchising and other sales .2 29.1
Other income 7.4 (.1)
-----------------------------------------------------------------
$ 26.3 $ 77.7
=================================================================
</TABLE>
Sales from restaurants opened or acquired during the year
resulted from the opening of 30 and 34 Company-owned units in 1994
and 1993, respectively. The Company sold ten Captain D's units in
Dallas, Texas to a franchisee during 1994, closed two other
Captain D's restaurants and closed five low-volume Shoney's units.
The Company closed 17 restaurants during 1993, including 13 Captain
D's, as a result of a decision to reduce the number of Captain D's
units in the Dallas and Fort Worth, Texas markets. Comparable
store sales of all company-owned units increased .5% for 1994 and
.1% for 1993, resulting in a real decrease of 1.2% for 1994 and
1.1% in 1993 after adjusting for menu price increases. The
Company's recently announced reorganization is designed to focus on
improvement in the performance of Shoney's Restaurants,
particularly comparable store sales.
Other income increased $7.4 million in 1994 as compared with
1993 as the result of several factors. During the first quarter of
1994, the Company sold its minority ownership interests in four
Shoney's Inns to ShoLodge, Inc. ("ShoLodge"), the majority owner,
in exchange for ShoLodge common shares, resulting in a $1.7 million
gain. In conjunction with this sale, the Company also received
prospective registration rights for shares of ShoLodge stock that
may be acquired upon the exercise of certain ShoLodge warrants that
it owns. The Company has classified as trading securities those
warrants for which the Company has registration rights that are
exercisable within one year and recorded their fair value, which
resulted in a gain of approximately $1.5 million during 1994 (see
Note 3 to the consolidated financial statements). These ShoLodge
warrants and common shares are adjusted to their fair value each
quarter with the change in value included in other income.
During 1994, the Company recorded an increase in carrying value
for these securities of $957,000. In addition,
-19-
<PAGE>
during the first quarter of 1994 the Company received $.9 million
from the settlement of certain securities litigation and during the
third quarter recorded gains of $1.6 million from various real
estate transactions.
COSTS AND EXPENSES
Cost of sales includes food and supplies, restaurant labor and
operating expenses. A summary of cost of sales as a percentage of
revenues for the last three fiscal years is shown below:
<TABLE>
<CAPTION>
1994 1993 1992
- -----------------------------------------------------------------
<S> <C> <C> <C>
Food and supplies 41.8% 41.8% 41.2%
Restaurant labor 20.9 21.0 20.9
Operating expenses 20.2 19.8 20.1
- -----------------------------------------------------------------
82.9% 82.6% 82.2%
=================================================================
</TABLE>
Manufacturing and commissary sales increased $2.2 million and
$27.9 million during 1994 and 1993, respectively. When compared to
restaurant sales, these sales have a higher percentage of food
cost. There is no restaurant labor associated with these sales.
Food cost as a percentage of sales was unchanged in 1994 when
compared to 1993 as higher food cost at the restaurant level
(primarily the result of implementing a new menu for Shoney's
Restaurants) was offset by lower food costs for manufacturing and
commissary sales. During 1993, the Company experienced higher
costs for meat products and lower margins in its manufacturing
division which contributed to the increase in food cost.
Restaurant labor increased slightly in 1993 as a percentage of
revenues as the Company incurred higher labor cost at the
restaurant level in a concerted effort to improve service to its
customers. Operating expenses, as a percentage of revenues,
increased in 1994 due to higher depreciation and other costs
associated with the Company's remodeling program for its Shoney's
Restaurants. This increase was partially offset by the settlement
of a lawsuit for $2.0 million against a former worker's
compensation insurance carrier, which reduced insurance expense.
The Company anticipates continued pressure on restaurant operating
margins in 1995 until improvements in comparable store sales are
achieved. Management intends to closely monitor and manage these
costs to the maximum extent practical.
A summary of general and administrative expenses and interest
expense as a percentage of revenues for the last three fiscal years
is shown below.
<TABLE>
<CAPTION>
1994 1993 1992
- -----------------------------------------------------------------
<S> <C> <C> <C>
General and administrative 5.3% 5.3% 5.5%
Interest expense 3.5% 3.9% 4.9%
</TABLE>
General and administrative costs as a percentage of
revenue were unchanged in 1994 and declined in 1993 when compared
to 1992 due primarily to a reduction in legal costs in
1993 of approximately $3.7 million. In addition, the
Company received $3 million during the first
-20-
<PAGE>
quarter of 1993 from certain of its insurance carriers for
recovery of legal fees paid in prior years related to the
discrimination litigation, which also reduced general and
administrative expenses. The benefit from the recovery of legal
fees was partially offset by certain severance expenses associated
with the resignation or termination of certain employees during
the first quarter of 1993 which totalled $3.2 million.
Interest expense as a percentage of revenues declined during
1994 primarily due to the refinancing in July 1994 of $145.7
million of subordinated debentures issued in connection with the
Company's 1988 recapitalization. The refinancing of the debentures
in July 1994 resulted in an extraordinary charge of approximately
$1 million (net of income tax benefits of $.6 million) for the
unamortized portion of the original issue discount and unamortized
debt issue costs. The decline in interest expense during 1993 was
the result of lower average debt outstanding ($1.9 million) and
lower interest rates ($5.5 million).
On January 25, 1993, the Company received final approval of
the settlement in the three and one-half year old class action race
discrimination lawsuit in which plaintiffs had sought minimum
damages of $530 million plus litigation costs and expenses. Under
the settlement, the Company will make available $105 million to pay
potential claims, $25.5 million for litigation costs and class
counsel's expenses as well as an estimated $4.0 million for
administrative costs and payroll taxes. The Company received $2
million from one of its insurance carriers during the third quarter
of 1992 and received an additional $3 million in the first quarter
of 1993. In November 1992 the Company agreed to accept a
settlement of $10 million from another of its insurers to be paid
in three annual installments beginning in fiscal 1993 and included
this amount in the 1992 litigation settlement expense. The Company
is required to pay substantially all of the remaining litigation
settlement liability over the next 3 1/2 years.
The Company incurred a charge to net income in 1992 of $77.2
million related to the settlement (net of insurance recoveries of
$10 million and income taxes). This charge resulted in a net loss
for the year ended October 25, 1992 of $26.6 million or $.65 per
share. Excluding the special charge, net income was $50.7 million
or 33% higher than 1991 while earnings per share were $1.14
compared to $.90 in 1991 and $.73 in 1990.
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 to adjust for this change in estimate for
accrued payroll taxes due on the settlement payments.
The effective income tax rates were 36.2 percent in 1994, 37.9
percent in 1993 and 42.7 percent in 1992. The lower effective tax rate
in 1994, when compared to 1993, was primarily attributable to the
reinstatement of the Targeted Jobs Tax Credit ("TJTC") in August 1993,
the effects of the new tax credit on FICA tips and lower effective
state tax rates. Effective December 31, 1994, the TJTC was suspended
by Congress. Historically, a number of the Company's restaurant
employees have qualified for TJTC, thereby reducing the Company's
-21-
<PAGE>
effective income tax rate. As a result of the repeal of the TJTC,
the Company anticipates that its effective tax rate will increase
in fiscal 1995 to approximately 37.5%. The higher effective tax
rate in 1993, as compared to 1991 (35.9%), was primarily attributable
to an increase in the statutory federal income tax rate and the
suspension of the TJTC from June 1992 through August 1993.
The high effective tax benefit for 1992 was primarily attributable
to the loss incurred due to the litigation settlement (see Note 11 to
the consolidated financial statements).
REORGANIZATION
On January 16, 1995, the Company's Board of Directors
announced a reorganization designed to improve the performance
of and grow the Shoney's Restaurant concept. The reorganization
will include 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. The divestiture
process is expected to be completed within 6 to 12 months from
the date of the reorganization announcement.
For the fiscal year ended October 30, 1994, these discontinued
lines of business represented 12.6% of consolidated net property,
plant and equipment, 12.5% of consolidated revenues and 15% 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 and divestitures will be accrued
as they are incurred. However, the Company expects the net result
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. As part of the divestiture process, the Company
intends to request modifications to certain of its credit agreements
that would permit the Company to utilize the divestiture proceeds
to (1) fund the planned improvements and growth of the Shoney's
Restaurants, (2) retire existing senior indebtedness and (3)
repurchase shares of the Company's stock.
IMPACT OF ACCOUNTING CHANGES
There are no pending accounting pronouncements that when
adopted are expected to have a material effect on the Company's
results of operations or its financial position.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the registrant and its
subsidiaries, together with all notes thereto, are set forth
immediately following this page as pages 23 through 46 of this
Annual Report on Form 10-K.
-22-
<PAGE>
REPORT OF ERNST & YOUNG LLP
Independent Auditors
Shareholders and Board of Directors
Shoney's, Inc.
Nashville, Tennessee
We have audited the accompanying consolidated balance sheet of
Shoney's, Inc. and subsidiaries as of October 30, 1994 and October
31, 1993, and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows for each of the three
fiscal years in the period ended October 30, 1994. Our audits also
included the financial statement schedule listed in the Index of
Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated
financial position of Shoney's, Inc. and subsidiaries at October
30, 1994 and October 31, 1993, and the consolidated results of
their operations and their cash flows for each of the three fiscal
years in the period ended October 30, 1994 in conformity with
generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
As discussed in Note 2 to the consolidated financial statements,
the Company changed its method of accounting for income taxes and
certain investments in debt and equity securities during the year
ended October 30, 1994.
Nashville, Tennessee
January 19, 1995
/S/ ERNST & YOUNG LLP
-23-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
Shoney's, Inc. and Subsidiaries
October 30 October 31
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 4,229,784 $ 7,841,426
Notes and accounts receivable,
less allowance for doubtful
accounts of $1,276,000 in 1994
and $2,061,000 in 1993 20,807,028 24,857,375
Inventories, at lower of cost
(first-in, first-out method) or market 41,621,732 52,795,971
Deferred income taxes 17,821,945 16,576,977
Prepaid expenses and other current assets 10,388,429 5,056,988
----------- ------------
Total current assets 94,868,918 107,128,737
Property, plant and equipment, at cost
Land 121,587,607 115,082,120
Buildings 234,358,647 204,784,770
Buildings under capital leases 20,631,961 20,631,961
Restaurant and other equipment 286,623,835 260,782,665
Leasehold improvements 56,836,699 54,524,751
Rental properties 22,917,082 14,904,472
Construction in progress (estimated
cost to complete: $7,789,000 in
1994 and $8,406,000 in 1993) 13,888,290 13,507,350
----------- -----------
756,844,121 684,218,089
Less accumulated depreciation and
amortization (306,235,908) (280,421,156)
----------- -----------
Net property, plant and equipment 450,608,213 403,796,933
Other assets
Deferred charges and other intangible assets 6,695,862 7,950,725
Other 5,742,782 9,215,940
----------- -----------
Total other assets 12,438,644 17,166,665
----------- -----------
$ 557,915,775 $ 528,092,335
=========== ===========
</TABLE>
See notes to consolidated financial statements
-24-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
Shoney's, Inc. and Subsidiaries
October 30 October 31
1994 1993
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 41,789,157 $ 36,636,478
Federal and state income taxes 3,764,329 2,303,533
Taxes other than income taxes 7,855,367 9,132,476
Employee compensation and related items 36,306,634 39,040,311
Accrued interest expense 2,079,655 7,147,733
Other accrued liabilities 14,564,212 13,658,676
Reserve for litigation settlement due
within one year 23,803,836 25,713,422
Debt and capital lease obligations due
within one year 66,709,213 111,401,224
----------- -----------
Total current liabilities 196,872,403 245,033,853
Long-term debt 402,306,073 377,209,236
Obligations under capital leases 11,859,091 12,845,094
Reserve for litigation settlement 61,673,834 86,413,339
Deferred credits
Income taxes 15,477,405 9,424,823
Income and other liabilities 6,491,210 7,153,808
----------- -----------
Total deferred credits 21,968,615 16,578,631
Commitments and contingencies
Shareholders' equity (deficit)
Common stock, $1 par value:
authorized 100,000,000 shares;
issued 41,185,290 in 1994 and
40,724,536 in 1993 41,185,290 40,724,536
Additional paid-in capital 57,509,644 50,771,605
Retained earnings (deficit) (235,459,175) (301,483,959)
------------ ------------
Total shareholders' equity (deficit) (136,764,241) (209,987,818)
------------ ------------
$ 557,915,775 $ 528,092,335
============ ============
</TABLE>
See notes to consolidated financial statements
-25-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
Shoney's, Inc. and Subsidiaries
Years Ended
----------------------------------------------
October 30 October 31 October 25
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Revenues
Net sales $1,126,515,272 $1,107,419,048 $1,031,505,312
Franchise fees 28,832,721 29,004,086 27,170,126
Other income 10,875,688 3,509,929 3,595,350
------------- ------------- -------------
Total revenues 1,166,223,681 1,139,933,063 1,062,270,788
Costs and expenses
Cost of sales
Food and supplies 487,075,331 476,810,966 437,457,525
Restaurant labor 244,301,840 238,817,307 222,216,211
Operating expenses 235,520,531 225,727,703 213,656,416
------------- ------------- -------------
966,897,702 941,355,976 873,330,152
General and administrative expenses 61,605,878 60,737,735 58,920,887
Interest expense 41,236,895 44,466,374 51,901,382
Litigation settlement (1,700,000) 124,500,000
------------- ------------- -------------
Total costs and expenses 1,068,040,475 1,046,560,085 1,108,652,421
------------- ------------- -------------
Income (loss) before income taxes, extraordinary charge
and cumulative effect of change in accounting principle 98,183,206 93,372,978 (46,381,633)
Provision for income taxes
Current 26,313,000 29,800,000 32,887,000
Deferred 9,276,000 5,563,000 (52,692,000)
------------ ------------ ------------
Total income taxes(benefit) 35,589,000 35,363,000 (19,805,000)
Income (loss) before extraordinary charge
and cumulative effect of change in accounting principle 62,594,206 58,009,978 (26,576,633)
Extraordinary charge on early extinguishment
of debt (net of $623,000 tax benefit) (1,037,808)
Cumulative effect of change in accounting for income taxes 4,468,386
------------ ------------ ------------
Net income (loss) $ 66,024,784 $ 58,009,978 $ (26,576,633)
============ ============ ============
Earnings (loss) per common share
Primary
Income (loss) before extraordinary charge and
cumulative effect of change in accounting principle $1.52 $1.44 ($0.65)
Extraordinary charge on early extinguishment of debt (0.03)
Cumulative effect of change in accounting for income taxes 0.11
---- ---- ----
Net income (loss) $1.60 $1.44 ($0.65)
Fully diluted ==== ==== ====
Income (loss) before extraordinary charge and
cumulative effect of change in accounting principle $1.43 $1.35 ($0.65)
Extraordinary charge on early extinguishment of debt (0.02)
Cumulative effect of change in accounting for income taxes 0.10
---- ---- ----
Net income (loss) $1.51 $1.35 ($0.65)
==== ==== ====
Weighted average shares outstanding
Primary 41,299,061 40,397,906 41,048,979
Fully diluted 46,519,998 45,644,452 41,048,979
</TABLE>
See notes to consolidated financial statements
-26-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Shoney's, Inc. and Subsidiaries
Total
Additional Retained Shareholders'
Common Paid-in Escrow Earnings Equity
Stock Capital Shares (Deficit) (Deficit)
---------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances at October 27, 1991 $39,975,147 $27,867,006 $(332,917,304) $(265,075,151)
Net loss (26,576,633) (26,576,633)
Tax benefits related to
compensation plans 6,009,105 6,009,105
Distributions pursuant to
employee stock option and
stock benefit plans 1,205,889 9,150,211 10,356,100
Conversions of subordinated
convertible debentures 358,493 3,992,083 4,350,576
Contribution of common shares,
net of income taxes 28,938,992 $(48,499,992) (19,561,000)
---------- ---------- ----------- ------------ -----------
Balances at October 25, 1992 41,539,529 75,957,397 (48,499,992) (359,493,937) (290,497,003)
Net income 58,009,978 58,009,978
Tax benefits related to
compensation plans 9,545,177 9,545,177
Distributions pursuant to
employee stock option and
stock benefit plans 1,878,396 14,002,324 15,880,720
Conversions of subordinated
convertible debentures 1,055 13,095 14,150
Retirement of escrow shares,
net of income taxes (2,694,444) (48,746,388) 48,499,992 (2,940,840)
---------- ----------- ---------- ------------ ------------
Balances at October 31, 1993 40,724,536 50,771,605 (301,483,959) (209,987,818)
Net income 66,024,784 66,024,784
Tax benefits related to
compensation plans 1,602,987 1,602,987
Distributions pursuant to
employee stock option and
stock benefit plans 447,708 4,881,018 5,328,726
Conversions of subordinated
convertible debentures 13,046 254,034 267,080
---------- ----------- ---------- ------------ ------------
Balances at October 30, 1994 $41,185,290 $57,509,644 $ --- $(235,459,175) $(136,764,241)
========== ========== ========== ============ ============
</TABLE>
See notes to consolidated financial statements
-27-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Shoney's, Inc. and Subsidiaries
Years Ended
----------------------------------------------
October 30 October 31 October 25
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ 66,024,784 $ 58,009,978 $ (26,576,633)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 43,356,235 39,973,611 39,551,095
Interest on subordinated zero coupon
debt and other noncash charges 12,220,088 10,262,149 9,964,488
Deferred income taxes 9,276,000 5,563,000 (52,692,000)
Equity in earnings of affiliates (255,185) (422,225) (392,844)
Loss on disposal of property, plant and equipment 107,138 1,593,739 1,956,254
Litigation settlement (1,700,000) 124,500,000
Realized and unrealized gains on marketable
equity securities and other assets (4,117,512) (591,503) (555,555)
Cumulative effect of change in accounting
for income taxes (4,468,386)
Changes in operating assets and liabilities:
Notes and accounts receivable 5,578,633 1,302,318 (2,355,394)
Inventories 11,174,239 (19,535,720) 2,037,414
Prepaid expenses (489,992) (898,413) (1,515,558)
Accounts payable 5,209,324 3,233,108 6,096,246
Accrued expenses (6,248,379) 4,704,921 8,327,056
Federal and state income taxes 3,063,784 3,971,537 7,339,002
Deferred income and other liabilities (662,598) 620,039 (1,929,112)
----------- ----------- -----------
Net cash provided by operating activities 138,068,173 107,786,539 113,754,459
Investing activities
Purchases of property, plant and equipment (95,025,917) (76,155,511) (57,622,609)
Proceeds from disposal of property, plant
and equipment 4,816,549 2,533,769 2,618,754
(Increase) decrease in other assets 116,149 4,073,060 (4,111,052)
----------- ----------- -----------
Net cash used in investing activities (90,093,219) (69,548,682) (59,114,907)
Financing activities
Proceeds of long-term debt 245,681,800 35,000,000 20,800,000
Payments on long-term debt and capital lease
obligations (269,772,824) (58,693,802) (89,395,993)
Proceeds from line of credit and short-term debt 114,011,000 186,875,000 144,790,155
Payments on line of credit and short-term debt (118,171,000) (185,960,000) (139,363,155)
Exercise of employee stock options 3,403,776 14,027,541 8,860,065
Payments on litigation settlement (24,949,091) (22,373,239)
Payments for debt issue costs (1,790,257) (3,589,584) (680,736)
----------- ----------- -----------
Net cash used by financing activities (51,586,596) (34,714,084) (54,989,664)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents (3,611,642) 3,523,773 (350,112)
Cash and cash equivalents at beginning of year 7,841,426 4,317,653 4,667,765
----------- ----------- -----------
Cash and cash equivalents at end of year $ 4,229,784 $ 7,841,426 $ 4,317,653
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
-28-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shoney's, Inc. and Subsidiaries
October 30, 1994, October 31, 1993 and October 25, 1992
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include accounts of the
Company and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation. Certain
reclassifications have been made in the consolidated financial
statements to conform to the 1994 basis of presentation.
Property, Plant and Equipment
Depreciation and amortization are provided principally on the
straight-line method over the following estimated useful lives:
buildings--20 to 40 years; rental properties--over the term of the
lease, generally 15 to 20 years; restaurant and other equipment--3
to 15 years; and capital leases and leasehold improvements--lesser
of life of assets or term of lease.
Cash Equivalents
The Company considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
Franchise Fees
Initial franchise fees and market development fees are recorded as
income when the restaurants begin operations and the cash payment
has been received. Franchise fees based on sales of franchisees are
accrued as earned.
Start-up Costs
Start-up costs include only direct incremental costs relating to
new store openings, such as training new employees and related
travel expenses incurred before a new store opens. These costs are
capitalized and then amortized from the opening date over a period
not to exceed one year.
Fiscal Year
The Company's fiscal year ends on the last Sunday in October.
Fiscal years 1994 and 1992 were comprised of 52 weeks as compared
to fiscal year 1993 which had 53 weeks.
Business Segments
For the years 1994, 1993, and 1992, restaurant operations
constituted a dominant segment in accordance with FASB Statement
No. 14, "Financial Reporting for Segments of a Business
Enterprise."
-29-
<PAGE>
Earnings (Loss) per Share
Primary net income per share for 1994 and 1993 has 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. In April 1989, the Company issued zero coupon subordinated
convertible debentures which are not considered common stock
equivalents. Fully diluted net income per share for 1994 and 1993
includes the assumed conversion of these debentures. This
calculation adjusts earnings for interest that would not be paid if
the debentures were converted. Earnings per share for 1993
accounted for the 2,694,444 shares held in escrow at October 25,
1992 as retired effective with the provisional court approval on
November 3, 1992 (see Notes 7 and 11).
The primary and fully diluted loss per share for 1992 was computed
using the average shares outstanding during the year. No
consideration was given to common stock equivalents or the
convertible debentures because these items had an anti-dilutive
effect.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the
balance sheet for cash and cash equivalents approximates fair
value.
Long-term debt: The carrying amounts of the Company's borrowings
under its senior debt-reducing revolving credit facility, senior
debt-taxable variable rate notes and other senior debt with
variable interest rates approximate their fair value. The fair
values of the Company's subordinated zero coupon convertible
debentures were determined based on quoted market prices. The fair
value of other long-term debt, industrial revenue bonds and notes
payable were estimated using discounted cash flow analyses
utilizing the Company's incremental borrowing rates for similar
types of borrowing arrangements.
Interest rate swap and cap agreements: The fair values for the
Company's interest rate swap and cap agreements were based on
estimates of the contracts' values obtained from commercial banks
that are counterparties to those agreements.
Stock purchase warrants of ShoLodge, Inc.: The fair value of the
Company's warrants to purchase common stock of Sholodge, Inc. was
estimated based on the difference in the quoted market price of
Sholodge, Inc. common stock and the exercise price of the related
warrants.
Reserve for litigation settlement: The fair value of the reserve
for litigation settlement was estimated using discounted cash flow
analyses utilizing an interest rate appropriate for an unsecured
loan of a similar term.
-30-
<PAGE>
NOTE 2 - CHANGES IN ACCOUNTING PRINCIPLES
Effective November 1, 1993, the Company adopted FASB Statement No.
109, "Accounting for Income Taxes," through a cumulative effect
adjustment that resulted in an increase to net income of
approximately $4.5 million or $.10 per share (fully diluted).
Statement No. 109 changed 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". Statement No. 115 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 a different accounting
treatment for the change in fair values. There was no cumulative
effect from the adoption of Statement No. 115 because, at the time
of adoption, the Company held no investments in debt or equity
securities.
NOTE 3 - SALE OF SHONEY'S LODGING, INC. AND RELATED INVESTMENTS
During fiscal 1991, the Company sold its lodging division
(operating under the name Shoney's Inns) to ShoLodge, Inc.
("ShoLodge"). The Company will receive a portion of royalties
generated by both existing and future Shoney's Inns licensed by
ShoLodge through October 2001. Two executive officers of the
Company serve on the Board of Directors of ShoLodge. During 1992,
Sholodge completed an initial public offering of stock in which the
Company purchased $555,555 of common stock in ShoLodge pursuant to
its obligation under the stock purchase agreement for the sale of
the lodging division. In addition, as part of the purchase
agreement, the Company received warrants to purchase up to 5% of
the outstanding common stock of ShoLodge. During July 1993, the
Company sold its ShoLodge shares for $1,147,067.
Effective February 16, 1994, the Company sold its minority
ownership interest in four Shoney's Inns to ShoLodge in exchange
for 121,212 shares of ShoLodge. The shares received were recorded
at their fair value of approximately $2.4 million resulting in a
gain of $1.7 million. The ShoLodge shares were classified as
trading securities under FASB Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (see Note 2).
Accordingly, changes in fair value of the ShoLodge shares
subsequent to the transaction are reflected in the results of
operations. During fiscal 1994, the net gain from appreciation in
the fair value of ShoLodge shares was $34,000.
-31-
<PAGE>
The Company owns certain warrants to acquire ShoLodge common stock
that 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 interest described in the preceding paragraph, the
Company was granted future registration rights for the ShoLodge
shares that may be acquired upon exercise of the warrants. Under
the provisions of FASB Statement No. 115, the Company has
classified warrants for which it has stock registration rights
exercisable within one year as trading securities. These warrants
are recorded at their fair value (the difference in the warrant
exercise price and the market price of ShoLodge common stock) at
the time they are classified as trading securities and the
resulting gain is included in the results of operations. During
1994, the Company recorded gains from such ShoLodge warrants of
$1,475,000. Once classified as a trading security, these warrants
are carried at fair value with changes in fair value also reflected
in the results of operations. The fair value of these ShoLodge
warrants increased in value by $923,000 during 1994.
At October 30, 1994, the Company held warrants to purchase 203,996
shares of ShoLodge common stock and owned 121,212 shares of
ShoLodge common stock that were classified as trading securities.
In addition, the Company holds warrants (for which it does not
currently have registration rights exercisable within one year) to
purchase 218,753 shares of ShoLodge common stock at prices ranging
from $8.40 to $13.35 per share. At October 30, 1994, these
warrants had a fair value of $2,453,000 and a carrying value of $0.
NOTE 4 - DEBT ISSUE COSTS
Debt issue costs are capitalized and amortized using the effective
interest method over the term of the related debt issues. Issue
costs of $1,790,000, $3,590,000 and $681,000 relating to various
financings during 1994, 1993 and 1992, respectively, have been paid
and deferred. Amortization of debt issue costs during 1994, 1993
and 1992 was $2,576,000, $2,062,000 and $2,203,000, respectively.
NOTE 5 - INCOME TAXES
Effective November 1, 1993, the Company adopted FASB Statement No.
109, "Accounting for Income Taxes" (see Note 2). As permitted
under the provisions of Statement No. 109, the Company elected not
to restate prior years' financial statements for the effects of
this change. The cumulative effect of adopting Statement No. 109
was to increase income by $4,468,000 or $0.10 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 deferred tax assets for the
expected future tax consequences of temporary differences between
the tax bases and financial reporting bases of assets and
liabilities.
-32-
<PAGE>
Significant components of the Company's deferred tax assets and
liabilities as of October 30, 1994 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Reserve for lawsuit settlement $ 31,420,209
Reserve 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 liabilities 42,813,179
----------
Net deferred tax asset $ 2,344,540
==========
</TABLE>
The balance sheet classification of the net deferred tax asset is
as follows:
<TABLE>
<CAPTION>
<S> <C>
Current deferred tax asset $ 17,821,945
Noncurrent deferred tax liability (15,477,405)
-----------
Net deferred tax asset $ 2,344,540
===========
</TABLE>
No valuation allowance is considered necessary, because 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.
The significant components of the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
Liability Deferred
Method Method
------------ --------------------------
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
Currently payable
Federal $ 22,315,300 $ 26,037,600 $ 27,977,100
State 3,374,700 3,762,400 4,909,900
----------- ---------- ----------
25,690,000 29,800,000 32,887,000
Deferred
Federal 8,174,700 4,829,000 (44,414,900)
State 1,101,300 734,000 (8,277,100)
---------- ---------- ------------
9,276,000 5,563,000 (52,692,000)
---------- ---------- ------------
Total expense(benefit) $ 34,966,000 $ 35,363,000 $(19,805,000)
========== ========== ===========
</TABLE>
Total tax expense for 1994 includes a tax benefit of $623,000
related to the extraordinary charge on early extinguishment of
debt.
-33-<PAGE>
The components of the provision for deferred income taxes for the
years ended October 31, 1993 and October 25, 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
----------- ------------
<S> <C> <C>
Reserve for lawsuit settlement $ 7,250,091 $(47,260,200)
Accelerated depreciation for tax purposes 441,858 (780,975)
Reserves for self insurance (1,613,960) (2,684,307)
Amortization of intangibles (259,179) (258,373)
Other (255,810) (1,708,145)
----------- ------------
Total $ 5,563,000 $(52,692,000)
========== ===========
</TABLE>
The reasons for the difference between total income tax expense and
the amount computed by applying the statutory federal income tax
rates to pretax income were as follows:
<TABLE>
<CAPTION>
Liability Deferred
Method Method
------------ --------------------------
1994 1993 1992
------------ ------------ -----------
<S> <C> <C> <C>
Statutory federal income tax rate 35% 34.8% 34%
Federal income taxes (benefit)
based on statutory rate $ 33,782,839 $ 32,511,910 $(15,769,755)
Adjustments:
State and local income taxes, net
of federal tax benefit 2,909,400 2,930,756 (2,222,330)
Targeted job tax credit (983,046) (267,104) (868,819)
FICA tips credit (591,366)
Dividend exclusion (7,140)
Other (151,827) 187,438 (936,956)
---------- ---------- -----------
Total $ 34,966,000 $ 35,363,000 $(19,805,000)
========== ========== ===========
</TABLE>
The Company made income tax payments of approximately $22,483,000,
$25,784,000 and $25,609,000 during fiscal years 1994, 1993 and
1992, respectively.
-34-
<PAGE>
NOTE 6 - DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
Debt and obligations under capital leases at October 30, 1994 and
October 31, 1993 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
------------ -------------
<S> <C> <C>
Senior debt-reducing revolving credit facility, due in
installments to October 1999 $ 240,000,000 $ 15,000,000
Senior debt-fixed rate, due in April 1995 60,000,000 160,000,000
Senior debt-taxable variable rate notes, due in
varying installments to September 1998 31,500,000 32,200,000
Senior debt-due in installments to April 1998 9,000,000 9,666,667
Senior debt-due in September 1997 20,800,000 20,800,000
Subordinated zero coupon convertible debentures,
due April 2004 80,790,563 74,614,987
Subordinated debentures 12%, due July 2000 144,187,529
Industrial Revenue Bonds, due in varying annual
installments to May 2006 collateralized by land,
buildings, equipment and restricted cash 14,113,750 14,425,000
Notes payable to others, 7.75% to 10.25%, maturing
at varying dates to 2009 ($7,992,970 of these
notes are secured by land, buildings and equipment) 11,824,970 16,794,652
----------- -----------
468,029,283 487,688,835
Obligations under capital leases 12,845,095 13,766,719
----------- -----------
480,874,378 501,455,554
Less amount due within one year 66,709,214 111,401,224
----------- -----------
Amount due after one year $ 414,165,164 $ 390,054,330
=========== ===========
</TABLE>
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. The interest rate for the facility was
at floating rates (the London Interbank Offered Rate ("LIBOR") plus
2% or the announced Alternate Base Rate of the agent bank plus 1%).
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 will remain 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 October 30, 1994, the Company had $240
million outstanding under this facility and the interest rate was
7.0%.
-35-
<PAGE>
Under the terms of the revolving credit facility, the Company
agreed to effect an interest rate risk management program to limit
the Company's exposure to rising short-term interest rates. As of
October 30, 1994, the Company had interest rate cap agreements for
$50 million (notional amount), which have a 7% LIBOR interest rate
cap for a two year period. Under the terms of the cap agreements,
the Company's maximum LIBOR interest rate on $50 million of its
outstanding variable rate debt is effectively capped at 7% until
October 1996. The Company is exposed to loss if one or more
counterparties to the cap agreements default, however, the Company
does not anticipate nonperformance by the counterparties. The
contract or notional amount of interest rate cap agreements do not
represent exposure to credit loss. At October 30, 1994, the
interest rate cap agreements had an estimated fair value and a
carrying value of $555,000.
The senior debt-fixed rate loan was also provided by a
syndicate of financial institutions. The interest rate on this
issue is fixed at 9.78%, with semiannual interest payments each
April and October. The Company has a combination of interest rate
swap agreements for $60 million, which expire in April 1995, that
effectively convert the interest rate of this obligation to 6.3%.
The Company is exposed to credit loss if one or more of the
counterparties default, however, the Company does not anticipate
nonperformance by the counterparties. The contract or notional
amount of interest rate swap agreements do not represent exposure
to credit loss. Interest rate swap transactions generally involve
exchanges of fixed and floating interest payment obligations
without exchange of the underlying notional principal amount.
Neither the Company nor the counterparties to these swaps are
required to collateralize their respective obligations under these
agreements. At October 30, 1994, the estimated fair market value
of the Company's interest rate swap agreements was $1.0 million and
they had no carrying value for financial reporting purposes.
The senior debt issues described in the preceding paragraphs
are collateralized by fully perfected first liens on all land,
buildings and improvements owned by the Company and its
subsidiaries not otherwise pledged. The senior debt-reducing
revolving credit facility is also secured by fully perfected
first liens on all other material assets of the Company and its
subsidiaries other than inventory (as to which there is a
negative pledge), all stock of all of the Company's subsidiaries
(including all common shares of a wholly-owned real estate
company that owns 107 of the Company's restaurant properties),
all accounts receivable, machinery and equipment, franchise
agreements, intangible property rights and all other material
tangible and intangible property of the Company and its
subsidiaries.
The senior debt-taxable variable rate notes are sold to
investors through an investment banking corporation. The notes
are secured by standby letters of credit of $33.5 million which
includes the face amount of the notes plus interest for 145 days.
The letters of credit are secured by a reimbursement agreement
and standby note which are collateralized by a fully perfected
first lien on certain land and buildings. Certain fees are
applicable to this transaction which equal 2.18% per annum on
$9.85 million and 2.06% per annum on $21.65 million. The notes
outstanding at October 30, 1994 were issued at 5.07%, which
results in an effective borrowing rate of 7.2% after inclusion of
the fees.
-36-
<PAGE>
The senior debt of $9 million is due in installments to
April 1998 and bears interest at LIBOR plus 1.25%. The loan is
collateralized by a fully perfected first lien on certain land
and buildings. The effective interest rate on this debt at
October 30, 1994 was 6.2%.
The senior debt of $20.8 million is due September 1997 and
bears interest at LIBOR plus 1.5%. The loan is collateralized by
a fully perfected first lien on certain land and buildings. The
effective interest rate on this debt at October 30, 1994 was
6.75%.
These senior debt issues also (1) require satisfaction of
certain financial ratios and tests (which become more restrictive
each year); (2) impose limitations on capital expenditures; (3)
limit the ability to incur additional debt, leasehold obligations
and contingent liabilities; (4) prohibit dividends and
distributions on common stock; (5) prohibit mergers,
consolidations or similar transactions; and (6) include other
affirmative and negative covenants.
Subordinated Zero Coupon Convertible Debentures, Due April 2004
The subordinated zero coupon convertible debentures were
issued in April 1989 at $286.89 per $1,000 note (aggregate amount
$57.736 million). There are no periodic payments of interest. The
issue price represents a yield to maturity of 8.5% based on a
semiannual bond equivalent basis. Each note is convertible into
29.349 shares of the Company's common stock at the option of the
holder. The Company has reserved 5,205,632 shares for future
issuance pursuant to these debentures. The Company was required
to purchase the notes at the option of the holder on April 11,
1994. The Company, at its option, was permitted to pay such
purchase price with cash, shares of common stock or ten year
subordinated extension notes for debentures it was required to
purchase. The Company elected to pay for such purchases in
common stock, but no debentures were tendered for purchase on
April 11, 1994.
Subordinated Debentures 12%, Due July 2000
The 12% subordinated debentures were issued in July 1988
with a par value of $145.7 million and were callable after July
1, 1994. The debentures were redeemed at par on July 2, 1994.
Debt issue costs associated with these debentures were included
in other assets and were being amortized using the effective
interest method over the life of the debentures. As a result of
the redemption, the unamortized portion of the original issue
discount and debt issue costs of $1,661,000 was charged to
expense during the third quarter. This charge is reflected in
the Statement of Operations as an extraordinary charge of
$1,038,000, net of income tax benefits of $623,000.
-37-
<PAGE>
Other Debt Information
The Company has an unsecured line of credit for $20,000,000
with interest payable monthly at the lending bank's index rate
(7.75% at October 30, 1994). There were borrowings of $2,582,000
under the line at October 30, 1994. The line is available
through July 31, 1995 with a three month extension each quarter
at the option of the bank. The Company also has an unsecured
revolving credit facility available through a syndicate of banks
for $10,000,000 with interest payable quarterly at rates based on
the prime lending rate (7.75% at October 30, 1994). Borrowings
under this facility, which expires June 25, 1995 if not
terminated earlier, are due on thirty days notice. As of October
30, 1994, the balance outstanding under this facility was
$1,250,000. The weighted average interest rate for these two
unsecured credit facilities were 6.2%, 5.9% and 6.3% for fiscal
years 1994, 1993, and 1992, respectively.
The Industrial Revenue Bonds include $11,833,750 at interest
rates varying from 8.5% to 11.5% and $2,280,000 at a floating
interest rate, which is the greater of 70% of the thirteen-week
United States Treasury Bill rate or 80% of the interest rate for
United States Treasury Securities with a maturity of thirty
years, subject to a floor of 7.5% and a ceiling of 15%.
Debt and obligations under capital leases maturing in each
of the next five fiscal years are as follows:
1995 1996 1997 1998 1999
- ----------------------------------------------------------------
$66,709,000 $33,085,000 $85,737,000 $84,533,000 $77,660,000
Net interest costs of approximately $866,000, $450,000 and
$655,000 were capitalized as a part of building costs during
1994, 1993 and 1992, respectively. Interest paid during 1994,
1993 and 1992 was approximately $38,202,000, $35,975,000 and
$45,987,000, respectively.
The Company has standby letters of credit outstanding at
October 30, 1994 of $14.4 million in addition to those supporting
the taxable variable rate notes previously described.
The estimated fair value of the Company's debt at October
30, 1994, excluding capital lease obligations, was $469,664,000
compared to the carrying value of $468,029,000.
NOTE 7 - SHAREHOLDERS' EQUITY (DEFICIT)
During the 1992 fiscal year, the Company and a board member
entered into a capital contribution agreement whereby, upon court
approval of a settlement regarding certain litigation (see Note 11),
the Company received a capital contribution of 2,694,444 shares of
-38-
<PAGE>
its common stock. The agreement with the board member was
approved by the Board of Directors without that board member's
participation.
At October 25, 1992, the Company recorded the effect of the
shares held in escrow in shareholder's equity pending
distribution to the Company. During 1993, the court approved the
settlement agreement, and the shares which had been held in
escrow at October 25, 1992 were distributed to the Company and
retired. Shareholders' equity (deficit) was charged with an
estimate of income taxes payable based upon the market price of
the contributed shares at October 25, 1992. This income tax
effect was subsequently adjusted through shareholders' equity
(deficit) in February 1993, based on the current market value of
the shares at the time they were distributed from escrow.
NOTE 8 - STOCK OPTIONS AND STOCK BENEFIT PLANS
The stock option plan originally adopted by the Company in
1969, and as subsequently amended, covered 198,184 and 306,148
shares of the common stock of the Company as of October 30, 1994
and October 31, 1993, respectively. A second stock option plan
adopted in 1981, and as subsequently amended, covered 7,728,047
and 2,967,229 shares of the common stock of the Company as of
October 30, 1994 and October 31, 1993, respectively. The 1981
Plan was amended in December 1993 (with subsequent approval by
the shareholders in March 1994) to (i) extend the date of
termination of the 1981 Plan from September 2, 1996 to September
2, 2001, (ii) increase the number of shares authorized for
issuance by the Stock Option Plan by 5,000,000 and (iii) limit
the number of shares any one employee may be granted in a given
year to 250,000.
All option prices are the same as the market price on the
date of grant. Both plans, prior to the recapitalization,
provided for the issuance of options having terms of up to 10
years which were exercisable 10% per year after one year and in
full after five years. The plan of recapitalization, however,
included an amendment modifying the vesting period for new
options under both plans which allowed options to be exercisable
at the rate of 20% per year for four years and in full after four
years and eight months. Subsequent to the recapitalization, the
1981 plan was amended further to provide that (i) all options
would be exercisable at rates to be determined by the Company's
compensation committee of the Board of Directors, not to exceed
33 1/3% per year and (ii) all options would vest in full upon
death or disability.
The shareholders authorized a stock option plan for
directors under which 200,000 shares of the Company's common
stock may be issued and sold to non-employee directors. Each non-
employee director receives an option to purchase 5,000 shares
upon their initial election to the Board and every five years
thereafter receives an option to purchase 5,000 shares. The option
price is the market price of the Company's common stock on the date
that the option is granted. Each option has a term not to exceed
ten years and is exercisable at the rate of 20% per year and/or in
full in the event of the director's death or disability. No
-39-
<PAGE>
options were granted during 1992 or 1993. During 1994, options
for 10,000 shares were granted to two new directors at a price of
$23.375. Options for ten directors of 49,000 shares at prices
ranging from $14.875 to $23.375 per share were outstanding at
October 30, 1994.
During 1989, the right to grant options under the 1969 plan
expired. Options available for future issuance under the 1981
plan and the director's plan at the end of 1994 and 1993 covered
5,828,677 and 1,044,997 shares, respectively. A summary of
options under the plans is as follows:
<TABLE>
<CAPTION>
Options Shares Option Prices
- ------------------------------- --------- -------------
<S> <C> <C>
Outstanding at October 25, 1992 4,035,003 $ 4.01-$25.75
Issued 1,323,395 $20.63-$25.25
Exercised (1,759,948) $ 4.01-$20.25
Expired or cancelled (1,175,070) $ 6.14-$25.75
----------
Outstanding at October 31, 1993 2,423,380 $ 5.04-$25.75
Issued 509,825 $13.88-$23.63
Exercised (346,184) $ 5.04-$19.13
Expired or cancelled (294,467) $ 5.04-$25.75
----------
Outstanding at October 30, 1994 2,292,554 $ 5.04-$25.75
==========
</TABLE>
During fiscal year 1992, options were exercised for 1,090,373
shares at prices ranging from $4.01 to $17.38. At October 30,
1994 and October 31, 1993, options for 871,750 and 799,979
shares, respectively, were exercisable.
The shareholders also authorized an Employee Stock Purchase Plan
under which 2,012,745 shares of the Company's common stock may be
issued at October 30, 1994. Under the terms of the Plan,
employees may purchase the Company's common stock through payroll
deductions. The purchase price is 85% of the lower of (i) the
average of the closing market prices on the first trading day of
each calendar month or (ii) the closing market price on the last
trading day of each calendar year. The exercise date under the
Plan is the last trading day of the Plan Year and distributions
to employees of 100,124, 96,873 and 106,936 shares were made in
fiscal years 1994, 1993 and 1992, respectively. There have been
no charges to income in connection with the Plan other than
incidental expenses in the administration of the Plan.
The shareholders authorized an Employee Stock Bonus Plan
under which 616,048 shares of the Company's stock may be issued
at October 30, 1994. The awards under the Plan consist of both a
stock and a cash bonus. The stock bonuses vest 10% per year
after one year and in full after five years and are distributed
upon vesting. On each vesting date, a cash bonus also will be
distributed that is equal to 25% of the market value of the
shares being distributed. The maximum shares awarded to any
employee are 1,000 shares on the grant date. As of October 30,
1994, grants of bonuses under this Plan of 29,600 shares were
-40-
<PAGE>
outstanding. The shares distributed and cash bonuses paid
pursuant to this Plan during the past three fiscal years were as
follows:
<TABLE>
<CAPTION>
Year Shares Cash Bonuses
---- ------ ------------
<S> <C> <C>
1992 8,580 $ 52,016
1993 41,575 $ 241,655
1994 1,400 $ 8,094
</TABLE>
NOTE 9 - LEASES
The Company has noncancellable lease agreements for certain
restaurant land and buildings. Substantially all lease agreements
may be renewed for periods ranging from five to fifteen years,
and provide for contingent rentals based on percentages of net
sales (generally 3% to 6%) against which minimum rentals are
applied.
Buildings under capital leases of $20,631,961 at October 30,
1994 and October 31, 1993 and accumulated amortization of
$10,854,382 and $9,767,518 at October 30, 1994 and October 31,
1993, respectively, relate to the building portion of leases
involving land and buildings. Amortization of buildings under
capital leases is included in depreciation expense.
At October 30, 1994, minimum rental commitments under
capital leases and operating leases having an initial or
remaining noncancellable term of one year or more are shown in
the following table:
<TABLE>
<CAPTION>
Capital Operating Sublease
Leases Leases Amounts Total
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 $ 2,380,970 $ 7,102,570 $ (594,404) $ 8,889,136
1996 2,376,535 7,027,933 (579,008) 8,825,460
1997 2,277,079 6,671,300 (507,956) 8,440,423
1998 2,119,430 6,248,168 (427,627) 7,939,971
1999 2,006,862 5,406,490 (415,493) 6,997,859
Thereafter 10,599,150 37,736,132 (3,560,248) 44,775,034
- ---------------------------------------------------------------------------------------
Total minimum rentals 21,760,026 $70,192,593 $(6,084,736) $85,867,883
========================================
Amount representing interest (8,914,931)
----------
Present value of net minimum
rentals $12,845,095
==========
</TABLE>
Contingent rental expense relating to the land and building
portion of capital leases was $1,448,937, $1,463,183 and
$1,526,267 in 1994, 1993 and 1992, respectively.
-41-
<PAGE>
Total rental expense for all leases not capitalized is as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Minimum rentals $7,088,510 $6,676,136 $6,854,950
Contingent rentals 434,524 434,487 433,912
---------- --------- ---------
7,523,034 7,110,623 7,288,862
Sublease rentals (683,964) (630,118) (533,297)
---------- --------- ---------
Total $6,839,070 $6,480,505 $6,755,565
========= ========= =========
</TABLE>
NOTE 10 - COMMITMENTS AND CONTINGENCIES
On October 1, 1992, the Company and Thompson Hospitality,
L.P. ("THL") entered into an agreement to purchase nine and
thirty-one restaurants, respectively, from Marriott Corporation
and Marriott Family Restaurants, Inc. ("Marriott"). All of the
restaurants purchased by the Company and most of the restaurants
purchased by THL will be converted to Shoney's Restaurants. As
part of the transaction, the Company agreed to a contingent
purchase of fifteen restaurants purchased by THL if there is a
default by THL on or before October 2, 1995 in its obligations to
Marriott. The purchase prices for these fifteen restaurants was
pre-determined and the Company's maximum obligation under this
arrangement was $8.7 million. During 1994, the Company, THL and
Marriott agreed to a modification of this contingent purchase
agreement whereby the Company agreed to extend its purchase
obligation to July 2, 1997. In addition, the Company's maximum
obligation was reduced to eleven restaurants and $5.9 million.
In the event of a default by THL, the Company is obligated
to purchase the pre-selected restaurants by paying Marriott the
pre-determined price and taking title to the properties from THL
and Marriott. Accordingly, the fair value of Shoney's, Inc.'s
guarantee of THL would be the difference (if any) between the
value of the restaurant properties acquired and the agreed upon
payments under the guarantee. The Company did not deem it
practical to appraise the underlying value of the restaurant
properties in order to estimate the fair value of this guarantee.
The Company guarantees certain twenty-year leases of
franchisees for an annual fee of approximately $45,000 and is
required to offer to purchase the properties for an amount equal
to the investor's unpaid mortgage ($431,240) at its maturity in
1999. The Company has also guaranteed certain loans totaling
$6,213,422.
NOTE 11 - SETTLEMENT OF DISCRIMINATION LAWSUIT
In April 1989, nine individuals filed suit against the Company,
one of its franchisees, and its former senior chairman alleging
discriminatory actions at certain restaurants owned by the Company
and the franchisee. Seven additional individuals were added later as
-42-
<PAGE>
plaintiffs. On April 27, 1990 plaintiffs requested, and were granted
permission, to amend the complaint to seek back pay, compensatory
damages and equitable relief against the Company and its former
senior chairman in an amount of at least $350 million, punitive
damages against the Company in an amount of at least $100 million
and punitive damages against the former senior chairman in an amount
of at least $80 million. In addition, the plaintiffs sought recovery
of an unspecified amount of litigation costs and expenses, including
reasonable attorneys' fees.
On June 22, 1992, the court certified a class under Title
VII of the Civil Rights Act of 1964 consisting of black
restaurant employees to represent claims of alleged
discriminatory failure to hire, harassment, failure to promote,
discharge and retaliation. This class consisted only of employees
from the Company's "Shoney's" and "Captain D's" restaurant
concepts and the class period was from February 4, 1988 through
April 19, 1991.
On January 25, 1993, the court gave approval to a consent
decree settling this litigation. Under the consent decree, the
Company will make available $105 million to pay potential claims.
The settlement covers all of the Company's restaurant concepts
and the corporate offices from February 4, 1985 through November
3, 1992. In addition, the Company will pay $25.5 million in
plaintiffs' attorneys fees and an estimated $4 million in payroll
taxes and administrative costs. The settlement resulted in a
charge to earnings of $77.2 million, net of insurance recoveries
and applicable taxes, in the fourth quarter of 1992.
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 to adjust for this change
in estimate for accrued payroll taxes due on the settlement.
Under the terms of the consent decree, payments will be made
on a quarterly basis, without interest, on March 1, June 1,
September 1 and December 1. Expected payment obligations (net of
insurance recoveries) under the consent decree in each of the
next five fiscal years are as follows:
1995 1996 1997 1998 1999
- ------------------------------------------------------------------
$20,471,000 $22,992,000 $22,632,000 $15,756,000 $68,000
The Company's reserve for litigation settlement, net of
expected insurance recoveries, at October 30, 1994 had a fair value
of approximately $69.6 million and a carrying value of $82.1 million.
-43-
<PAGE>
NOTE 12 - 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 Restaurants 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.
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.
-44-
<PAGE>
NOTE 13 - QUARTERLY FINANCIAL INFORMATION (Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
Per Share
-------------------------
Income Income
Before Before
Extraordinary Extraordinary
Item and Item and
Cumulative Cumulative
Number Effect of Effect of Fully Stock Stock
of Gross Accounting Net Accounting Diluted Market Market
Weeks Revenues Profit Change Income Change Earnings High Low
----- --------- -------- -------- -------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994
First Quarter 16 $ 339,220 $ 55,880 $ 14,203 $ 18,672(a) $ .33 $ .43 25 5/8 19 3/4
Second Quarter 12 277,540 51,521 16,865 16,865 .38 .38 24 5/8 17 1/8
Third Quarter 12 281,873 50,738 17,254 16,216 .39 .37 18 1/8 13 1/2
Fourth Quarter 12 267,591 41,187 14,272 14,272 .33 .33 15 7/8 13 3/8
-- -------- ------- ------- ------- ---- ----
52 $1,166,224 $199,326 $ 62,594 $ 66,025 $1.43 $1.51
== ======== ======= ======= ======= ==== ====
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993
First Quarter 16 $ 317,672 $ 52,320 $ 12,111 $ 12,111 $ .29 $ .29 26 18 3/4
Second Quarter 12 262,751 47,182 15,122 15,122 .35 .35 25 5/8 18 3/8
Third Quarter 12 274,133 50,056 16,569 16,569 .38 .38 21 1/4 16 1/2
Fourth Quarter 13 285,377 49,019 14,208 14,208 .33 .33 23 3/4 19
-- -------- ------- ------- ------- ---- ----
53 $1,139,933 $198,577 $ 58,010 $ 58,010 $1.35 $1.35
== ======== ======= ======= ======= ==== ====
</TABLE>
(a) The Company's first quarter fiscal 1994 net income shown has been
restated to reflect a correction of the cumulative effect of adopting
FASB Statement No. 109, "Accounting for Income Taxes". In the first
quarter, the Company had estimated the cumulative effect of adopting
Statement No. 109 to be an increase to income of $5.4 million or $.12
per share (fully diluted), resulting in originally reported net income
for the quarter of $19.6 million or $.45 per share (fully diluted).
During the fourth quarter, the Company reassessed the cumulative
effect and found that it had been overstated by approximately $.9
million or $.02 per share. Accordingly, the first quarter results
have been restated to reflect the revised cumulative effect from the
change in accounting for income taxes of $4.5 million or $.10 per
share and such amounts have been reflected in the first quarter net
income and per share amounts in the preceding table.
NOTE 14 -- SUBSEQUENT EVENTS
On January 16, 1995, the Company's Board of Directors
announced a reorganization designed to improve the performance of
and grow the Shoney's Restaurant concept. The reorganization will
include 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, a private label manufacturer of salad dressings,
condiments, and dry blended products. The divestiture process is
expected to be completed within 6 to 12 months from the date of the
reorganization announcement.
The discontinued lines of business had net property, plant and
equipment of $56.8 million at October 30, 1994, and had annual
revenues of $145.8 million and earnings before interest and taxes of
$20.9 million for the fiscal year then ended. In fiscal 1994, these
-45-<PAGE>
discontinued lines of business represented approximately
12.6% of consolidated net property, plant and equipment, 12.5% of
consolidated revenues and 14.9% 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 and divestitures will be accrued as they are incurred.
However, the Company expects the net result will be a gain once the
sales of these lines of business are consummated.
======================================================================
REPORT OF MANAGEMENT
Shoney's, Inc. and Subsidiaries
The management of Shoney's, Inc. has prepared the consolidated
financial statements and related financial information included in
this annual report. Management has the primary responsibility for the
integrity of the consolidated financial statements and other financial
information. The consolidated financial statements have been prepared
in accordance with generally accepted accounting principles
consistently applied in all material respects and reflect estimates
and judgments by management where necessary. Financial information
included throughout this annual report is consistent with the
consolidated financial statements.
The consolidated financial statements have been audited by Ernst &
Young LLP, independent auditors, in accordance with generally accepted
auditing standards. The independent auditors develop and maintain an
understanding of the Company's systems and procedures and perform such
tests and other procedures, including tests of the internal accounting
controls, as they deem necessary to enable them to express an opinion
on the fairness of the consolidated financial statements.
The Company maintains a system of internal accounting control which is
adequate to provide reasonable assurance that assets are safeguarded
and transactions are executed and recorded in accordance with
management's authorization. The adequacy of the Company's internal
accounting controls are under the general oversight of the Audit
Committee of the Board of Directors, consisting of four outside
directors.
Taylor H. Henry W. Craig Barber
Chairman of the Board Senior Executive Vice President
and Chief Financial Officer and Chief Financial Officer
-46
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
There are no Company disclosures required by Item 304 of
Regulation S-K, 17 C.F.R. Section 229.304.
<PAGE> 1
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and principal occupations of all persons nominated to
become directors of the Company are as follows:
<TABLE>
<S> <C>
DENNIS C. BOTTORFF Age -- 50
President Director since 1989
and Chief Executive Officer
First American Corporation
Mr. Bottorff served as President, Chief Operating Officer and as a member of the board of
directors of Sovran Financial Corporation in Norfolk, Virginia until Sovran's merger with
Citizens and Southern Corporation in 1990. At that time, he became President and Chief
Operating Officer of C&S/Sovran Corporation. He resigned from C&S/Sovran Corporation in 1991 to
become President and Chief Executive Officer and a member of the board of directors of First
American Corporation and its subsidiary, First American National Bank in Nashville, Tennessee.
TAYLOR H. HENRY Age -- 58
Chairman of the Board Director since 1989
and Chief Executive Officer
Shoney's, Inc.
Mr. Henry served as Vice President -- Finance and Chief Financial Officer of the Company from
1974 until 1991, when he was elected Senior Vice President -- Finance. He was elected
Chairman of the Board and Chief Executive Officer in December 1992. Mr. Henry also serves on
the board of directors of ShoLodge, Inc., which in 1991 purchased the Company's motel and motel
franchising operations.
CAROLE F. HOOVER Age -- 51
President Director since 1990
Concessions International of Cleveland
Ms. Hoover, since 1984, has served as President of Concessions International of Cleveland, an
airport food and beverage concessionaire. She also serves as President and Chief Executive
Officer of the Greater Cleveland Growth Association.
VICTORIA B. JACKSON Age -- 40
President Director since 1989
and Chief Executive Officer
DSS/ProDiesel, Inc.
Ms. Jackson, since 1979, has served as President and Chief Executive Officer of DSS/ProDiesel,
Inc. (formerly Diesel Sales & Service Co., Inc.), a remanufacturer of fuel injection
components for the diesel industry, based in Nashville, Tennessee. Ms. Jackson also serves as a
member of the board of directors of Whitman Corporation.
WALLACE N. RASMUSSEN Age -- 80
Retired Chairman of the Board Director since 1981
Beatrice Foods, Inc.
Mr. Rasmussen served as Chairman of the Board and Chief Executive Officer of Beatrice Foods,
Inc. until his retirement in June 1979. Mr. Rasmussen also serves as a member of the board of
directors of Dollar General Corporation.
</TABLE>
-47-
<PAGE> 2
<TABLE>
<S> <C>
ALEX SCHOENBAUM Age -- 79
Retired Senior Chairman of the Board Director since 1971
Shoney's, Inc.
Mr. Schoenbaum served as Senior Chairman of the Board of the Company from 1976 until his
retirement from that position in March 1985.
ROBERT T. SHIRCLIFF Age -- 66
Chairman of the Board Director since 1974
The Shircliff Group
Mr. Shircliff served as President of The Shircliff Group (business consultants), Jacksonville,
Florida, from December 1973 until 1987, when he became Chairman of the Board.
B. FRANKLIN SKINNER Age -- 63
Retired Chairman of the Board Director since 1993
BellSouth Telecommunications, Inc.
Mr. Skinner served as a member of the board of directors and as Chairman of the Board and Chief
Executive Officer of Southern Bell Telephone and Telegraph Co. from 1988 until 1991, after
which time he became a member of the board of directors and Chairman of the Board and Chief
Executive Officer of BellSouth Telecommunications, Inc., which was formed in 1991 through the
consolidation of South Central Bell, Southern Bell, and BellSouth Services. He retired from
those positions in 1992.
JAMES R. THOMAS, II Age -- 69
Retired Chairman of the Board Director since 1974
Carbon Industries, Inc.
Mr. Thomas served as President of Carbon Industries, Inc., Charleston, West Virginia, from
November 1974 until February 1982, at which time he was elected Chairman of the Board. He
retired from that position in November 1983. He also serves as a member of the boards of
directors of One Valley Bank, N.A., of Charleston, and The Columbia Gas System, Inc.
CAL TURNER, JR. Age -- 55
Chairman of the Board, President Director since 1993
and Chief Executive Officer
Dollar General Corporation
Mr. Turner serves as a member of the board of directors and as Chairman of the Board, President
and Chief Executive Officer of Dollar General Corporation (discount retail chain), a position
that he has held since 1988. He also serves as a member of the boards of directors of First
American Corporation and Thomas Nelson, Inc.
</TABLE>
All of the nominees listed above currently are seving as members of the
Company's Board of Directors (the "Board"). See also Item 4A, "Executive
Officers of the Registrant" in Part I of this Annual Report on Form 10-K.
-48-
<PAGE> 3
Reports of Beneficial Ownership
Under the securities laws of the United States, the Company's directors,
executive officers and any persons holding more than ten percent of the
Company's common stock (the "Shares") are required to report their ownership of
the Company's common stock and any changes in that ownership to the Securities
and Exchange Commission (the "SEC") and the New York Stock Exchange (the
"NYSE"). These persons also are required by SEC regulations to furnish the
Company with copies of these reports. Specific due dates for these reports
have been established and the Company is required to report in this Annual
Report on Form 10-K any failure to file by these dates during fiscal year 1994.
Based solely on a review of the reports furnished to the Company or written
representations from the Company's directors and executive officers, the
Company believes that all of these filing requirements were satisfied by the
Company's directors, executive officers and ten percent holders during fiscal
year 1994.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid or accrued by the
Company during the three fiscal years ended October 30, 1994 to those persons
who: (i) served as the Company's Chief Executive Officer ("CEO") during fiscal
year 1994; (ii) were the Company's four most highly compensated executive
officers (other than the CEO) serving as of the end of fiscal year 1994; and
(iii) would have been included under item (ii) but for the fact that they were
not serving as executive officers at the end of fiscal year 1994.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
NAME -------------------------------------- -----------------------------
AND OTHER RESTRICTED SECURITIES
PRINCIPAL ANNUAL STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2) OPTIONS COMPENSATION
- ---------------------------- ---- --------- -------- --------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Taylor H. Henry 1994 $372,624 $100,000 -- -- -- $ 25,814(3)
Chairman and Chief 1993 $293,462 $190,688 -- -- 90,000 Shares $ 28,082
Executive Officer......... 1992 $220,000 $188,120 -- -- -- $ 21,612
James W. Arnett, Jr. 1994 $254,339 $ 80,000 -- -- -- $ 22,534(3)(6)
President and Chief 1993 $246,635 $152,550 $12,206(5) -- 37,500 Shares $ 35,093
Operating Officer(4)...... 1992 $235,000 $188,120 $ 2,122(5) -- -- $ 37,791
W. Craig Barber
Senior Executive Vice- 1994 $185,661 $ 50,000 -- -- -- $ 3,964(3)
President and Chief 1993 $169,165 $ 76,275 -- -- 22,500 Shares $ 3,251
Financial Officer......... 1992 $110,523 $ 35,654 -- -- 3,000 Shares $ 2,303
James M. Grout 1994 $202,947 $ 11,000 -- 1,000 Shares 6,000 Shares --
Division President -- 1993 $155,229 $ 24,375 $ 6,103(5) -- 6,000 Shares --
Shoney's Restaurants(7)... 1992 $130,479 $ 41,473 $ 1,061(5) -- 4,000 Shares --
Charles E. Porter 1994 $202,725 $ 60,128 -- 1,000 Shares 25,000 Shares $ 23,735(3)(6)
Division President -- 1993 $185,863 $ 60,128 -- -- 10,500 Shares $ 20,198
Captain D's (4)........... 1992 $165,289 $ 98,000 -- -- 4,500 Shares $ 16,551
</TABLE>
- ---------------
(1) As to "Other Annual Compensation", although executive officers receive
perquisites and other personal benefits (e.g., Company furnished
automobiles), the aggregate amount of such perquisites or other personal
benefits does not exceed the lesser of: (a) $50,000; or (b) 10% of the
annual salary and bonus for any of the persons listed in the Summary
Compensation Table (the "Named Executive Officers").
-49-
<PAGE> 4
(2) Awards made under the stock bonus plan vest and are distributed at the rate
of 10% per year for four years and in full after five years. An employee
receives no dividends and has no other rights as a shareholder with respect
to shares of the Company's common stock ("Shares") awarded under the stock
bonus plan until the Shares vest and are distributed to the employee. At
the time Shares are distributed, the employee also receives a cash award
equal to 25% of the value of the Shares then being distributed to reimburse
the employee for certain taxes. In December 1987, Messrs. Arnett and Grout
received awards under the stock bonus plan of 3,500 and 1,750 Shares
(adjusted for the effects of the Company's 1988 recapitalization),
respectively, valued, as of that date, at $21,500 and $10,750,
respectively. During fiscal year 1993, 2,100 and 1,050 Shares were
distributed, respectively, to Messrs. Arnett and Grout. At the time of the
distribution during fiscal year 1993, the distributions were valued at
$48,825 and $24,413, respectively, which resulted in their receiving tax
equalization bonuses of $12,206 and $6,103, respectively, that are
reflected in the Column labeled "Other Annual Compensation."
(3) Includes amounts paid pursuant to the Company's restaurant group ownership
plans established in prior years, in which partnerships composed of
employees have acquired up to a 30% interest in groups of restaurants.
During fiscal year 1994, the amounts paid to the Named Executive
Officers, respectively, were as follows: Mr. Henry ($25,814), Mr. Arnett
($21,410), Mr. Barber ($3,964) and Mr. Porter ($13,875).
(4) On January 13, 1995, Mr. Arnett resigned as President and Chief Operating
Officer. Mr. Arnett will receive severance payments from January 20, 1995
through January 19, 1996 of approximately $27,900 per month. All payments
will be less deductions for income tax withholding, FICA and any other legal
requirements. The severance payments also are conditioned upon Mr. Arnett's
compliance with certain non-competition and non-disclosure undertakings. On
January 13, 1995, Mr. Porter was elected President of the Company.
(5) Includes tax equalization bonus paid with respect to the receipt of Shares
under the Company's stock bonus plan. See footnote 2.
(6) Includes amounts accrued, but not paid, to provide for possible future
payments under a salary continuation plan that covers certain present and
former employees of the Company. The plan provides for payments of up to
$37,500 per year for ten years following death, disability or retirement at
age 55. During the fiscal year 1994, the amounts accrued, respectively,
were as follows: Mr. Arnett ($1,124); and Mr. Porter ($9,860).
(7) On January 15, 1995, Mr. Grout resigned as Division President - Shoney's
Restaurants. Mr. Grout will receive 26 weekly severance payments of
approximately $4,400 each, beginning January 20, 1995. If at the end of
that 26 week period, Mr. Grout has been unable to obtain other employment,
those payments will be extended until such time as Mr. Grout obtains other
employment for up to 26 additional weeks. All payments will be less
deductions for income tax withholding, FICA and any other legal
requirements. The severance payments also are conditioned upon Mr. Grout's
compliance with certain non-disclosure undertakings.
-50-
<PAGE> 5
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information concerning stock option grants to any Named
Executive Officer who was granted a stock option during fiscal year 1994:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
- ----------------------------------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO EXERCISE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE OPTION TERM
OPTIONS IN FISCAL PRICE EXPIRATION --------------------
NAME GRANTED(1) YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ------------------- ------------- ---------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Mr. Grout.......... 6,000 Shares 1.20% $ 23.625 2-24-99 $39,163 $ 86,540
Mr. Porter......... 25,000 Shares 4.98% $ 13.875 10-13-99 $95,835 $211,771
</TABLE>
- ---------------
(1) The exercise price of the options granted is equal to the market value of
the Shares on the date of grant. These options vest (become exercisable) at
a cumulative rate of 20% per year and in full after four years and eight
months.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
Shown below is information with respect to exercises by any Named Executive
Officer during fiscal year 1994 of options to purchase Shares pursuant to
the Company's stock option plans and information with respect to unexercised
options to purchase Shares held by such officers as of the end of fiscal year
1994:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS HELD AT THE-MONEY OPTIONS AT
OCTOBER 30, 1994 OCTOBER 30, 1994
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Henry....................... 6,125 $ 47,359 18,000 72,000 $ 0 $ 0
Mr. Arnett...................... -- $ -- 14,500 30,000 $ 20,125 $ 0
Mr. Barber...................... -- $ -- 40,050 21,200 $ 160,260 $ 175
Mr. Grout....................... 7,001 $134,517 29,350 11,400 $ 184,613 $ 75
Mr. Porter...................... 28,000 $424,747 6,100 35,400 $ 8,750 $ 250
</TABLE>
The Company has not awarded stock appreciation rights to any employee and
has no long term incentive plans, as that term is defined in SEC regulations.
Also, the Company presently has no defined benefit or actuarial plans covering
any employees of the Company.
-51-
<PAGE> 6
COMPENSATION OF DIRECTORS
Each director who is also an officer of the Company receives no additional
compensation for service on the Board. Directors who are not also officers of
the Company receive a quarterly retainer of $4,000 in addition to $1,000 plus
expenses for each meeting of the Board they attend. Members of Board committees
receive $1,000 plus expenses for each committee meeting they attend.
Also, each non-employee Director participates in the Shoney's, Inc.
Directors' Stock Option Plan (the "Directors' Plan"), which was approved by the
shareholders of the Company on March 19, 1991. Each non-employee Director
received an option for 5,000 Shares as of June 7, 1990, the date the Board
adopted the Directors' Plan. Non-employee Directors initially elected to the
Board subsequent to the adoption of the Directors' Plan receive an option for
5,000 Shares upon their election to the Board. Non-employee Directors, upon the
fifth anniversary of the grant of their most recent option under the Directors'
Plan, will also be awarded an additional option for 5,000 Shares. As of the end
of fiscal year 1994, there were eight participants under the Directors' Plan who
held options covering 39,000 Shares at an exercise price of $14.875 per Share
and two participants under the Directors' Plan who held options covering 10,000
Shares at an exercise price of $23.375 per Share. During 1994, there were no
exercises of options for Shares granted under the Directors' Plan.
EMPLOYMENT CONTRACTS
The Company has employment agreements with Messrs. Henry, Porter and
Barber. Mr. Henry's employment agreement provides for a term from January 17,
1995 through December 31, 1996. There is no provision for renewal or extension
of the term. Under the employment agreement, Mr. Henry is entitled to an annual
salary of $500,000. During the term, Mr. Henry is to serve as the Company's
Chairman of the Board and CEO until such time as his successor is selected,
after which time he will serve as a consultant to the Company through the
remainder of the term of the employment agreement.
The employment agreements with Messrs. Porter and Barber presently provide
for initial terms terminating on January 16, 1997. In addition, if a "Change in
Control" (as defined in the employment agreements generally to mean acquisition
of 20% or more of the Company's outstanding voting securities by any person or
the occurrence of certain changes in the composition of the Board) occurs with
respect to the Company, the employment terms contained in Messrs. Porter's and
Barber's employment agreements are automatically extended for an additional one
year term.
Under the employment agreements, Messrs. Porter and Barber presently
are entitled to base salaries in the amounts of $300,000 and $250,000,
respectively, with increases to be in the sole discretion of the Board. In
addition, the employment agreements provide that Messrs. Porter and Barber are
entitled to annual bonuses. During 1995, these bonuses will be determined by
the Human Resources and Compensation Committee of the Board (the "HRC
Committee") but shall not be less than $100,000 and $50,000, respectively.
Thereafter, the bonuses will be based upon a formula to be agreed upon by the
employee and the Company, however, provisions have been made whereby the annual
bonus shall not be less than $50,000 with respect to Mr. Porter, and $25,000
with respect to Mr. Barber.
Under Mr. Henry's employment agreement, termination of the employee without
cause will result in his receiving his salary through December 31, 1996. Under
Messrs. Porter's and Barber's employment agreements, termination of the employee
without cause will result in the employee's right to receive the greater of (i)
the salary and bonus paid or accrued on the employee's behalf for the fiscal
year of the Company immediately prior to the fiscal year in which the
termination took place or (ii) the amount due the employee for salary and
bonuses during the balance of the then current employment term. In addition,
termination without cause entitles them to be paid a cash amount equal to the
unrealized gain that they have in any unvested stock options. In the event of
the termination for cause or the employee's resignation, the employee is
entitled to no additional severance payments under his employment agreement and
all stock options that are not vested prior to the effective date of the
termination shall lapse and be void. Cause for termination includes personal
dishonesty, willful misconduct, breach of fiduciary duty involving personal
profit, conviction of any felony or crime involving moral turpitude, material
intentional breach of any provision of the employment agreement, or
unsatisfactory performance by the employee of his duties as a result of alcohol
or drug abuse.
-52-
<PAGE> 7
Each employment agreement terminates upon the death or disability of the
employee and the employee is entitled to certain benefits in the event of a
termination resulting from disability. Each employment agreement also contains a
covenant by the employee not to disclose any confidential information and trade
secrets of the Company. Each employment agreement also provides that, in the
event of a termination of the employee's employment for cause or the employee's
resignation, the employee may not compete with the Company for one year within
the United States.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1994, the HRC Committee was composed of Hoover
(Chairperson), Shircliff, Jackson and Rasmussen. None of these persons has at
any time been an officer or employee of the Company or any of its subsidiaries.
In addition, there are no relationships among the Company's executive officers,
members of the HRC Committee or entities whose executives serve on the Board or
the HRC Committee that require disclosure under applicable SEC regulations.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning persons,
other than officers or directors, who, as of February 7, 1995, are the
beneficial owners of more than 5% of the Shares. The Company has no other
class of equity securities outstanding.
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES PERCENT
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
------------------------------------------------------- ------------------ --------
<S> <C> <C>
R.L. Danner............................................ 4,249,302(1) 10.26
2 International Drive, Suite 510
Nashville, TN 37217
Loomis, Sayles & Company, L.P. ........................ 3,824,850(2) 9.3
One Financial Center
Boston, MA 02111
</TABLE>
- ---------------
(1) Includes 83,068 Shares owned by Mrs. Danner, and with respect to which she
has sole voting and investment power, 72,162 Shares held in trust for Mr.
Danner's grandson, over which Mr. Danner has sole voting and investment
power, and 7,101 Shares held in trust for Mr. Danner's son, over which Mrs.
Danner has sole voting and investment power.
(2) Includes 1,771,910 Shares over which Loomis, Sayles & Company, Inc.
("Loomis") has sole voting power. Loomis has shared power to dispose or to
direct the disposition of all 3,824,850 Shares. Loomis is an investment
advisor registered under Section 203 of the Investment Advisors Act of
1940. The information regarding Shares beneficially owned is based upon the
latest Schedule 13G provided to the Company by Loomis.
-53-
<PAGE> 8
The following table sets forth the number of Shares held beneficially,
directly or indirectly, as of February 7, 1995, by all directors and nominees
for director, by the Company's Chief Executive Officer and the Company's four
most highly compensated executive officers other than the Chief Executive
Officer and by all directors and executive officers as a group, together with
the percentage of the outstanding Shares which such ownership represents.
<TABLE>
<CAPTION>
PERCENT
OF CLASS
NAME OF SHARES (* DENOTES LESS
BENEFICIAL OWNER BENEFICIALLY OWNED(1) THAN 1%)
--------------------------------------------- --------------------- ---------------
<S> <C> <C>
James W. Arnett, Jr.(2)................. 90,554 *
W. Craig Barber......................... 29,409 *
Dennis C. Bottorff...................... 12,000 *
James M. Grout(2)....................... 54,755 *
Taylor H. Henry......................... 128,018 *
Carole F. Hoover........................ 4,400 *
Victoria B. Jackson..................... 6,094 *
Dan W. Maddox........................... 190,614(3) *
Charles E. Porter....................... 30,675 *
Wallace N. Rasmussen.................... 8,110 *
Alex Schoenbaum......................... 3,353,535(4) 8.1%
Robert T. Shircliff..................... 55,590 *
B. Franklin Skinner..................... 1,500 *
James R. Thomas, II..................... 7,946 *
Cal Turner, Jr.......................... 6,000 *
All Directors, Nominees for Director and
Executive Officers as a Group......... 4,146,018 10.01%
</TABLE>
- ---------------
(1) Includes Shares subject to existing stock options that are currently
exercisable and convertible securities.
(2) Mr. Arnett resigned as President and Chief Operating Officer of the Company
and as a member of the Board on January 13, 1995. Mr. Grout resigned as
Division President -- Shoney's Restaurants on January 15, 1995.
(3) Includes 18,580 Shares held by Mrs. Maddox, and with respect to which she
has sole voting and investment power. Also includes 2,200 Shares owned by a
limited partnership in which he is a limited partner and 12,000 Shares
owned by the Maddox Foundation. Mr. Maddox, who is 85 and has served as a
member of the Board since 1971, indicated his desire to retire from the
Board at the expiration of his current term and, consequently, was not
presented as a nominee for election to the Board.
(4) Includes 395,342 Shares owned by Mrs. Schoenbaum, 15,055 Shares held by her
as custodian for one of their children, 35,750 Shares owned by the
Schoenbaum Family Foundation and 2,903,388 Shares held in trust by two
banks for Mr. Schoenbaum. With respect to the Shares owned by Mrs.
Schoenbaum and the Shares held by her as custodian, she has sole voting and
investment power. Mr. Schoenbaum has voting and investment power with
respect to 2,703,388 Shares held by one bank but has no voting and
investment power as to 200,000 Shares held by the second bank as trustee.
He does have a 10-year income interest in the trust holding the 200,000
Shares and the governing trust instrument presently gives Mr. Schoenbaum
the ability to require the resignation of the trustee.
-54-
<PAGE> 9
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Board and management continue to attempt to minimize "related party"
transactions. During the fiscal year 1994, except as disclosed above under
Item 11 of this Annual Report on Form 10-K and as set forth below, the
Company's executive officers, directors and nominees for director did not have
significant business relations with the Company and none expects to have
significant business relations with the Company during fiscal year 1995.
During 1994, the Company purchased a parcel of real estate for a Shoney's
Restaurant from Dan W. Maddox, a director of the Company. The purchase price,
which was based upon negotiations between the Company and Mr. Maddox, was
$400,000. During 1994, the prices paid by the Company for real estate for
Shoney's Restaurants ranged from $150,000 to $600,000. In addition, the Company
had previously attempted to purchase a parcel of real estate across the street
from the Maddox property for $435,000. This transaction was reviewed and
approved by the Audit Committee.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) The following documents are filed as a part of this
Annual Report on Form 10-K:
-55-
<PAGE>
(1) The consolidated financial statement schedules
required to be filed by Item 14(d) of this Annual Report on Form
10-K pursuant to Item 601 of Regulation S-K, 17 C.F.R. Section
229.601, as follows:
(a) Schedule VIII-Valuation and qualifying accounts and
reserves, included as Exhibit 99.1.
All other schedules for which provision is made in the
applicable accounting regulation of the Commission are not
required under the related instructions or are inapplicable,
and therefore have been omitted.
(2) Those exhibits required to be filed as Exhibits to this
Annual Report on Form 10-K pursuant to Item 601 of Regulation
S-K, 17 C.F.R. Section 229.601, as follows:
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 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.
4.5 Transfer Agreement dated as of May 15, 1990 among
the Company, The Travelers Corporation, CIBC Inc.
and Canadian Imperial Bank of Commerce, New York
Agency, filed as Exhibit 4.3 and 19.3 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended August 5, 1990 filed with the
Commission on September 19, 1990, and
incorporated herein by this reference.
4.6 Transfer Agreement dated as of May 15, 1990 among
the Company, Equitable Variable Life Insurance
Company, CIBC Inc. and Canadian Imperial Bank of
Commerce, New York Agency, filed as Exhibit 4.4
-56-
<PAGE>
and 19.4 to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 5, 1990
filed with the Commission on September 19, 1990,
and incorporated herein by this reference.**
4.7 Transfer Agreement dated as of May 15, 1990 among
the Company, National Integrity Life Insurance
Company, CIBC Inc. and Canadian Imperial Bank of
Commerce, New York Agency, filed as Exhibit 4.5
and 19.5 to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 5, 1990
filed with the Commission on September 19, 1990,
and incorporated herein by this reference.**
4.8 Transfer Agreement dated as of May 15, 1990 among
the Company, Integrity Life Insurance Company,
CIBC Inc. and Canadian Imperial Bank of Commerce,
New York Agency, filed as Exhibit 4.6 and 19.6 to
the Company's Quarterly Report on Form 10-Q for
the quarter ended August 5, 1990 filed with the
Commission on September 19, 1990, and
incorporated herein by this reference.**
4.9 Transfer Agreement dated as of May 15, 1990 among
the Company, The Equitable of Colorado, Inc.,
CIBC Inc. and Canadian Imperial Bank of Commerce,
New York Agency, filed as Exhibit 4.7 and 19.7 to
the Company's Quarterly Report on Form 10-Q for
the quarter ended August 5, 1990 filed with the
Commission on September 19, 1990, and
incorporated herein by this reference.**
4.10 Transfer Agreement dated as of May 15, 1990 among
the Company, The Travelers Insurance Company,
CIBC Inc. and Canadian Imperial Bank of Commerce,
New York Agency, filed as Exhibit 4.8 and 19.8 to
the Company's Quarterly Report on Form 10-Q for
the quarter ended August 5, 1990 filed with the
Commission on September 19, 1990, and
incorporated herein by this reference.**
4.11 Transfer Agreement dated as of May 15, 1990 among
the Company, The Travelers Indemnity Company,
CIBC Inc. and Canadian Imperial Bank of Commerce,
New York Agency, filed as Exhibit 4.9 and 19.9 to
the Company's Quarterly Report on Form 10-Q for
the quarter ended August 5, 1990 filed with the
Commission on September 19, 1990, and
incorporated herein by this reference.**
4.12 Transfer Agreement dated as of May 15, 1990 among
the Company, The Equitable Life Assurance Society
of the United States, CIBC Inc. and Canadian
Imperial Bank of Commerce, New York Agency, filed
as Exhibit 4.10 and 19.10 to the Company's
Quarterly Report on Form
-57-
<PAGE>
10-Q for the quarter ended August 5, 1990 filed
with the Commission on September 19, 1990, and
incorporated herein by this reference.**
4.13 Transfer Agreement dated as of May 15, 1990 among
the Company, Canadian Imperial Bank of Commerce,
Atlanta Agency, CIBC Inc. and Canadian Imperial
Bank of Commerce, New York Agency, filed as
Exhibit 4.11 and 19.11 to the Company's Quarterly
Report on Form 10-Q for the quarter ended August
5, 1990 filed with the Commission on September 19,
1990, and incorporated herein by this reference.**
4.14 Transfer Agreement dated as of May 15, 1990 among
the Company, LTCB Trust Company, CIBC Inc. and
Canadian Imperial Bank of Commerce, New York
Agency, filed as Exhibit 4.12 and 19.12 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended August 5, 1990 filed with the
Commission on September 19, 1990, and incorporated
herein by this reference.**
4.15 Transfer Agreement dated as of May 15, 1990 among
the Company, Oesterreichische Laenderbank, AG,
Grand Cayman Branch, CIBC Inc. and Canadian
Imperial Bank of Commerce, New York Agency, filed
as Exhibit 4.13 and 19.13 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended August 5, 1990 filed with the Commission on
September 19, 1990, and incorporated herein by
this reference.**
4.16 Transfer Agreement dated as of May 15, 1990 among
the Company, The Daiwa Bank, Limited, CIBC Inc.
and Canadian Imperial Bank of Commerce, New York
Agency, filed as Exhibit 4.14 and 19.14 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended August 5, 1990 filed with the
Commission on September 19, 1990, and incorporated
herein by this reference.**
4.17 Transfer Agreement dated as of May 15, 1990 among
the Company, The Bank of Tokyo Trust Company, CIBC
Inc. and Canadian Imperial Bank of Commerce, New
York Agency, filed as Exhibit 4.15 and 19.15 to
the Company's Quarterly Report on Form 10-Q for
the quarter ended August 5, 1990 filed with the
Commission on September 19, 1990, and incorporated
herein by this reference.**
4.18 Transfer Agreement dated as of May 15, 1990 among
the Company, Pan-American Life Insurance Company,
CIBC Inc. and Canadian Imperial Bank of Commerce,
New York Agency, filed as Exhibit 4.16 and 19.16
to the Company's Quarterly Report on Form 10-Q for
the quarter ended August 5, 1990 filed with the
Commission on September 19, 1990, and incorporated
herein by this reference.**
-58-
<PAGE>
4.19 Modification and Waiver Agreement No. 1 dated as
of September 25, 1991 to Transfer Agreements,
dated as of May 15, 1990 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 4.6 and 28.2 to the Company's Current
Report on Form 8-K filed with the Commission on
December 3, 1991, and incorporated herein by this
reference.
4.20 Modification and Waiver Agreement No. 2 dated as
of May 15, 1992 to Transfer Agreements, dated as
of May 15, 1990 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 4.32
and 10.25 to Post Effective Amendment No. 5 to the
Company's Registration Statement on Form S-8 (File
No. 2-64257) filed with Commission on January 25,
1993, and incorporated herein by this reference.
4.21 Modification and Waiver Agreement No. 3 dated as
of October 25, 1992 to Transfer Agreements, dated
as of May 15, 1990 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 4.33
and 10.26 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 and Waiver Agreement No. 4 dated as
of July 21, 1993 to Transfer Agreements, dated as
of May 15, 1990 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 4.3 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 Modification and Waiver Agreement No. 5 dated as
of December 31, 1993 to Transfer Agreements, dated
as of May 15, 1990 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 4.26
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.
-59-
<PAGE>
4.24 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.
4.25 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.
4.26 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.
4.27 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.
4.28 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.
4.29 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.
-60-
<PAGE>
4.30 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.
4.31 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.
4.32 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.
4.33 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.
4.34 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.
4.35 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.
4.36 Reimbursement Agreement, dated as of October 1,
1991, together with the Standby Note relating
thereto, between the Company and National
-61-
<PAGE>
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.
4.37 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.
4.38 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.
4.39 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.
4.40 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.
4.41 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.
4.42 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.
-62-
<PAGE>
4.43 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.
4.44 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.
4.45 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.
4.46 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.
4.47 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.
4.48 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.
4.49 Modification Agreement No. 5 dated as of January
18, 1995 to Reducing Revolving Credit Agreement,
dated as of July 21, 1993,
-63-
<PAGE>
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.
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 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.
10.4 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.
10.5 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.
10.6 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.
10.7 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
-64-
<PAGE>
S-8 (File No. 2-64257) filed with the Commission
on April 11, 1990, and incorporated herein by this
reference.
10.8 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.
10.9 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.
10.10 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.
10.11 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.
10.12 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.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 Employment Agreement dated as of January 1, 1993,
between the Company and W. Craig Barber.
-65-
<PAGE>
10.18 Severance Agreement dated as of January 13, 1995,
between the Company and James W. Arnett, Jr., filed
as Exhibit 10.18 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 Severance Agreement dated as of January 15, 1995,
between the Company and James M. Grout., filed
as Exhibit 10.19 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.
11 Statement re: computation of earnings per share,
filed as Exhibit 11 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.
21 Subsidiaries of Shoney's, Inc., filed as Exhibit 21
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.
23 Consent of Ernst & Young LLP, independent
auditors, filed as Exhibit 23 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.
27 Financial Data Schedule, filed as Exhibit 27
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.
99.1 Schedule VIII-Valuation and qualifying accounts
and reserves, filed as Exhibit 99.1 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.
** Document not filed because substantially identical to filed
document identified as Exhibit 4.5.
(b) No reports on Form 8-K have been filed during the last
quarter of the period covered by this Annual Report on Form 10-K.
(c) Exhibits -- the response to this portion of Item 14 is
submitted as a separate section of this report. See Item 14(a).
(d) Financial Statement Schedules -- the response to this
portion of Item 14 is submitted as a separate section of this
report. See Item 14(a).
-66-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on this 22nd day of February, 1995.
SHONEY'S, INC.
By: /s/ W. Craig Barber
--------------------------------
W. Craig Barber
Senior Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities indicated on this
22nd day of February, 1995.
Signature Title
/s/ Taylor H. Henry
- ---------------------------- Chairman of the Board, Chief
(Taylor H. Henry) Executive Officer and Director
/s/ Charles E. Porter
- ---------------------------- President
(Charles E. Porter)
/s/ W. Craig Barber
- ---------------------------- Senior Executive Vice President
(W. Craig Barber) and Chief Financial Officer
/s/ F.E. McDaniel, Jr.
- ---------------------------- Vice President and
(F.E. McDaniel, Jr.) Secretary/Treasurer
/s/ Van Michael Payne
- ---------------------------- Vice President and Controller
(Van Michael Payne)
/s/ Dennis C. Bottorff
- ---------------------------- Director
(Dennis C. Bottorff)
-67-
<PAGE>
/s/ Carole F. Hoover
- ---------------------------- Director
(Carole F. Hoover)
/s/ Victoria B. Jackson
- ---------------------------- Director
(Victoria B. Jackson)
- ---------------------------- Director
(Dan W. Maddox)
/s/ Wallace N Rasmussen
- ---------------------------- Director
(Wallace N. Rasmussen)
/s/ Alex Schoenbaum
- ---------------------------- Director
(Alex Schoenbaum)
/s/ Robert T. Shircliff
- ---------------------------- Director
(Robert T. Shircliff)
/s/ B. Franklin Skinner
- ---------------------------- Director
(B. Franklin Skinner)
/s/ James R. Thomas, II
- ---------------------------- Director
(James R. Thomas, II)
/s/ Cal Turner, Jr.
- ---------------------------- Director
(Cal Turner, Jr.)
-68-
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of this
17th day of January, 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
W. CRAIG BARBER, a resident of Williamson County, Tennessee, whose
address is 807 Stuart Lane, Brentwood, Tennessee 37027 (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 two (2) years, commencing on January 17,
1995, and terminating on January 16, 1997, unless sooner terminated
as herein provided or extended pursuant to Section 1.3 hereof.
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 one calendar year on the
date of the Change in Control. 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 (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 20% or more of the combined voting power of
Employer's then outstanding voting securities; or (b) during the
Employment Term, individuals who at the beginning of the Employment
Term constitute members of the Board of Directors of Employer cease
for any reason 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 two-thirds of the directors then still in office who were
directors at the beginning of the Employment Term.
-1-
<PAGE>
2. DUTIES OF EMPLOYEE.
2.1 GENERAL DUTIES. Employee is hereby employed as
Senior Executive Vice President and Chief Financial Officer
of Employer with such duties and responsibilities as Employer's
Board of Directors shall designate. 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.
2.3 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 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 2.3, including, without limitation, the recovery of
damages from Employee or any person or entity acting in concert
with Employee.
-2-
<PAGE>
3. COMPENSATION OF EMPLOYEE.
3.1 SALARY. As compensation for his services hereunder,
Employee shall receive a base salary (the "Base Salary") per annum
of $250,000, which shall be payable in accordance with the general
payroll practices of Employer. Increases in the Base Salary may be
made in the sole discretion of Employer's Board of Directors.
3.2 BONUSES. Employee shall be entitled to an annual
bonus. The amount of such bonus during the first year of the
Employment Term shall be determined by the Human Resources and
Compensation Committee of Employer's Board of Directors; provided,
however, that the bonus during the first year of the Employment
Term shall not be less than $50,000. The amount of such bonus
during the second year of the Employment Term shall be determined
in accordance with a formula to be agreed upon by Employer and
Employee and approved by the Human Resources and Compensation
Committee of Employer's Board of Directors; provided, however, that
the bonus during the second year of the Employment Term shall not
be less than $25,000.
3.3 OTHER BENEFIT PROGRAMS. Employee shall be entitled
to participate in all employee benefit, bonus, and similar
programs, including, without limitation, programs of insurance,
automobile plans, 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. By way of explanation, and
not by way of limitation, Employee shall be entitled to the use of
an automobile of make, model, and year of manufacture commensurate
with the position of 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) 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 and bonus
during the balance of the then current Employment Term. Payments
shall be made, at the option of Employer, in cash, or, in the case
-3-
<PAGE>
of the preceding item (a), in twenty-six 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 other benefit programs shall cease
as of the date of termination.
4.1.2 TERMINATION FOR CAUSE. If Employee is
terminated for cause, Employer shall have no further obligation
whatsoever to Employee hereunder, 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 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
as a result of alcohol or drug abuse by Employee.
4.2 TERMINATION BY EMPLOYEE. Employee may terminate his
employment with Employer at any time without further obligation
whatsoever by either party hereunder (except for the obligations
and covenants of Employee pursuant to Sections 2.3 and 4.4, 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, 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. Also, in the event of any termination of
Employee's employment pursuant to Section 4.1.1, then, in addition
to any other rights of Employee hereunder, Employee shall receive,
within thirty (30) days after such termination, a lump sum cash
-4-
<PAGE>
distribution equal to: (a) the number of shares of Employer's
common stock that is subject to options held by Employee which are
not vested on the date of termination of employment; multiplied by
(b) the difference between: (i) the closing price of a share of
Employer's common stock on the New York Stock Exchange as reported
by THE WALL STREET JOURNAL as of the day prior to the effective
date of termination of employment (or, if the New York Stock
Exchange is closed on that date, on the last preceding date on
which the New York Stock Exchange was open for trading), and (ii)
the applicable exercise price(s) of such non-vested shares.
4.4 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 or 4.2, Employee
covenants and agrees that, for a period of one year following the
termination of his employment under this Agreement, he will not
engage in, own, manage, operate, control, or participate in any
food service business that conducts or franchises activities which
are the same as or similar to the restaurant concepts and
operations of Employer 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 seek an injunction by any court of competent
jurisdiction enjoining and restraining Employee and each and every
other person concerned from any employment, service, or other act
prohibited by this Agreement. Employee and Employer recognize and
acknowledge that the area and time limitations contained in this
Agreement are reasonable. In addition, Employee and Employer
recognize and acknowledge that the 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. Employee acknowledges and
understands that, as consideration for his execution of this
-5-
<PAGE>
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 extent deemed reasonable. Employer shall receive injunctive
relief without the necessity of posting bond or other security,
such bond or other security being hereby waived by Employee.
5. DEATH OR DISABILITY OF EMPLOYEE.
5.1 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.
5.2 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 5.2 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 impairs
Employee's ability to perform the essential functions of his duties
hereunder and (ii) Employee, within thirty (30) days after Employee
receives written notice from Employer requesting that Employee
resume his duties hereunder, is unable or refuses to do so.
-6-
<PAGE>
6. GENERAL PROVISIONS.
6.1 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.
6.2 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 6.2. Notices delivered
personally shall be deemed communicated at the time of actual
receipt; mailed notices shall be deemed communicated as of the
second day following deposit in the United States Mail.
6.3 ENTIRE AGREEMENT. This Agreement supersedes any and
all other agreements (including, without limitation, that certain
employment agreement between Employer and Employee dated as of
January 1, 1993), 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.
6.4 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.
6.5 LAW GOVERNING AGREEMENT. This Agreement shall be
governed by and construed in accordance with the laws of the State
of Tennessee.
6.6 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,
-7-
<PAGE>
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
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.
6.7 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.
EMPLOYER:
SHONEY'S, INC.
By: /s/ Charles E. Porter
--------------------------------
Title: President
EMPLOYEE:
/s/ W. Craig Barber
-----------------------------------
W. CRAIG BARBER
-8-
