<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 4, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------- ------
COMMISSION FILE NUMBER 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 offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (615) 391-5201
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
As of September 10, 1996, there were 48,454,731 shares of Shoney's,
Inc., $1 par value common stock outstanding.
============================================
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
SHONEY'S, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
August 4, October 29,
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,833,148 $ 7,513,588
Notes and accounts receivable, less allowance
for doubtful accounts of $2,192,000 in 1996
and $1,645,000 in 1995 12,841,679 13,013,821
Inventories 39,011,026 33,483,964
Deferred income taxes and other current assets 34,922,798 30,716,885
Net current assets of discontinued operations 14,495,812
-------------- --------------
Total current assets 93,608,651 99,224,070
Property, plant and equipment, at cost 749,543,783 710,544,277
Less accumulated depreciation and amortization (312,006,039) (291,057,795)
-------------- --------------
Net property, plant and equipment 437,537,744 419,486,482
Other assets:
Deferred charges and other intangible assets 13,118,264 7,085,784
Other assets 7,747,713 9,219,658
-------------- --------------
Total other assets 20,865,977 16,305,442
-------------- --------------
$ 552,012,372 $ 535,015,994
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 31,323,079 $ 33,099,813
Federal and state income taxes 6,844,864 7,486,210
Other accrued liabilities 78,419,594 74,312,652
Reserve for litigation settlement 23,024,788 23,372,889
Debt and capital lease obligations
due within one year 44,705,335 34,448,154
-------------- --------------
Total current liabilities 184,317,660 172,719,718
Long-term senior debt and
capital lease obligations 289,592,732 318,251,917
Zero coupon subordinated convertible debentures 93,565,263 87,780,529
Reserve for litigation settlement 21,560,000 38,727,434
Deferred credits:
Income taxes 24,767,797 19,223,797
Income and other liabilities 6,100,697 6,619,234
Shareholders' equity (deficit):
Common stock, $1 par value: authorized
100,000,000 shares; issued 41,664,367
in 1996 and 41,510,659 in 1995 41,664,367 41,510,659
Additional paid-in capital 62,040,613 60,770,176
Unrealized gain on securities available for sale 1,837,054
Retained earnings (deficit) (173,433,811) (210,587,470)
-------------- --------------
Total shareholders' equity (deficit) (67,891,777) (108,306,635)
-------------- --------------
$ 552,012,372 $ 535,015,994
============== ==============
</TABLE>
See notes to consolidated condensed financial statement.
(2)
<PAGE> 3
SHONEY'S, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Forty Weeks Ended
August 4, August 6,
1996 1995
-------------- --------------
<S> <C> <C>
Revenues
Net sales $ 795,305,943 $ 797,154,102
Franchise fees 17,160,173 18,572,185
Other income 2,466,084 1,750,483
-------------- --------------
814,932,200 817,476,770
Costs and expenses
Cost of sales 711,205,419 701,368,283
General and administrative expenses 51,979,171 47,219,607
Interest expense 27,599,142 31,007,162
Restructuring expenses 1,785,915
-------------- --------------
Total costs and expenses 790,783,732 781,380,967
-------------- --------------
Income from continuing operations before
income 24,148,468 36,095,803
Provision for income taxes 9,473,000 13,716,000
-------------- --------------
Income from continuing operations 14,675,468 22,379,803
Income from discontinued operations,
net of inco 397,816 6,977,133
Gain on sale of discontinued operations,
net of 22,080,375
-------------- --------------
Net income $ 37,153,659 $ 29,356,936
============== ==============
Earnings per common share
Primary:
Income from continuing operations $ 0.35 $ 0.54
Income from discontinued operations 0.01 0.17
Gain on sale of discontinued operations 0.53
-------------- --------------
Net income $ 0.89 $ 0.71
============== ==============
Fully diluted:
Income from continuing operations $ 0.39 $ 0.54
Income from discontinued operations 0.01 0.17
Gain on sale of discontinued operations 0.47
-------------- --------------
Net income $ 0.87 $ 0.71
============== ==============
Weighted average shares outstanding
Primary 41,709,280 41,495,234
Fully diluted 46,926,890 41,495,234
Common shares outstanding 41,664,367 41,495,288
Dividends per share NONE NONE
</TABLE>
See notes to consolidated condensed financial statements.
(3)
<PAGE> 4
SHONEY'S, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Twelve Weeks Ended
August 4, August 6,
1996 1995
-------------- --------------
<S> <C>
Revenues
Net sales $ 251,150,233 $ 247,332,365
Franchise fees 5,404,985 5,718,265
Other income 488,130 846,417
-------------- --------------
257,043,348 253,897,047
Costs and expenses
Cost of sales 222,523,799 217,164,419
General and administrative expenses 15,458,729 14,070,280
Interest expense 8,633,925 9,406,788
Restructuring expenses 86,042
-------------- --------------
Total costs and expenses 246,616,453 240,727,529
-------------- --------------
Income from continuing operations before income
taxes 10,426,895 13,169,518
Provision for income taxes 3,806,000 5,004,000
-------------- --------------
Income from continuing operations 6,620,895 8,165,518
Income from discontinued operations, net of income
taxes 0 2,034,226
-------------- --------------
Net income $ 6,620,895 $ 10,199,744
============== ==============
Earnings per common share
Primary:
Income from continuing operations $ 0.16 $ 0.20
Income from discontinued operations 0.05
-------------- --------------
Net income $ 0.16 $ 0.25
============== ==============
Fully diluted:
Income from continuing operations $ 0.16 $ 0.20
Income from discontinued operations 0.05
-------------- --------------
Net income $ 0.16 $ 0.25
============== ==============
Weighted average shares outstanding
Primary 41,808,671 41,613,498
Fully diluted 41,808,671 41,613,498
Common shares outstanding 41,664,367 41,495,288
Dividends per share NONE NONE
</TABLE>
See notes to consolidated condensed financial statements.
(4)
<PAGE> 5
SHONEY'S, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Forty Weeks Ended
August 4, August 6,
1996 1995
----------- ----------
<S> <C> <C>
Operating activities
Net income $ 37,153,659 $ 29,356,936
Adjustments to reconcile net income to net cash
provided by operating activities:
Income from discontinued operations, net of taxes (397,816) (6,977,133)
Gain on sale of discontinued operations, net of taxes (22,080,375)
Depreciation and amortization 33,995,638 33,641,554
Amortization of deferred charges and other
non-cash charges 9,259,600 6,460,368
Realized and unrealized loss on marketable
securities and sale of other assets 1,392,202
Change in deferred income taxes 5,544,000 3,598,000
Changes in operating assets and liabilities (17,424,262) 11,605,146
-------------- --------------
Net cash provided by continuing operating activities 46,050,444 79,077,073
Net cash (used by) provided by discontinued
operating activities (655,622) 9,364,007
-------------- --------------
Net cash provided by operating activities 45,394,822 88,441,080
Investing activities
Cash required for property, plant and equipment (60,416,682) (45,763,816)
Cash required for assets held for sale (1,291,322)
Proceeds from disposal of property, plant
and equipment 8,492,792 3,500,850
Proceeds from disposal of discontinued operations 51,279,601
Cash required for other assets (5,072,556) (796,965)
-------------- --------------
Net cash used by investing activities (5,716,845) (44,351,253)
Financing activities
Payments on long-term debt and
capital lease obligations (75,534,716) (107,677,744)
Proceeds from long-term debt 47,175,000 78,000,000
Net proceeds from short-term borrowings 8,336,000 4,918,000
Payments on litigation settlement (17,515,535) (17,547,347)
Cash required for debt issue costs (3,337,416) (2,033,827)
Proceeds from exercise of employee stock options 518,250 1,675,335
-------------- --------------
Net cash used by financing activities (40,358,417) (42,665,583)
-------------- --------------
Change in cash $ (680,440) $ 1,424,244
-------------- --------------
</TABLE>
See notes to consolidated condensed financial statements.
(5)
<PAGE> 6
SHONEY'S, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
August 4, 1996
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q. As a result,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
The Company, in management's opinion, has included all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of the results
of operations. Certain reclassifications have been made in the consolidated
condensed financial statements to conform to the 1996 presentation. Operating
results for the twelve and forty week periods ended August 4, 1996 are not
necessarily indicative of the results that may be expected for all or any
balance of the fiscal year ending October 27, 1996.
NOTE 2 - DISCONTINUED OPERATIONS
In January 1995, the Company's Board of Directors announced a reorganization
designed to improve the performance and growth of the Shoney's Restaurant
concept. The reorganization included the planned divestiture of certain
non-core lines of business including Lee's Famous Recipe, Pargo's and Fifth
Quarter restaurants, as well as Mike Rose Foods, Inc., a private label
manufacturer of food products. In July 1995, the Company made a decision to
retain the Pargo's and Fifth Quarter restaurants and to combine them with its
BarbWire's steakhouse units to form a casual dining group.
Effective October 1, 1995, the Company sold its Lee's Famous Recipe division to
RTM Restaurant Group for $24.5 million cash and a $4 million promissory note.
The promissory note is due in monthly installments over five years and bears
interest at the prime rate. The transaction was effected through a sale of all
of the assets of Lee's Famous Recipe, and its sale removes the Company from the
fast food chicken line of business. The promissory note is guaranteed by RTM,
Inc., and is collateralized by perfected security interests in the Lee's Famous
Recipe trademarks and franchise license agreements.
On November 19, 1995, the Company sold Mike Rose Foods, Inc. ("MRF") to Levmark
Capital Corporation for $55 million in cash. The transaction was effected
through the sale of all issued and outstanding capital shares of MRF. The
transaction resulted in a gain of $22.1 million, net of income taxes. Under
the terms of the MRF sale agreement, the Company entered into a five year
supply agreement through which MRF will continue to be the supplier of salad
dressings, mayonnaise, sauces, condiments, breadings, and a variety of food
products for all company-owned restaurants. The supply agreement contains
minimum purchase commitments generally equal to the actual quantities of
various products the Company purchased from MRF during fiscal 1994 for use at
its company-owned restaurants.
(6)
<PAGE> 7
For financial reporting purposes, the net assets, results of operations, gains
on sale and cash flows of Lee's and MRF have been treated as discontinued
operations in the accompanying financial statements and, therefore, are
presented net of any related income tax expense.
NOTE 3 - CHANGES IN ACCOUNTING POLICIES
Effective October 30, 1995, pursuant to supplemental implementation guidance
issued by the Financial Accounting Standards Board (FASB) regarding FASB
Statement No. 115 - "Accounting For Certain Investments in Debt and Equity
Securities", the Company reclassified its investment in common stock and
warrants of ShoLodge, Inc. from the category of "trading securities" to that of
an investment "available-for-sale"as defined by Statement No. 115. As a
result, changes in market value of the Company's investment in ShoLodge in
fiscal 1996 have been reflected as a component of shareholders' equity rather
than included in income (see Note 9).
NOTE 4 - EARNINGS PER SHARE
Primary earnings per share have been computed using the weighted average number
of shares of common stock and common stock equivalents outstanding during each
period presented. Common stock equivalents include all dilutive outstanding
stock options. The fully diluted earnings per share calculation for the 40
weeks ended August 4, 1996 includes the assumed conversion of the zero coupon
subordinated convertible debentures. This calculation adjusts earnings for the
interest that would not be paid if the debentures were converted. The results
of the fully diluted earnings per share calculation (from continuing
operations) for the 40 weeks ended August 4, 1996 were anti-dilutive, but have
been presented on a fully diluted basis because fully diluted net income per
share is less than primary earnings per share. Accordingly, fully diluted
earnings per share have been presented for all earnings captions presented.
The primary and fully diluted earnings per share for the third quarter of 1996,
and for the third quarter and forty weeks ended August 4, 1995 were computed
using the weighted average number of shares of common stock and common stock
equivalents outstanding during the period. No consideration was given to the
convertible debentures for these periods because the effect was anti-dilutive.
NOTE 5 - INCOME TAXES
Income taxes for the forty week periods ended August 4, 1996 and August 6, 1995
were provided based on the Company's estimate of its effective tax rates (39.1%
and 38.0%, respectively), for fiscal years 1996 and 1995.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
(7)
<PAGE> 8
Significant components of the Company's deferred tax assets and liabilities as
of October 29, 1995 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Reserve for litigation settlement $23,753,374
Reserve for self insurance 13,221,079
Other - net 5,621,092
-----------
Deferred tax assets 42,595,545
-----------
Deferred tax liabilities:
Tax over book depreciation 14,715,011
Capital contribution 22,501,840
Other - net 53,154
-----------
Deferred tax liabilities 37,270,005
-----------
Net deferred tax asset $ 5,325,540
===========
</TABLE>
No valuation allowance is considered necessary, as all deductible temporary
differences will be utilized primarily by carryback to prior years' taxable
income, or as charges against reversals of future taxable temporary
differences.
NOTE 6 - SENIOR DEBT
The Company has a reducing revolving credit facility ("Revolver") with a
syndicate of financial institutions which matures in October 1999 with
scheduled reductions in the aggregate credit facility that began in October
1995. The maximum amount available under the Revolver at August 4, 1996 was
$214.6 million. A scheduled reduction of $25 million will occur in October
1996, reducing the amount available under the facility to $189.6 million.
The Company's senior debt requires satisfaction of certain financial ratios and
tests; imposes limitations on capital expenditures; limits the ability to incur
additional debt, leasehold obligations and contingent liabilities; prohibits
dividends and distributions on common stock; prohibits mergers, consolidations
or similar transactions; and includes other affirmative and negative covenants.
The interest rate for this facility is a floating rate (the London Interbank
Offered Rate ("LIBOR") plus 2%). At August 4, 1996, the Company had borrowed
$180.0 million under this facility and the interest rate was 7.5%. With the
exception of approximately $92 million (appraised value) of the property, plant
and equipment not presently encumbered, all material assets of the Company not
otherwise pledged (including all common shares of a wholly-owned real estate
company which owns 179 of the Company's restaurant properties) have been
pledged as collateral for the facility.
During the second quarter of 1996, the Company obtained a senior secured Bridge
Loan for up to $100 million from a bank ("Bridge Loan"). The purpose of the
Bridge Loan is to provide working capital and a source of financing for the
Company's acquisition of substantially all of the assets of TPI Enterprises,
Inc. ("Enterprises") through a tax free reorganization. The reorganization
required an amendment to the Company's Revolver which (1) approved the
reorganization, (2) permitted the Company to enter into the Bridge Loan, and
(3) modified certain covenants under the Revolver, including changes to
accommodate the reorganization. (See Note 11).
(8)
<PAGE> 9
Concurrent with the execution of the Bridge Loan and the amendment to the
Revolver, the Company borrowed $20 million under the Bridge Loan, which was
used to reduce the outstanding balance under the Company's Revolver. An
additional $80 million was available under the Bridge Loan for use in
conjunction with the closing of the reorganization for the purpose of
refinancing and/or repaying certain liabilities of Enterprises which are
required to be assumed or satisfied by the Company. (See Note 11).
The Bridge Loan bears interest at LIBOR plus 2.5% with 0.5% increases in
the interest rate effective 9, 12, and 18 months after the closing of the
reorganization. The Bridge Loan will be secured by assets acquired by the
Company in the reorganization and by a pledge of certain other unencumbered
assets of the Company. The Bridge Loan will convert to a term loan on May 3,
1998 if not repaid on or before that date and the term loan will mature October
22, 1999. Upon conversion to a term loan, the Company will be required to pay
a fee equal to 3% of the outstanding balance of the Bridge Loan at the
conversion date.
NOTE 7 - RESERVE FOR LITIGATION SETTLEMENT
On January 25, 1993, the court gave approval to a consent decree settling
litigation against the Company and its former senior chairman. The litigation
was 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.
Under the consent decree, the Company will pay $105 million to settle these
claims. The settlement covered all of the Company's restaurant concepts and
the corporate offices from February 4, 1985 through November 3, 1992. In
addition, the Company agreed to pay $25.5 million in plaintiffs' attorneys fees
and up to $2.3 million of estimated applicable payroll taxes and
administrative costs. The settlement resulted in a charge of $77.2 million,
net of insurance recoveries and applicable taxes, in the fourth quarter of
1992. Under the terms of the consent decree, payments, without interest, are
made quarterly and substantially all payments will be completed by March 1,
1998.
NOTE 8 - LITIGATION
The Company is a defendant in a lawsuit styled J&J Seafood, Inc., and Sunbelt
Restaurant Management, Inc. vs Shoney's, Inc., which was filed on December 19,
1994 in U.S. District Court for the Middle District of Tennessee. The suit was
filed by a franchisee of the Company's Captain D's restaurant concept 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. On May 5, 1994, the same plaintiff
had also filed a state court lawsuit in Chancery Court for Davidson County,
Tennessee (J&J Seafood v. Shoney's, Inc.) 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.
(9)
<PAGE> 10
On January 23, 1995, the Company filed a motion to dismiss or stay this federal
court case pending the resolution of the state case. Thereafter, the plaintiff
filed an amended complaint adding a second plaintiff, a former franchisee,
Sunbelt Restaurant Management, Inc. The motion to dismiss was denied on May
31, 1995. The plaintiff filed a motion to certify the case as a class action
on August 7, 1995. The motion was argued on May 9, 1996 to the magistrate
judge who has recommended to the U.S. District Court that the motion for class
certification be denied. That motion and the magistrate's recommendation, to
which the plaintiff has objected, are now pending before the U.S. District
Court Judge.
Management believes it has substantial defenses to the claims made and intends
to vigorously defend the case. In the opinion of management, the ultimate
liability with respect to the case will not materially affect the operating
results or the financial position of the Company.
On December 1, 1995, a suit styled Robert Belcher, et al vs Shoney's, Inc. was
filed in the U.S. District Court for the Middle District of Tennessee. The
litigation against the Company was filed by five employees who claim the
Company engages in conduct and actions which are designed to circumvent the
overtime provisions of the Fair Labor Standards Act. The plaintiffs purport to
act on behalf of similarly situated employees or former employees and
petitioned the court to send court supervised notice of their lawsuit to other
potential plaintiffs. On March 8, 1996, the court granted provisional class
status to the plaintiffs in this case and defined the class as all former and
current salaried general managers and assistant general managers who were
employed by the Company's Shoney's Restaurants during the three years prior to
filing of the suit. Court approved notice of the lawsuit has been sent to
potential class members and the final deadline for potential plaintiffs to
elect to participate in the suit expired July 24, 1996. Approximately 900
current or former Shoney's concept employees had opted to participate in the
suit as of the cut-off date set by the court. By virtue of the provisional
class status, the court could subsequently amend its decision and either reduce
or increase the scope of those individuals who are similarly situated or
determine that certification as a class is altogether unwarranted.
On January 2, 1996, a second related suit styled Bonnie Belcher vs Shoney's,
Inc. was filed in the U.S. District Court for the Middle District of
Tennessee. This suit against the Company was filed by a group of plaintiffs
who purport to be present or former hourly or fluctuating work week employees
of Shoney's, Inc. and claim to bring this action on behalf of themselves and
others similarly situated. The plaintiffs claim that the Company violated the
Fair Labor Standards Act by either not paying them for all hours worked or
improperly paying them for regular or overtime hours worked. In both
lawsuits, the plaintiffs claim to be entitled to recover unpaid wages,
liquidated damages, attorneys' fees and expenses.
On May 3, 1996, the court granted provisional class status to the lawsuit and
ordered notice of the second lawsuit be mailed to present and former Shoney's
concept hourly and fluctuating work week employees who were employed during the
three years prior to filing of the suit. Court approved notice of the lawsuit
has been sent to potential class members and the deadline for potential
plaintiffs to elect to participate in the suit expired July 24, 1996.
Approximately 18,000 current or former Shoney's concept employees had opted to
participate in this suit as of the cut-off date set by the court. By virtue of
the provisional class status, the court could subsequently amend its decision
and either reduce or increase the scope of those individuals who are similarly
situated or determine that certification as a class is altogether unwarranted.
On May 3, 1996, the court denied the plaintiffs' motion to amend their
complaint in the initial lawsuit to add other Shoney's, Inc. restaurant
concepts to their complaint. However, the court granted leave for renewal of
this motion if the plaintiffs include one or more named plaintiffs from the
Company's restaurant
(10)
<PAGE> 11
concepts that they seek to include. Moreover, the court denied the plaintiffs'
attempts to include the Shoney's concept franchisees within the provisional
class.
Management believes it has substantial defenses to the claims made and intends
to vigorously defend these cases. However, neither the likelihood of an
unfavorable outcome nor the amount of ultimate liability, if any, with respect
to these cases can be determined at this time. Accordingly, no provision for
any potential liability has been made in the consolidated condensed financial
statements.
In addition to the litigation described in the preceding paragraphs, the
Company is a party to other legal proceedings incidental to its business. In
the opinion of management, the ultimate liability with respect to these actions
will not materially affect the operating results or the financial position of
the Company.
NOTE 9 - SALE OF SHONEY'S LODGING, INC. AND RELATED INVESTMENTS
The Company owns 121,212 shares of common stock of ShoLodge, Inc. ("ShoLodge")
obtained as consideration for the 1994 sale of the Company's minority interest
in four Shoney's Inns to ShoLodge. The ShoLodge common shares were classified
as trading securities under FASB Statement No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" (see Note 3). The Company also owns
certain warrants to acquire ShoLodge common stock which were obtained in the
1992 sale of the Company's lodging division to ShoLodge. The Company also
received future registration rights with respect to the shares that may be
acquired upon exercise of the warrants. Under the provisions of FASB Statement
No. 115, certain of these warrants were classified as trading securities during
the second quarter and first half of 1995 and adjusted to their fair value.
The resulting gain of approximately $.2 million and $1.1 million in the second
quarter and the first half of 1995, respectively, were reflected in the results
of operations.
During 1995, once classified as a trading security, the warrants were carried
at fair value with increases and decreases in fair value reflected in the
results of operations. The fair value of the ShoLodge warrants and the
ShoLodge common stock held by the Company increased by approximately $.1
million in the third quarter of 1995 and declined by approximately $2.5 million
for the first three quarters of 1995. The fair value of the ShoLodge common
stock and the ShoLodge warrants classified as trading securities was $3.4
million at August 6, 1995.
Effective October 30, 1995, pursuant to supplemental FASB implementation
guidance for FASB Statement No. 115, the Company reclassified its investment in
ShoLodge common stock and warrants from "trading securities" to
"available-for-sale". Accordingly, beginning in fiscal 1996, changes in the
fair value of the investment in ShoLodge have been reflected as a component of
shareholders' equity rather than included in income. During the third quarter
of 1996, and for the first three quarters of 1996, the Company recorded an
unrealized loss of approximately $1.0 million and an unrealized gain of
approximately $1.8 million, respectively, on its investment in ShoLodge common
stock and warrants (See Note 3). As of August 4, 1996, the fair value of the
Company's investment in ShoLodge common stock and warrants (for which it holds
registration rights) was $2.8 million.
(11)
<PAGE> 12
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 were intended to 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 THL defaulted in its obligations to Marriott
before October 2, 1995. These fifteen restaurants had a pre-determined
purchase price of a maximum of $8.7 million. During 1994 and 1995, the
Company, THL and Marriott agreed to a modification of this contingent purchase
agreement whereby the Company agreed to extend its contingent purchase
obligation to July 2, 1997 and the Company's purchase obligation was reduced to
eight restaurants with a maximum purchase price of $5.1 million.
During the first quarter of fiscal 1996, the Company was notified by Marriott
that THL was in default of its obligations with Marriott. During the third
quarter of 1996, the Company purchased four restaurants from Marriott for $3.2
million and Marriott agreed to release the Company from all obligations arising
from the contingent purchase agreement. The purchased restaurants have been
leased by the Company to THL.
NOTE 11 - SUBSEQUENT EVENTS
Following the approval of the shareholders of the Company and TPI Enterprises,
Inc. ("Enterprises") on August 21, 1996, the Company completed the acquisition
of substantially all of the assets of Enterprises, the largest franchisee of
the Company's Shoney's and Captain D's restaurants, effective as of September
9, 1996. In this transaction, which will be accounted for by the Company under
the purchase method, the Company acquired TPI Restaurants, Inc. ("TPIR") and
two other wholly-owned subsidiaries of Enterprises, which represented
substantially all of Enterprises' assets. TPIR operates 176 Shoney's
Restaurants and 67 Captain D's restaurants in eleven states.
The assets acquired from Enterprises consisted of 100% of the outstanding stock
of TPIR and two other subsidiaries (TPI Insurance, Inc. and TPI Entertainment,
Inc.), intercompany accounts payable and receivable among Enterprises, its
retained subsidiaries, and the acquired subsidiaries, and, except as described
herein, all of the cash and cash equivalents of Enterprises and each of
Enterprises' subsidiaries. Enterprises retained approximately $7.7 million in
cash in the transaction. The consideration paid by the Company in the
transaction consisted of the issuance to Enterprises of 6,785,114 shares of the
Company's common stock (representing approximately 14% of the Company's common
stock then outstanding) and the assumption by the Company of certain
liabilities and obligations of Enterprises. The liabilities assumed by the
Company included the Company's payment of indebtedness of Enterprises totaling
approximately $43 million and the assumption, by supplemental indenture, of
8.25% Convertible Subordinated Debentures due 2002 in the aggregate principal
amount of $51.6 million. In addition, the Company issued options to purchase
approximately 620,000 shares of the Company's common stock in exchange for
(12)
<PAGE> 13
options outstanding under Enterprises' stock option plans. The source of funds
for the Company's retirement of Enterprises' indebtedness was a senior secured
Bridge Loan obtained on May 3, 1996 (See Note 6). Concurrent with the closing,
the Company borrowed $80 million under the Bridge Loan. Approximately $43
million of the proceeds was utilized to satisfy liabilities assumed from
Enterprises, $20 million was used to reduce debt outstanding under the
Company's Revolver, $8 million was used to repay short-term debt and $9 million
was retained to be used to reduce debt or for general corporate purposes. In
addition, the Company obtained letters of credit totaling $10.6 million under
the Company's Revolver for purposes of replacing Enterprises' letters of credit
principally supporting its insurance activities, which were acquired by the
Company in the transaction.
(13)
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of the
Company's consolidated results of operations and financial condition. The
discussion should be read in conjunction with the consolidated condensed
financial statements and notes thereto. The third quarter and first three
quarters of fiscal 1996 and 1995 covered periods of twelve and forty weeks,
respectively.
BUSINESS OVERVIEW
In January 1995, the Company's Board of Directors announced a
reorganization designed to improve the performance and growth of the Shoney's
Restaurant concept. The reorganization included the divestiture of certain
non-core lines of business including Lee's Famous Recipe ("Lee's") and Mike
Rose Foods, Inc. ("MRF"), a private label manufacturer of food products. The
results of operations of these business units have been treated as discontinued
operations in the accompanying financial statements. The sale of Lee's was
effective in the fourth quarter of 1995 and resulted in a gain of $5.5 million,
net of income taxes. The sale of MRF was completed in the first quarter of
1996 for $55 million in cash and resulted in a gain of $22.1 million, net of
income taxes.
Since the reorganization announcement, the Company has focused on the
development and implementation of a performance improvement plan for the
Shoney's Restaurant concept which includes all aspects of restaurant operations
and support functions, including commissary operations, purchasing and general
corporate services. The trends in comparable store sales for the Company's
Shoney's Restaurants have improved over the first three quarters of fiscal
1996, however, year-to-date, the Company's overall comparable store sales are
negative with resultant lower operating margins. The decline in comparable
store sales for the Shoney's Restaurants and the lower operating margins
coupled with additional expenses incurred related to the operational
improvement program and increased levels of corporate general and
administrative expenses have reduced overall profitability of the Company
year-to-date. During the last four weeks of the third quarter, however, the
Company's Shoney's Restaurants improved their overall margins through a
combination of cost control and a menu price increase.
A focused operational improvement program implemented in the second
quarter in the Company's 48 store, middle Tennessee market has made a
significant impact in that market which has reported positive comparable store
sales for 19 of the 21 weeks from April 1 through August 25, 1996, with an
average positive comparable store sales for the entire market during that time
period of 3.5%. In addition, for this same time period, the middle Tennessee
Shoney's Restaurants reported comparable store sales that exceeded the
comparable store sales of all of the other company-owned Shoney's Restaurants
by 5.2%. Management intends to deploy these same operational improvement
methods in its other core markets during the latter part of 1996 and throughout
1997. Management anticipates that Shoney's Restaurant's operating margins
will continue to be lower than historical levels until the benefits of the
performance improvement plans are realized throughout a greater portion of the
Company's Shoney's Restaurants.
The Company's Captain D's restaurants have reported comparable store
sales growth of 5.3% for the third quarter of 1996 and 3.9% for the first three
quarters of 1996. This performance follows three consecutive years of
positive comparable store sales for Captain D's and is a reflection of
management's focus on store-level operational execution and a strong marketing
program. Captain D's restaurants have not achieved an increase in margins
normally expected with an increase in comparable store sales as food, labor and
supply costs remained relatively flat as a percentage of sales and increased
operating and general and administrative expenses reduced margins slightly.
(14)
<PAGE> 15
TPI ACQUISITION
On September 9, 1996, the Company completed its previously announced
acquisition of substantially all the assets of TPI Enterprises, Inc.
("Enterprises"). The acquisition includes 176 Shoney's Restaurants and 67
Captain D's restaurants located in 11 states, principally in the Company's core
southeastern markets. In addition, the Company now owns over 64% of all
restaurants in its system. For the twelve-week second quarter and first half
of Enterprises' 1996 fiscal year (the twenty-eight weeks ended July 14, 1996),
Enterprises reported restaurant revenues of $66.4 million and $151.3
million, respectively. For the second quarter and first half of 1996,
Enterprises reported a net loss of approximately $10.2 million and net income
of $0.4 million, respectively. The acquisition will be accounted for under the
purchase method of accounting. Accordingly, the Company's third quarter 1996
financial statements do not include any results of operations related to the
acquired business.
Management believes there are significant cost synergies that will
result from combining Enterprises' restaurant operations with those of the
Company, principally from the elimination of duplicate corporate support
functions and the closure of Enterprises' two food distribution facilities.
Other cost savings are also expected from more efficient purchasing of food,
supplies, restaurant services and more efficient multi-unit supervision.
Management believes annual cost savings will be $10 to $15 million after the
companies' operations are fully integrated, which is expected to occur within
nine months. These cost savings are management's estimates based on currently
available information. It is reasonably possible that these estimates will
change as more information becomes available. In the interim, the Company
expects the effects of the acquisition to be mildly dilutive to earnings as
expenses are incurred to combine the companies' operations.
In connection with the acquisition of Enterprises' restaurant
operations, the Company intends to close approximately 35 to 45
under-performing acquired Shoney's Restaurants. These closures are intended to
minimize negative earnings and cash flow effects from these restaurants and are
expected to result in increased sales volumes for existing units located in the
same or contiguous market areas. Enterprises' Shoney's Restaurants will
require capital expenditures for remodeling to ensure they are up to the
Company's standards. Management currently estimates approximately $15 million
will be required for this remodeling during fiscal 1997 and 1998. In May 1996,
the Company obtained a $100 million Bridge Loan to provide financing necessary
to satisfy debt obligations assumed in the acquisition of approximately $43
million, to provide the capital for remodeling, and to provide additional
working capital for the Company. In addition, the Company assumed
approximately $51.6 million of 8.25% convertible subordinated debentures due
2002 in connection with the acquisition.
RESULTS OF OPERATIONS
REVENUES
Revenues from continuing operations for the third quarter of fiscal
1996 increased 1.2% ($3.1 million) to $257.0 million as compared to the third
quarter of fiscal 1995. For the first three quarters of fiscal 1996, revenues
from continuing operations decreased 0.3% ($2.5 million) to $814.9 million as
compared to the same period of fiscal 1995.
An analysis of the change in revenues is summarized in the following table:
($ in Millions)
---------------
12 Weeks 40 Weeks
Ended Ended
August 4, August 4,
1996 1996
--------- ----------
Restaurant revenue $ 3.8 $ 3.4
Commissary and other sales 0.0 (5.2)
Franchise fees (0.3) (1.4)
Other income (0.4) 0.7
----- -----
$ 3.1 $(2.5)
===== =====
Restaurant revenues increased during the third quarter and for the
first three quarters of fiscal 1996 as additional revenues from new restaurants
and the effects of a menu price increase exceeded the decline in revenues
resulting from the closure of approximately 40 under-performing restaurants in
the fourth quarter of 1995. Comparable store sales of company-owned
restaurants increased 0.5% in the third quarter (including a 2.1% menu price
increase) and declined by 0.3% during the first three quarters of 1996
(including a 1.7% menu price increase).
The following table summarizes the change in number of restaurants
operated by the Company's continuing operations and its franchisees during the
first three quarters of 1996 and 1995:
First Three First Three
Quarters Quarters
1996 1995
----------- -----------
Company-owned restaurants opened(1) 31 23
Company-owned restaurants closed (5) (3)
Franchised restaurants opened 5 15
Franchised restaurants closed(2) (60) (53)
--- ---
(29) (18)
=== ===
(1) Includes seventeen and eleven units acquired from franchisees during the
first three quarters of 1996 and 1995, respectively.
(2) Includes units acquired by the Company referenced in Note 1.
Commissary and other sales were unchanged in the third quarter of 1996
as compared to the same period in the prior year and decreased 4.0% ($5.2
million) during the first three quarters of 1996 as compared to the
corresponding periods of 1995. When compared to restaurant sales, these sales
have a higher percentage of food costs with a lower percentage of operating
expenses and there is no restaurant labor cost associated with commissary
sales.
(15)
<PAGE> 16
Franchise fees relating to the Company's continuing operations
(Shoney's and Captain D's restaurants) declined $0.3 million (5.5%) and $1.4
million (7.6%) in the third quarter and first three quarters of 1996 as
compared to the same periods in the prior year. The decreases in both
commissary sales and franchise fees are primarily the result of a net decrease
in the number of franchised restaurants and a decline in comparable store sales
at franchised Shoney's Restaurants, which more than offset comparable store
sales gains achieved at franchised Captain D's restaurants.
Other income decreased $0.4 million and increased $0.7 million in the
third quarter and first three quarters of 1996, respectively, when compared
with the same periods in 1995. The increase in other income for the first
three quarters of 1996 resulted from a change in the accounting treatment of
unrealized gains and losses on the Company's investments in ShoLodge, Inc.,
("ShoLodge"). The Company reported an unrealized gain of $0.1 million in the
third quarter of 1995 and an unrealized loss of $1.4 million in the first three
quarters of 1995 related to its investment in ShoLodge. Beginning in fiscal
1996, the Company reclassified its investment in ShoLodge from that of
"trading securities" to "securities available for sale". As a result, changes
in market value of its investment in ShoLodge during 1996 are reflected as a
component of shareholders' equity rather than included in income. The Company
recorded an unrealized loss of $1.0 million during the third quarter of 1996
and recorded an unrealized gain of $1.8 million during the first three
quarters of 1996 related to its investment in ShoLodge.
COSTS AND EXPENSES
Cost of sales for the third quarter of fiscal 1996 increased $5.4
million over the same quarter in fiscal 1995 and, as a percentage of revenues,
were 86.6% in 1996 as compared to 85.5% in the third quarter of 1995. Cost of
sales for the first three quarters of 1996 increased $9.8 million over the same
period in 1995 and, as a percentage of revenues, were 87.3% in 1996 as
compared to 85.8% for the same period of 1995.
Food and supplies increased for the third quarter of 1996, as a
percentage of total revenues, to 40.6% compared to 40.2% in the same period
last year, principally due to higher commodity costs for chicken, pork, shrimp
and eggs. Food and supplies as a percentage of sales at the restaurant level
were essentially unchanged for the third quarter of 1996 and 1995, as increased
commodity costs were offset by a menu price increase, increased attention to
loss control, and minimization of waste. Management believes that it has been
able to offset these cost increases through menu price increases, however,
continued upward pressure on commodity prices could adversely affect food costs
over the remainder of 1996. Food and supplies for the first three quarters of
1996, as a percentage of revenues, have declined by 0.2% to 40.8% when compared
to the same period last year. This decrease is primarily the result of the
$4.8 million decline in commissary sales, which have a much higher food cost as
a percentage of revenue when compared with restaurant revenues.
Restaurant labor increased as a percentage of revenues by 0.4% to
24.6% for the third quarter and 1.2% to 24.7% for the first three quarters of
1996 as compared to the same periods last year. The increase is a result of
higher labor cost at the restaurant level and a decline in commissary sales
(which have no restaurant labor in cost of sales).
Operating expenses as a percentage of revenues increased 0.3% to 21.4%
for the third quarter of 1996 as compared to the same period in the prior year
and increased 0.5% to 21.8% for the first three quarters of 1996 as compared to
the same periods in the prior year, principally due to the decline in revenues.
General and administrative expenses increased $1.4 million and $4.8 million in
the third quarter and first three quarters of 1996, respectively. General and
administrative expenses as a percentage of revenues increased from 5.5% in the
third quarter of 1995 to 6.0% in the third quarter of 1996 and increased from
5.8% in the first three quarters of 1995 to 6.4% for the first three quarters
of 1996.
(16)
<PAGE> 17
These increased costs resulted principally from higher salary, compensation and
relocation costs related to recruiting new management personnel and severance
costs for displaced employees, increased travel costs and higher legal and
professional fees incurred in 1996 as compared with the same periods last year.
These increased costs were partially offset by expense reductions in 1996
resulting from consulting costs associated with the Company's restructuring of
approximately $2.2 million incurred in the first half of 1995 with no
comparable expense in 1996. Restructuring charges of $1.7 million in the first
three quarters 1995 were principally related to severance costs associated with
the Company's 1995 reorganization.
Interest expense declined by approximately $0.8 million for the third
quarter of 1996 and declined by $3.4 million for the first three quarters of
1996 as compared to the same periods in the prior year, principally as a result
of reduced levels of outstanding debt from the application of the divestiture
proceeds.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from continuing operations decreased $33.0 million to
$46.0 million for the first three quarters of 1996 compared to $79.1 million
for the first three quarters of 1995. This decrease was due primarily to a
significant decrease in operating assets and liabilities and a $7.7 million
reduction in net income, after adjustments for the results of discontinued
operations and the gain on disposal of discontinued operations. The decrease
in operating assets and liabilities was principally caused by an increase in
inventory levels and prepaid expenses coupled with a significant decline in the
amount of federal income taxes payable, which were partially offset by higher
levels of accrued expenses. The decline in net income is principally the
result of significantly lower profits from the Company's Shoney's Restaurants
coupled with slightly lower profits from the Company's other restaurant
concepts, commissary operation, and franchising activities.
Cash used by investing activities in the first three quarters of 1996
was $5.7 million as compared with cash used by investing activities of $44.4
million for the same period in 1995. Cash required for the acquisition of
property, plant and equipment and other assets (principally intangibles
associated with acquired franchised units) increased by $14.6 million in 1996
as compared with 1995, but was more than offset by $51.3 million in proceeds
from the sale of discontinued operations during 1996 with no comparable source
of cash in the same period of 1995.
Significant financing activities in the first three quarters of 1996
included repayment of $50 million on the Company's Reducing Revolving Credit
Facility ("Revolver") from the proceeds of the sale of Mike Rose Foods, $12.9
million of which represents a mandatory reduction in availability pursuant to
the terms of the credit agreement, net borrowings of $8.3 million on the
Company's short-term lines of credit, and borrowing of $27 million under the
Revolver to fund commitments for capital expenditures, franchise acquisitions,
and other operating cash flow requirements. The Company also paid $17.5
million during the first three quarters of 1996 under the terms of the
litigation settlement. (See Note 7 to the consolidated condensed financial
statements included in Part I of this form 10-Q.)
In addition, during the second quarter of 1996, the Company obtained a
senior secured Bridge Loan for up to $100 million from a bank ("Bridge Loan").
The purpose of the Bridge Loan is to provide working capital and a source of
financing for the Company's acquisition of substantially all of the assets of
TPI Enterprises, Inc. ("Enterprises"), the Company's largest franchisee of its
Shoney's and Captain D's restaurant concepts. Concurrent with the execution of
the Bridge Loan, the Company borrowed $20 million under the Bridge Loan, which
was used to reduce the outstanding principal balance under the Company's
Revolver. At August 4, 1996, an additional $80 million was available under
the Bridge Loan
(17)
<PAGE> 18
for use in conjunction with the closing of the acquisition for the purpose of
refinancing and/or repaying certain liabilities of Enterprises which will be
assumed or satisfied by the Company.
On September 9, 1996, the Company completed the acquisition of
Enterprises and borrowed the additional $80 million available under the Bridge
Loan. Approximately $43 million was used to satisfy debts assumed from
Enterprises and excess funds were used to reduce the amount outstanding under
the Company's revolver ($20 million), to reduce short-term debt ($8 million)
and to provide working capital ($9 million).
The Bridge Loan bears interest at the London Interbank Offered Rate
(LIBOR) plus 2.5% with one-half percent rate escalations effective 9, 12, and
18 months after the closing of the acquisition. The Bridge Loan is structured
to convert into a term loan if not repaid by May 3, 1998 with a final maturity
of October 22, 1999. The Company will be required to pay a fee equal to 3% of
the outstanding balance of the Bridge Loan to convert to a term loan.
Management plans to retire the Bridge Loan prior to its maturity and conversion
to a term facility and anticipates that it would obtain the funds for the
retirement either from a debt or equity offering and/or the sale of assets.
If the Company is unable to raise the additional capital to retire the Bridge
Loan prior to its conversion to a term loan, the Company will incur the
conversion fee previously discussed.
At August 4, 1996, the Company had cash and cash equivalents of
approximately $6.8 million and unsecured lines of credit totaling $30.0 million
under which the Company had borrowings of $17.4 million outstanding. During
the last half of fiscal 1995 and the first three quarters of fiscal 1996, the
Company's earnings and cash flow from continuing operating activities were less
than amounts reported in the same periods of the respective prior years.
Following the first quarter of 1996, trends in comparable store sales and
operating margins for the Company's Captain D's restaurants have improved
significantly. Comparable store sales trends and operation margins for the
Company's Shoney's Restaurants were lower than the prior year for the first
three quarters of 1996. However, in the last four weeks of the third quarter
of 1996, operating margins improved as a result of cost control and a menu
price increase. As a result of the weaker than expected sales and
profitability, management reduced its capital expenditure program in the last
half of 1996 by approximately $4.0 million. Capital expenditures for fiscal
1996 are now expected to be approximately $73.8 million. The reduction in
capital expenditures (principally for remodeling of restaurants) is not
expected to have a material adverse affect on other trends in revenue growth
and profitability.
In connection with its acquisition of Enterprises, the Company assumed
or refinanced certain debts and other obligations of Enterprises or its
subsidiaries, totaling approximately $105 million, including approximately
$51.6 million of 8.25% subordinated convertible debentures assumed by the
Company. Based on historical operating results of the acquired restaurants,
management believes that the cash flow from the acquired restaurants will be
sufficient to meet the debt service requirements of the additional debt assumed
or refinanced by the Company. Savings in general and administrative costs and
commissary overhead from combining the two companies are expected to generate
an additional $10 to $15 million of cash flow and should further enhance
available cash for debt service. In the longer term, management believes that
the Company will retire the additional debt incurred as a result of the
acquisition by the sale of assets and/or an additional debt or equity offering.
(18)
<PAGE> 19
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Item 3 of Amendment No. 1 to the Company's Annual Report on Form 10-K,
filed with the Commission on February 27, 1995 and Item 1 of Part II of the
Company's Quarterly Reports on Form 10-Q, filed with the Commission on April 3,
1996 and June 25, 1996 are incorporated herein by this reference. See also
Note 8 to the Notes to Consolidated Condensed Financial Statements at pages 9 -
11 of this Quarterly Report on Form 10-Q.
Item 2 - Changes in Securities
Following the receipt of shareholder approval at the special meeting
of shareholders of the Company held August 21, 1996, the Company amended its
charter to increase the number of shares of common stock the Company is
authorized to issue from 100,000,000 shares to 200,000,000 shares. The charter
amendment did not otherwise affect the rights of holders of the Company's
common stock.
In conjunction with the Company's acquisition of substantially all of
the assets of TPI Enterprises, Inc. ("Enterprises") on September 9, 1996, the
Company assumed by Supplemental Indenture the 8.25% Convertible Subordinated
Debentures due 2002 issued by Enterprises, with an outstanding principal
balance of $51,563,000. The Indenture governing those debentures, as
supplemented, prohibits the Company's payment of dividends on its common stock
or its repurchase or acquisition for value of the Company's common stock while
such debentures are outstanding. See Note 6 to the financial statements
included in Item 1 of Part I of this report for restrictions on dividends and
distributions on common stock under the Company's senior debt.
Item 4. Submission of Matters to a Vote of Security-Holders
(a). A Special Meeting of the Shareholders of Shoney's, Inc. was held
on August 21, 1996. At that time, there were present, in person or by proxy,
30,487,620 shares of the Company's common stock.
(b). At the Special Meeting, three items were submitted to a vote of
shareholders. The matters submitted to a vote of shareholders were as follows:
1. The Plan of Tax-Free Reorganization Under Section 368(a)(1)(C) of
the Internal Revenue Code and Agreement, dated as of March 15, 1996, as amended
by and among the Company, TPI Restaurants Acquisition Corporation, a
wholly-owned subsidiary of the Company, and TPI Enterprises, Inc., providing
for the Company's acquisition of substantially all of the assets of Enterprises
in exchange for the issuance by the Company of shares and associated rights,
stock options, warrants and rights to purchase shares and associated rights, of
the Company's common stock and the assumption of certain liabilities, contracts
and other obligations of Enterprises (the "Reorganization");
2. A proposed amendment to Shoney's charter increasing the authorized
shares of Shoney's common stock, par value $1.00 per share, from 100 million to
200 million shares; and
3. Proposed amendments to the Shoney's, Inc. 1981 Stock Option Plan,
as described in an accompanying Joint Proxy Statement / Prospectus.
(19)
<PAGE> 20
(c). The results of voting for the three proposals at the Special
Meeting, the only matters voted upon, were as follows:
<TABLE>
<CAPTION>
Broker
For Against Withheld Non-Votes
---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1. Plan of Tax-Free Reorganization 24,946,279 919,195 112,716 4,509,430
2. Amendments to Charter 22,412,354 7,964,857 110,380 29
3. Amendments to Option Plan 23,297,676 6,445,920 744,024
</TABLE>
Item 5 - Other Information - None.
Item 6 - Exhibits and Reports on Form 8-K
(a) In accordance with the provisions of Item 601 of
Regulation S-K, the following have been furnished as Exhibits to this Quarterly
Report on Form 10-Q:
2 Plan of Tax-Free Reorganization Under Section
368(a)(1)(C) of the Internal Revenue Code and
Agreement, dated March 15, 1996, filed as Exhibit 2 to
the Company's current report on Form 8-K filed with the
Commission on March 20, 1996, and incorporated herein
by this reference, as amended by Amendment No. 1, dated
June 14, 1996, filed as Exhibit 2.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended May
12, 1996, and incorporated herein by this reference,
and Amendment No. 2, dated July 18, 1996, and Amendment
No. 3, dated August 21, 1996, filed as Exhibit 2.3 to
the Company's Current Report on Form 8-K filed with the
Commission on September 11, 1996, and incorporated
herein by this reference.
3(i), 4.1 Charter of Shoney's, Inc., as amended, filed as Exhibit
4.1 to the Company's Registration Statement on Form S-8
(File No. 333-11715) filed with the Commission
effective September 11, 1996, and incorporated herein
by this reference.
3(ii), 4.2 Amended and Restated Bylaws of Shoney's, Inc., filed as
Exhibits 3(ii) and 4.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended February 18,
1996 and incorporated herein by this reference.
(20)
<PAGE> 21
<TABLE>
<S> <C>
4.3 Amended and Restated Rights Agreement, dated as of May 25, 1994, between
Shoney's, Inc. (the "Company") and Harris Trust and Savings Bank, as
Rights Agent, filed as Exhibit 4 to the Company's Current Report on Form
8-K filed with the Commission on June 9, 1994 and incorporated herein by
this reference.
4.4 Amendment No. 1 dated as of April 18, 1995 to Amended and Restated Rights
Agreement, dated as of May 25, 1994, between Shoney's, Inc. (the
"Company") and Harris Trust and Savings Bank, as Rights Agent, filed as
Exhibit 4 to the Company's Current Report on Form 8-K filed with the
Commission on May 4, 1995 and incorporated herein by this reference.
4.5 Amendment No. 2 dated as of June 14, 1996 to Amended and Restated Rights
Agreement, dated as of May 25, 1994, between Shoney's, Inc. (the
"Company") and Harris Trust and Savings Bank, as Rights Agent, filed as
Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q for the
quarter ended May 12, 1996, filed with the Commission on June 25, 1996,
and incorporated herein by this reference.
4.6 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.
4.7 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.
4.8 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.
</TABLE>
(21)
<PAGE> 22
<TABLE>
<S> <C>
4.9 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.
4.10 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 19.5 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.
4.11 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 19.6 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.
4.12 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.
</TABLE>
(22)
<PAGE> 23
<TABLE>
<S> <C>
4.13 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.
4.14 Modification Agreement No. 3 dated as of August 21, 1996 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.
4.15 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 19.7 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.
4.16 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 19.8 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.
4.17 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.
</TABLE>
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4.18 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.
4.19 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.
4.20 Reimbursement Agreement, dated as of October 1, 1991, together with the
Standby Note relating thereto, between the Company and National Bank of
Canada, New York Branch, filed as Exhibit 28.10 to the Company's Current
Report on Form 8-K filed with the Commission on December 3, 1991, and
incorporated herein by this reference.
4.21 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.
4.22 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.
</TABLE>
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4.23 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.
4.24 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.
4.25 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.
4.26 Modification Agreement No. 1 dated as of July 21, 1993 to Loan Agreement
dated as of April 21, 1993 between the Company and NationsBank of
Tennessee, N.A., filed as Exhibit 4.7 to the Company's Quarterly Report
on Form 10-Q for the quarter ended August 1, 1993 filed with the
Commission on September 15, 1993, and incorporated herein by this
reference.
4.27 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.
4.28 U.S. $270,000,000 Amended and Restated Reducing Revolving Credit
Agreement, dated as of July 21, 1993, as amended and restated as of May
3, 1996, among Shoney's, Inc., as the Borrower, CIBC Inc., acting through
its Atlanta Office and various other financial institutions now or
hereafter parties hereto, as the Lenders, and Canadian Imperial Bank of
Commerce acting through its New York
</TABLE>
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<PAGE> 26
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Agency, as the Agent for the Lenders, filed as Exhibit 4.2
to the Company's Current Report on Form 8-K filed with the
Commission on May 15, 1996, and incorporated herein by this reference.
4.29 U.S. $100,000,000 Bridge Loan Credit Agreement,
dated as of May 3, 1996, among Shoney's, Inc., as the
Borrower, Canadian Imperial Bank of Commerce, and
various other financial institutions now or hereafter
parties hereto, as the Lenders, and Canadian Imperial
Bank of Commerce acting through its New York Agency, as
the Agent for the Lenders, filed as Exhibit 4.1 to the
Company's Current Report on Form 8-K filed with the
Commission on May 15, 1996, and incorporated herein by this reference.
4.30 Indenture, dated as of July 15, 1992, among TPI
Enterprises, Inc., TPI Restaurants, Inc., as Guarantor,
and NationsBank of Tennessee (now The Bank of New York,
as successor trustee), as trustee, relating to 8.25%
Convertible Subordinated Debentures due 2002, filed as
Exhibit 10 (a) of the Current Report on Form 8-K of TPI
Restaurants, Inc. dated July 29, 1992 (Commission File
No. 0-12312) and incorporated herein by this reference.
4.31 First Supplemental Indenture, dated as of
September 9, 1996, among TPI Enterprises, Inc., TPI
Restaurants, Inc., as Guarantor, The Bank of New York,
as trustee, and Shoney's, Inc., relating to 8.25%
Convertible Subordinated Debentures due 2002, filed as
Exhibit 4.2 to the Company's Current Report on Form 8-K
filed with the Commission on September 11, 1996, and
incorporated herein by this reference.
10.1 License Agreement, dated as of October 25, 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 25, 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
</TABLE>
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<PAGE> 27
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year ended October 31, 1993 filed with the Commission on
January 31, 1994, and incorporated herein by this reference.
10.3 Amendment No. 2 dated as of March 18, 1994 to
License Agreement, dated as of October 25, 1991,
between Shoney's Investments, Inc. and ShoLodge
Franchise Systems, Inc., filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended May 14, 1995 filed with the Commission on June
28, 1995, and incorporated herein by this reference.
10.4 Amendment No. 3 dated as of March 13, 1995 to
License Agreement, dated as of October 25, 1991,
between Shoney's Investments, Inc. and ShoLodge
Franchise Systems, Inc., filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended May 14, 1995 filed with the Commission on June
28, 1995, and incorporated herein by this reference.
10.5 Amendment No. 4 dated as of June 26, 1996 to
License Agreement, dated as of October 25, 1991,
between Shoney's Investments, Inc. and ShoLodge Franchise Systems, Inc.
10.6 Stock Purchase and Warrant Agreement, dated as
of October 25, 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.
10.7 Agreement dated as of September 15, 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.
10.8 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.
10.9 Shoney's, Inc. 1981 Stock Option Plan, as amended through May 1, 1996.
</TABLE>
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<PAGE> 28
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10.10 Shoney's, Inc. Stock Option Plan, filed as Exhibit 4.7 to Post Effective
Amendment No. 4 to the Company's Registration Statement on Form S-8 (File
No. 2-64257) filed with the Commission on April 11, 1990, and
incorporated herein by this reference.
10.11 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.
10.12 Shoney's, Inc. Employee Stock Purchase Plan, as amended through May 1,
1991, filed as Exhibit 10.11 to the Company's Quarterly Report on Form
10-Q for the quarter ended May 12, 1996, as filed with the Commission on
June 25, 1996, and incorporated herein by this reference.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 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.
</TABLE>
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<PAGE> 29
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10.18 Shoney's, Inc. Supplemental Executive Retirement Plan, filed as Exhibit
10.16 to the Company's Annual Report on Form 10-K for the fiscal year
ended October 29, 1995 filed with the Commission on January 28, 1996, and
incorporated herein by this reference, as amended by Amendment No. 1 to
the Shoney's, Inc. Supplemental Executive Retirement Plan, filed as
Exhibit 10.17 to the Company's Quarterly Report on Form 10-Q for the
quarter ended February 18, 1996 and incorporated herein by this
reference.
10.19 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.
10.20 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.
10.21 Employment Agreement dated as of June 17, 1996, between the Company and
W. Craig Barber, filed as Exhibit 10.20 to the Company's Quarterly Report
on Form 10-Q for the quarter ended May 12, 1996, filed with the
Commission on June 25, 1996, and incorporated herein by this reference.
10.22 Employment Agreement dated as of April 11, 1995, between the Company and
C. Stephen Lynn, filed as Exhibit 10.20 to the Company's Quarterly Report
on Form 10-Q for the quarter ended May 14, 1995 filed with the Commission
on June 28, 1995, and incorporated herein by this reference, as amended
by Amendment No. 1, filed as Exhibit 10.21 to the Company's Annual Report
on Form 10-K for the fiscal year ended October 29, 1995, filed with the
Commission on January 28, 1996, and incorporated herein by this
reference.
11 Statement regarding computation of per share earnings.
27 Financial Data Schedule. (for SEC use only)
</TABLE>
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<PAGE> 30
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(b) On May 15, 1996, the Company filed a report on Form 8-K to report under
Item 5 of that form that the Company had obtained a senior secured
bridge loan in the aggregate principal amount of up to $100 million to
provide working capital and a source of financing for the pending
transaction with TPI, and, concurrently therewith, had amended the
reducing revolving credit facility of the Company.
On September 11, 1996, the Company filed a report on Form 8-K to report
under Item 2, that effective September 9, 1996, the Company had acquired
substantially all of the assets of TPI Enterprises, Inc. ("Enterprises")
pursuant to that certain Plan of Tax-Free Reorganization Under Section
368(a)(1)(C) of the Internal Revenue Code and Agreement, dated as of
March 15, 1996, as amended by Amendments No. 1, 2, and 3 by and among the
Company, TPI Restaurants Acquisition Corporation, a wholly owned
subsidiary of the Company, and Enterprises, and under Item 7 of that
form, that financial statements of Enterprises and pro forma financial
information had been previously filed.
</TABLE>
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<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized both on behalf of the registrant and in
his capacity as principal financial officer of the registrant.
Date: September 17, 1996 By: /s/ W. Craig Barber
----------------------------------
W. Craig Barber
Senior Executive Vice President
And Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
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<PAGE> 1
EXHIBIT 4.14
MODIFICATION AGREEMENT NO. 3
TO REIMBURSEMENT AGREEMENT AND TO STANDBY NOTE
THIS MODIFICATION AGREEMENT NO. 3 TO REIMBURSEMENT AGREEMENT AND
STANDBY NOTE (the "Modification No. 3") is made as of the 21st day of August,
1996, by and among SHONEY'S, INC. (the "Borrower"), a Tennessee corporation,
and NATIONSBANK OF TENNESSEE, N.A. ("NationsBank") (formerly known as Sovran
Bank/Central South), a national banking association having its principal place
of business in the City of Nashville, Tennessee, THE LONG-TERM CREDIT BANK OF
JAPAN, LIMITED, NEW YORK BRANCH ("LTCB"), a Japanese banking corporation acting
through its New York Branch with an office in the City of New York, New York,
KREDIETBANK, N.V., NEW YORK BRANCH ("Krediet"), a Belgian banking corporation
acting through its New York Branch with an office in the City of New York, New
York, and NATIONSBANK OF TENNESSEE, N.A. as agent for NationsBank, LTCB and
Krediet (in such capacity, the "Agent").
WITNESSETH:
WHEREAS, the parties heretofore entered into a Reimbursement
Agreement dated as of October 1, 1989 (the "Agreement"), as modified and
amended by a First Amendment to Reimbursement Agreement dated as of February 1,
1990 (the "Amendment"), a Modification Agreement No. 1 to Reimbursement
Agreement and Standby Note dated July 21, 1993 (the "Modification No. 1") and a
Modification Agreement No. 2 to Reimbursement Agreement and Standby Note dated
June 8, 1994 (the "Modification No. 2") (the Agreement, as modified and amended
by the Amendment, Modification No. 1 and Modification No. 2, is hereinafter
referred to as the "Reimbursement Agreement"); and
WHEREAS, pursuant to the Reimbursement Agreement, the Borrower has
issued its $13,305,555.56 Standby Promissory Note dated October 27, 1989 (the
"Note"), as modified and amended by Modification No. 1 and Modification No. 2
(the Note, as modified and amended by Modification No. 1 and Modification No.
2, is hereinafter referred to as the "Standby Note"); and
WHEREAS, the Borrower has requested that NationsBank, LTCB and
Krediet (collectively, the "Letter of Credit Issuers") and the Agent amend the
Standby Note as set forth herein; and
WHEREAS, the Letter of Credit Issuers and the Agent are willing to
amend such provisions, but only on the terms and conditions set forth herein,
NOW, THEREFORE, in consideration of the agreements herein contained,
the parties hereto hereby agree as follows:
<PAGE> 2
ARTICLE I.
DEFINITIONS
SECTION 1.1 CERTAIN DEFINITIONS. Unless otherwise defined herein or
the context otherwise requires, capitalized terms used in this Modification
No.3, including its preamble and recitals, have the following meanings (such
meanings to be equally applicable to the singular and plural forms thereof):
"AGENT" has the meaning assigned to such term in the preamble.
"AMENDMENT" has the meaning assigned to such term in the first
recital.
"BORROWER" has the meaning assigned to such term in the preamble.
"KREDIET" has the meaning assigned to such term in the preamble.
"LTCB" has the meaning assigned to such term in the preamble.
"LETTER OF CREDIT ISSUERS" has the meaning assigned to such term in
the third recital.
"MODIFICATION EFFECTIVE DATE" has the meaning assigned to such term
in Section 3.1.
"MODIFICATION NO. 1" has the meaning assigned to such term in the
first recital.
"MODIFICATION NO. 2" has the meaning assigned to such term in the
second recital.
"MODIFICATION NO.3" means this Modification Agreement No. 3 to
Standby Note.
"NATIONSBANK" has the meaning assigned to such term in the preamble.
"REIMBURSEMENT AGREEMENT" has the meaning assigned to such term in
the first recital.
"STANDBY NOTE" has the meaning assigned to such term in the second
recital.
SECTION 1.2. OTHER DEFINITIONS. Unless otherwise defined herein or
the context otherwise requires, capitalized terms used in this Modification No.
3, including its preamble and recitals, have the meanings assigned to such
terms in the Reimbursement Agreement.
- 2 -
<PAGE> 3
ARTICLE II.
MODIFICATION OF REIMBURSEMENT AGREEMENT
AND STANDBY NOTE AS OF
THE MODIFICATION EFFECTIVE DATE
Effective on (and subject to the occurrence of) the Modification
Effective Date, the provisions of the Reimbursement Agreement and the Standby
Note referred to below are hereby amended and modified in accordance with this
Article II. Except as expressly so amended, the Reimbursement Agreement and the
Standby Note shall continue in full force and effect in accordance with their
respective terms, and the Borrower hereby reaffirms its obligations under the
Reimbursement Agreement and the Standby Note as amended and modified hereby and
under the other Note Documents.
SECTION 2.1. MODIFICATION OF REIMBURSEMENT AGREEMENT. The
Reimbursement Agreement is hereby amended in the following manner:
SECTION 2.1.1. Subsection 3.02(a) of the Reimbursement
Agreement is hereby deleted and the following is inserted in lieu
therefor:
"(a) In addition to any other fees payable to the Letter of
Credit Issuers, the Borrower will pay to the Agent for the
benefit of the Letter of Credit Issuers in advance, on the
Date of Issuance and on each Commission Payment Date
thereafter until the Termination Date, a letter of credit fee
for the period from such Commission Payment Date (or, in the
case of the first such payment, the Date of Issuance) to and
including the day before the next Commission Payment Date, in
an amount equal to the product of (i) two percent (2%) per
annum (the "Fee Percentage") of the Stated Amount of the
Letter of Credit (as determined on such Commission Payment
Date) multiplied by (ii) a fraction, the numerator of which
equals the actual number of days from and including such
Commission Payment Date to and including the day before the
next Commission Payment Date and the denominator of which
equals the actual number of days in such year, provided,
however, that, upon the occurrence of the First Step-Down, the
Fee Percentage shall be reduced to one and three-quarters
percent (1-3/4%) per annum. The Borrower shall be entitled to
a pro-rata refund of such fee paid in advance if and to the
extent that the Stated Amount of the Letter of Credit is
reduced during the period for which such fee was prepaid
pursuant to the provisions of Section 5.10(b) of the Note
Issuance Agreement."
SECTION 2.2. MODIFICATION OF STANDBY NOTE. The Standby Note is hereby
amended in the following manner:
- 3 -
<PAGE> 4
SECTION 2.2.1. The date "September 1, 1996" appearing in the
fourth full paragraph of the Standby Note is hereby deleted and the
date "September 1, 1997" is inserted in lieu therefor.
ARTICLE III.
CONDITIONS TO EFFECTIVENESS
SECTION 3.1. MODIFICATION EFFECTIVE DATE. This Modification No. 3
shall become effective as of the date first above written (the "Modification
Effective Date") when the Agent shall have received counterparts of this
Modification No. 3 duly executed by the Borrower, the Agent and each of the
Letter of Credit Issuers.
ARTICLE IV.
MISCELLANEOUS
SECTION 4.1. CROSS REFERENCES. References in this Modification No. 3
to any article or section are, unless otherwise specified, to such article or
section of this Modification No. 3.
SECTION 4.2. INSTRUMENT PURSUANT TO REIMBURSEMENT AGREEMENT; LIMITED
WAIVER. This Modification No. 3 is a document executed pursuant to the
Reimbursement Agreement and shall (unless otherwise expressly indicated
therein) be construed, administered, and applied in accordance with all of the
terms and provisions of the Reimbursement Agreement. Any term or provision of
and any modification effected by this Modification No. 3 may be modified in any
manner by an instrument in writing executed by the parties hereto. Except as
expressly amended hereby, all of the representations, warranties, terms,
covenants, and conditions of the Reimbursement Agreement, the Standby Note and
the other Note Documents shall remain unmodified and unwaived. The
modifications set forth herein shall be limited precisely as provided for
herein to the provisions expressly modified herein.
SECTION 4.3. SUCCESSORS AND ASSIGNS. This Modification No. 3 shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
SECTION 4.4. COUNTERPARTS. This Modification No. 3 may be executed by
the parties hereto in several counterparts which shall be executed by the
Borrower, each of the Letter of Credit Issuers, and the Agent, as the case may
be, all of which shall be deemed to be an original and which shall constitute
together but one and the same agreement.
SECTION 4.5. AGREEMENT OF LETTER OF CREDIT ISSUERS. Without limiting
the generality of Section I of the Agreement of Banks made as of October 1,
1989, by and among the Letter of Credit Issuers and the Agent, each of the
Letter of Credit Issuers represents and warrants to each of the other Letter of
Credit Issuers and to the Agent that it has independently and without reliance
upon any representation made by either of the other Letter of Credit Issuers or
the Agent made its own decision to enter into this Modification No. 3 and that
it continues to make its own independent credit decisions with respect to the
Borrower.
- 4 -
<PAGE> 5
SECTION 4.6. EXPENSES. The Borrower hereby agrees that it will pay
all out-of-pocket expenses incurred by the Letter of Credit Issuers and the
Agent in connection with this Modification No. 3, including reasonable
attorneys' fees and expenses.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
- 5 -
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Modification
No. 3 to be executed by their respective officers hereunder duly authorized as
of the day and year first above written.
SHONEY'S, INC.
BY: /S/ F.E. MCDANIEL, JR
-------------------------------
TITLE: TREASURER
----------------------------
NATIONSBANK OF TENNESSEE, N.A.
(FORMERLY KNOWN AS SOVRAN BANK/CENTRAL SOUTH)
BY: /S/ STEVE L. DALTON
-------------------------------
TITLE:VICE PRESIDENT
-----------------------------
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
BY: /S/ JOHN J. SULLIVAN
-------------------------------
TITLE: JOINT GENERAL MANAGER
----------------------------
KREDIETBANK, N.V., NEW YORK BRANCH
BY: /S/ ROBERT SNAUFFER /S/ TOD R. ANGUS
-------------------------------------
TITLE: VICE PRESIDENT VICE PRESIDENT
----------------------------------
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<PAGE> 7
NATIONSBANK OF TENNESSEE, N.A.
(FORMERLY KNOWN AS SOVRAN BANK/CENTRAL SOUTH),
AS AGENT
BY: /S/ STEVE L. DALTON
--------------------------------
TITLE: VICE PRESIDENT
-----------------------------
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<PAGE> 1
EXHIBIT 10.5
AMENDMENT NO. 4
TO
LICENSE AGREEMENT
THIS AMENDMENT NO. 4 TO LICENSE AGREEMENT (the "Amendment") is entered
into this 26th day of June, 1996, by and between SHONEY'S INVESTMENTS, INC., a
Nevada corporation with offices at Suite 1400, 300 South Fourth Street, Las
Vegas, Nevada 89101 ("Licensor"), and SHOLODGE FRANCHISE SYSTEMS, INC.
(formerly known as Shoney's Lodging, Inc.), a Tennessee corporation with
offices at 217 West Main Street, Gallatin, Tennessee 37066 ("Licensee").
ShoLodge, Inc. (formerly known as Gulf Coast Development, Inc.), a Tennessee
corporation with offices at 217 West Main Street, Gallatin, Tennessee 37066 and
the parent corporation of Licensee ("ShoLodge"), is executing this Amendment for
the purposes set forth in the Existing License Agreement (as hereinafter
defined).
W I T N E S E T H:
WHEREAS, Licensor and Licensee entered into that certain License
Agreement on October 25, 1991 (the "Original License Agreement") pursuant to
which Licensor granted to Licensee a license to use the service mark SHONEY'S
INN (and design) which was registered on February 16, 1982 with the United
States Patent and Trademark Office (the "USPTO") at Registration No. 1,190,289;
and
WHEREAS, Licensor and Licensee entered into that certain Amendment No.
1 to License Agreement on September 16, 1992 (the "First Amendment") pursuant
to which Licensor added the service mark SHONEY'S INN (block letters) which was
registered by Licensor on August 4, 1992 with the USPTO at Registration No.
1,705,676 to be licensed to Licensee pursuant to the terms and conditions of the
Original License Agreement; and
WHEREAS, Licensor and Licensee entered into that certain Amendment No.
2 to License Agreement on March 18, 1994 (the "Second Amendment") pursuant to
which certain Tennessee counties were added to the "Territory" covered by the
Original License Agreement; and
WHEREAS, Licensor and Licensee entered into that certain Amendment No.
3 to License Agreement on March 13, 1995 (the "Third Amendment") (the Original
License Agreement as amended by the First Amendment, by the Second Amendment
and by the Third Amendment is hereinafter referred to as the "Existing License
Agreement") pursuant to which Licensor added the service mark SHONEY'S SUITES
(block letters) for which an intent-to-use application was filed with the USPTO
on January 23, 1995 and the service mark SHONEY'S INN & SUITES (block letters)
for which an intent-to-use application as filed with the USPTO on February 6,
1995 to be licensed to Licensee pursuant to the terms and conditions of the
Original License Agreement; and
WHEREAS, the parties hereto desire to modify and amend the Existing
License Agreement in certain other respects as set forth herein.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and covenants
contained herein and in the Existing License Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Licensor and Licensee agree as follows:
1. The Existing License Agreement is hereby amended by inserting
the following sentence at the end of Section 4.4(c):
Licensor shall not object to a proposed site solely because a
Shoney's Restaurant is not located in close proximity to such
site.
2. The Existing License Agreement is hereby amended by deleting
the existing Section 4.5(d) in its entirety and inserting in lieu thereof the
following:
(d) Licensee shall not, and shall not permit
any of its franchisees to, offer or provide any food or food
service for either on or off premises consumption at any Motel,
without the prior written consent of Licensor, except as
provided in this paragraph 4.5(d). Notwithstanding anything to
the contrary contained herein, Licensee and its franchisees
shall be allowed (i) to operate in any Motel vending machines
selling soft drinks, coffee, snacks and similar items, (ii) to
serve guests on a complimentary basis during breakfast hours
(from 6:00 a.m. to 10:00 a.m.) coffee, juice, tea and similar
breakfast beverages and no more than three (3) breakfast
"breads" such as donuts, bagels, muffins, sweet rolls, danish
and similar items and one bowl containing one type of fresh
whole fruit, and (iii) so long as Licensee or its franchisee
(as applicable) shall have first offered the catering work to
the adjacent "Shoney's Restaurant" operator, if any, to hire a
caterer or to assist in hiring a caterer to serve special menu
items to specific banquet/convention groups meeting at any
Motel; provided, however, neither Licensee nor its franchisees
shall be permitted to operate at any Motel a full service
kitchen or to prepare food for such banquet/convention group at
any Motel (other than preparation by the caterer incidental to
the serving of such food). No hot breakfast foods, cereals,
cut fruit or products showing brand names (such as Dunkin
Donuts) shall be allowed, although brand name products may be
used as long as the brand name itself is not displayed. The
intent of this paragraph is that Licensee and its franchisees
may serve the breakfast items described herein only for the
convenience of guests and must not be perceived as serving food
prepared by, or in competition with, a "Shoney's Restaurant"
except as expressly provided in this paragraph 4.5(d).
Licensee agrees, and shall require its franchisees to agree, to
place menus for "Shoney's Restaurants" (which must be approved
by Licensor and any expense borne by the adjacent restaurant
operator) in each guest room of all Motels and shall not allow
any other restaurant or food service organization to place
promotional material in the guest rooms of any Motels without
the prior written consent of Licensor.
-2-
<PAGE> 3
3. Except as herein specifically amended, all terms and provisions
of the Existing License Agreement shall remain in full force and effect.
4. This Amendment may be executed simultaneously in two (2) or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment all as
of the day and date first above written.
LICENSOR:
SHONEY'S INVESTMENTS, INC.
By: /s/ Robert M. Langford
-----------------------------
Title: Vice President
--------------------------
LICENSEE:
SHOLODGE FRANCHISE SYSTEMS, INC.
By: /s/ James M. Grout
----------------------------
Title: Vice-Chairman
-------------------------
SHOLODGE, INC.
By: /s/ James M. Grout
----------------------------
Title: Exec. V.P.
--------------------------
- 3 -
<PAGE> 1
EXHIBIT 10.9
SHONEY'S, INC. 1981 STOCK OPTION PLAN
AS AMENDED AND RESTATED THROUGH MAY 1, 1996
PURPOSE OF THE PLAN
This Stock Option Plan (the "Plan") is intended to promote the interests of
Shoney's, Inc. (the "Company") and its shareholders by encouraging those key
employees who will be responsible for the future growth and continued
development of the Company and its Subsidiaries, as hereinafter defined, to own,
and to increase their ownership of, the Company's stock, thereby giving them, as
shareholders, an increased personal interest in, and a greater concern for, the
Company's continued success and progress.
STATEMENT OF THE PLAN
1. Name. The Plan shall be known as the Shoney's, Inc. 1981 Stock Option
Plan.
2. Definition of Terms. In addition to words and terms that may be defined
elsewhere in the Plan, the following words and terms as used in the Plan shall
have the following meanings unless the context or use fairly indicates another
or different meaning or intent, which definitions shall be equally applicable to
both the singular and plural forms of such words and terms:
2.1 "Board" means the Company's Board of Directors.
2.2 "Change in Control" means 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 Exchange Act; provided, however,
that, without limitation, such a Change in Control shall be deemed to have
occurred if during the option exercise period: (a) any "person" (as such
term is used in the 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 the Company representing
more than fifty percent (50%) of the combined voting power of Company's
then outstanding voting securities; or (b) all or substantially all of the
fixed assets of the Company, based on the appraised value of such assets on
a consolidated basis, are sold, exchanged or otherwise transferred (other
than to secure debt owed by the Company); or (c) the Company's shareholders
approve a plan of liquidation or dissolution; or (d) individuals who at the
time an option is granted constitute members of the Board cease for any
reason to constitute a majority thereof unless the election, or the
nomination for election by Company's shareholders, of each new director was
approved by a vote of at least a majority of the directors then still in
office who were directors at the time the option was granted.
2.3 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.4 "Committee" means the Human Resources and Compensation Committee
of the Board, consisting solely of three or more outside directors (as
defined by Code Section 162(m) and the regulations issued thereunder), as
from time to time designated by the Board, that administers the Plan in
accordance with Section 3, and who are not and have not at any time for one
year before appointment to the Committee been eligible to receive stock or
options under any plan (other than the Directors Stock Option Plan) of the
Company or any of its affiliates.
2.5 "Common Stock" means the common stock of the Company having a par
value of $1.00 per share.
2.6 "Disability" means, as defined by and to be construed in
accordance with Code Section 22(e)(3), any medically determinable physical
or mental impairment which can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not less than
twelve (12) months, and which renders Participant unable to engage in the
duties being engaged in before the impairment. A Participant shall not be
considered to have a Disability unless the Participant
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furnishes proof of the existence thereof in a such form and manner, and at
such time, as the Committee may require.
2.7 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.8 "Incentive Option" means an option which qualifies as an
incentive stock option within the meaning of Code Section 422.
2.9 "Nonqualified Option" means an option which does not qualify as
an incentive stock option under Code Section 422.
2.10 "Parent" means any corporation, which at the time an option is
granted, qualifies as a parent of the Company under the definition of
"parent corporation" contained in Code Section 424(e), i.e., any
corporation, other than the Company, in an unbroken chain of corporations
ending with the Company, if at the time of the granting of an option under
the Plan, each of the corporations other than the Company own stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
2.11 "Participant" means an employee of the Company or any of its
Subsidiaries to whom an option is granted under the Plan.
2.12 "Performance-Based Option" means an Incentive Option or
Nonqualified Option that vests as determined by the Committee in accordance
with Section 7.7[i].
2.13 "Prior Plan" means the Stock Option Plan originally approved by
the Company's shareholders on January 16, 1969, as amended.
2.14 "Representative" means the personal representative of the
Participant's estate, and after final settlement of the Participant's
estate, the successor or successors entitled thereto by law.
2.15 "Subsidiary" means any corporation which at the time an option
is granted qualifies as a subsidiary of the Company under the definition of
"subsidiary corporation" contained in Code Section 424(f), i.e., any
corporation, other than the Company, in an unbroken chain of corporations
beginning with the Company if, at the time of the granting of an option
under the Plan, each of the corporations other than the last corporation in
the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock of one of the other corporations in
such chain.
2.16 "Trading Price of the Common Stock" means (i) the closing price
of the Common Stock on the principal national securities exchange on which
the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) if the Common Stock is not then
traded on a national securities exchange, the average of the closing bid
and asked quotations or the closing high bid quotation, whichever is
available, in the over-the-counter market as reported by the NASDAQ
National Market List; or (iii) if the Common Stock is not then reported on
the NASDAQ National Market List, the average of the closing bid and asked
prices last quoted by an established quotation service for over-
the-counter-securities.
3. Administration. The Plan shall be administered by the Committee.
Members of the Committee shall not be eligible to participate in the Plan. The
Committee may interpret the Plan, prescribe, amend, and rescind any rules and
regulations necessary or appropriate for the administration of the Plan, and
make such other determinations and take such other action as it deems necessary
or desirable for the administration of the Plan and the protection of the
Company except as otherwise reserved to the Board or the shareholders of the
Company. Without limiting the generality of the foregoing sentence, the
Committee may, in its discretion, treat all or any portion of any period during
which an optionee is on military or other approved leave of absence from the
Company or a Subsidiary, as a period of employment of such optionee by the
Company or such Subsidiary, as the case may be, for purposes of accrual of the
Participant's rights under the Plan; provided, however, that in the case of an
Incentive Option such leave shall not be longer than 90 days or the optionee's
reemployment following such leave must be guaranteed by contract or statute. In
the event the leave described in the preceding sentence exceeds 90 days and
reemployment is not guaranteed by contract or statute, the
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<PAGE> 3
optionee's employment by the Company or a Subsidiary shall be deemed to have
terminated on the 91st day of such leave. Any interpretation, determination, or
other action made or taken by the Committee shall be final, binding, and
conclusive. No member of the Committee shall be liable for any action taken or
omitted or determination made in good faith with respect to the Plan or any
option granted under the Plan.
4. Shares Subject to Plan. Options may be granted by the Company from time
to time to purchase an aggregate of 13,685,180 shares of Common Stock, subject
to adjustment as provided in Section 9. The shares issued upon exercise of
options granted under the Plan may be authorized and unissued shares or shares
held by the Company in its treasury. If any option granted under the Plan shall
terminate, expire, or, with the consent of the Participant, be cancelled as to
any shares, new options may thereafter be granted covering any such shares.
5. Eligibility. Options may be granted to those employees of the Company
(including officers, whether or not they are directors) who have and exercise
key management functions and responsibilities for the Company or any Subsidiary.
The granting of an option to any employee shall neither entitle such employee
to, nor disqualify such employee from, participation in any other grant of
options.
6. Grant of Options. The Committee shall have the authority, subject to
the terms of the Plan, to: (a) determine and designate from time to time those
employees of the Company or any Subsidiary to whom options are to be granted and
the number of shares to be optioned to each such employee, provided that no
director of the Company who is not also an employee of the Company or of a
Subsidiary and no director who is a member of the Committee administering the
Plan shall be entitled to receive any option under the Plan and further provided
that the maximum number of shares of Common Stock that may be granted to any
Participant during any fiscal year of the Company shall not exceed two million
(2,000,000) shares; (b) authorize the granting of Incentive Options,
Nonqualified Options, Performance-Based Options, or combinations of Incentive
Options, Nonqualified Options and Performance-Based Options; and to require, if
it so determines, that if an Incentive Option and a Nonqualified Option are
granted to the same Participant, then to the extent one option is exercised the
other option shall not be exercised and shall terminate; (c) determine the
number of shares subject to each option; and (d) subject to the restrictions of
Section 7.7, determine the schedule and duration of the exercise period for any
option. The date of grant of an option under the Plan will be the date on which
the option is awarded by the Committee.
7. Terms and Conditions of Options. Each option granted under the Plan
shall be evidenced by an agreement, in a form approved by the Committee, and
shall be subject to the terms and conditions contained in Sections 7.1 through
7.8 and to such other terms and conditions as the Committee may deem
appropriate; provided, however, that no Incentive Option shall be subject to any
condition that is inconsistent with the provisions of Code Section 422(b). In
the event that any condition imposed hereunder on an Incentive Option is at any
time determined by the Internal Revenue Service or a court of competent
jurisdiction to be inconsistent with Code Section 422, then each Incentive
Option shall be deemed to have been granted without such condition but shall
continue in effect under such remaining terms and conditions as may be
applicable as if the invalid condition had not been included.
7.1 Option Period. Each option agreement shall specify the period
during which the option thereunder is exercisable (which shall not exceed
ten (10) years from the date of grant, except as otherwise provided by
Section 8.3) and shall provide that the option shall expire at the end of
such period.
7.2 Option Price. The option price per share shall be 100% of the
fair market value of the Common Stock on the date of grant. The fair market
value of the Common Stock shall be the Trading Price of the Common Stock on
the date of grant. Such price shall be subject to adjustment as provided in
Section 9.
7.3 Nontransferability. The options granted hereunder shall not be
transferable by the Participant otherwise than by will or the laws of
descent and distribution.
7.4 Ten Percent Shareholders. Incentive Options shall not be granted
to any employee who, immediately before the option is granted, owns stock
possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of its Parent or Subsidiaries;
provided,
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<PAGE> 4
however, that this prohibition shall not apply if at the time such option
is granted the option price is at least one hundred ten percent (110%) of
the fair market value of the Common Stock and such option is not
exercisable after the expiration of five (5) years from the date such
option is granted.
7.5 $100,000 Incentive Option Limitation. To the extent the aggregate
fair market value (determined as of the date the option is granted) of the
Common Stock for which an Incentive Option will first become exercisable by
a Participant in any calendar year under all plans of the Participant's
employer corporation and its Parent and Subsidiaries exceeds $100,000, such
option shall be treated as a Nonqualified Option.
7.6 Termination of Employment. If any Participant shall cease to be
an employee of either the Company, or a Parent or Subsidiary, or a Parent
or Subsidiary corporation of each corporation issuing or assuming a stock
option in a transaction to which Code Section 424(a) applies, except when
such cessation of employment is caused by the death or Disability of the
Participant, the Participant may, subject to the provisions hereof and
before the earlier of the option's expiration date or the expiration of
three (3) months from such cessation of employment, exercise the option
granted to such Participant to the same extent that the Participant might
have exercised such option on the date of cessation of employment. To the
extent that any option is not exercised in accordance herewith, it shall
terminate at the earlier of the option's expiration date or the expiration
of the three (3) month period following cessation of employment.
Participant's Representative, in the event of the Participant's death, or
the Participant, in the event of the Participant's Disability, may, subject
to the provisions hereof and before the earlier of the option's expiration
date or the expiration of twelve (12) months after the date of such death
or Disability, exercise the option granted to such Participant up to the
total number of shares covered by the option less any previous exercises.
To the extent that any option is not exercised in accordance herewith, it
shall terminate at the earlier of the option's expiration date or the
expiration of the twelve (12) month period following death or Disability.
Nothing in the Plan shall be construed as imposing any obligation on the
Company to continue the employment of any Participant.
7.7 Period of Exercise of Options. Any option granted hereunder, may,
before its expiration or termination, be exercised from time to time, in
whole or in part, up to the total number of shares with respect to which it
shall have then become exercisable. An option granted hereunder shall
become exercisable in such installments as are specified in the option
agreement, the rate of which shall not be at a rate exceeding the following
schedule, except as otherwise provided by this Section 7.7: (a) After one
(1) year from the date the option is granted, it may be exercised as to not
more than 33 1/3% of the shares covered thereunder; (b) after two years
from the date the option is granted, it may be exercised as to not more
than an additional 33 1/3%, or a total of 66 2/3%, of the shares covered
thereunder; (c) after three years from the date the option is granted, it
may be exercised as to all of the shares covered thereunder.
Notwithstanding the foregoing, the Committee may provide in the option
agreement that an option shall vest, in whole or in part:
[i] with respect to Performance-Based Options, at such time, or
within such time period as the Committee shall designate, as the fair
market value of the Company's Common Stock subject to the option
increases seventy-five percent (75%), or such greater percentage as
determined by the Committee, over the fair market value of the Common
Stock at date of grant of the option, with said option to vest no later
than ten (10) years from the date the option is granted provided that
the Committee may provide for expiration of the option upon termination
of employment.
[ii] in the event of the Participant's termination of employment
with the Company or Subsidiary because of the Participant's death or
Disability; and
[iii] in the event of a Change in Control.
7.8 Determination of Fair Market Value for Vesting of
Performance-Based Options. A Performance-Based Option shall vest on such
dates as the average of the Trading Price of the Common Stock for the
immediately preceding twenty (20) consecutive trading days (the "Average
Trading Price of the
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<PAGE> 5
Common Stock") is at least seventy-five percent (75%), or such greater
percentage as determined by the Committee, over the Trading Price of the
Common Stock on the date of grant.
8. Exercise of Option. The exercise of any option under the Plan shall be
subject to the provisions of Sections 8.1 through 8.3.
8.1 Manner of Exercise. To exercise an option, the Participant shall
deliver to the Company at its main office (attention of the corporate
Secretary): [i] written notice specifying the number of shares as to which
the option is being exercised and, if determined by counsel for the Company
to be necessary, representing that such shares are being acquired for
investment purposes only and not for purpose of resale or distribution; and
[ii] payment by the Participant, or a broker-dealer (as provided in Section
8.2), for such shares of the option price for the number of shares with
respect to which the option is exercised. Provided that all conditions
precedent contained in the Plan and option agreement are satisfied, the
Company shall deliver to the Participant, at the offices of the Company, a
certificate or certificates for the Common Stock. If Participant fails to
accept delivery of the Common Stock, the Participant's rights to exercise
the applicable portion of the option shall terminate.
8.2 Payment for Shares. Except as otherwise provided in this Section
8, the option price for the Common Stock shall be paid in full when the
option is exercised. Subject to such rules as the Committee may impose, the
option price may be paid in whole or in part in [i] cash, [ii] whole shares
of Common Stock owned by the Participant evidenced by negotiable
certificates, [iii] by a combination of such methods of payment, or [iv]
such other consideration as shall constitute lawful consideration for the
issuance of Common Stock and be approved by the Committee. If payment of
the option price is made in Common Stock, the value of the Common Stock
used for payment of the option price shall be the closing price of the
Common Stock on the national securities exchange on the business day
preceding the day written notice of exercise is delivered to the Company.
The Committee, in its discretion, may suspend or terminate the right of
Participant to pay with stock of the Company should the Committee deem such
action to be in the Company's best interests.
8.3 Exercises Causing Loss of Tax Deduction. No part of an option may
be exercised to the extent the exercise would cause the Participant to have
compensation from the Company and its affiliated companies for any year in
excess of $1 million and which is nondeductible by the Company and its
affiliated companies pursuant to Code Section 162(m) and the regulations
issued thereunder. Any option not exercisable because of this limitation
shall continue to be exercisable in any subsequent year in which the
exercise would not cause the loss of the Company's or its affiliated
companies' tax deduction, provided that an Incentive Option may not be
exercised later than ten (10) years from date of grant. This section shall
not limit the exercisability of an option in the event of Change in
Control.
8.4 Investment Representation. Each option agreement may provide
that, upon demand by the Committee for such a representation, the
Participant or Participant's Representative shall deliver to the Committee
at the time of any exercise of an option or portion thereof a written
representation that the shares to be acquired upon such exercise are to be
acquired for investment and not for resale or with a view to the
distribution thereof. Upon such demand, delivery of such representation
before delivery of Common Stock issued upon exercise of an option and
before expiration of the option period shall be a condition precedent to
the right of the Participant or Participant's Representative to purchase
Common Stock.
8.5 Withholding. The Company's obligation to deliver shares on the
exercise of any option shall be subject to satisfaction of any applicable
federal, state, and local tax withholding requirements, and the Company, in
its sole discretion, may withhold shares otherwise transferable to the
Participant upon exercise of an option in order to satisfy such withholding
requirements.
8.6 Successive Options. Notwithstanding anything herein contained to
the contrary, no Incentive Option granted hereunder to a Participant before
May 1, 1996 shall be exercisable while there is outstanding (within the
meaning of former Code Section 422A(c)(7) which was repealed with respect
to options granted after December 31, 1986) any Incentive Option
theretofore granted to such Participant to
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purchase stock in the Company or in a corporation which (at the time of the
granting of this option) is a Parent or Subsidiary of the Company, or is a
predecessor corporation of any such corporations.
9. Capital Adjustments. The number and price of shares of Common Stock
covered by each option and the total number of shares that may be optioned and
sold under the Plan shall be proportionately adjusted to reflect any stock
dividend, stock split or share combination of the Common Stock or any
recapitalization of the Company. In the event of any merger, consolidation,
reorganization, liquidation or dissolution of the Company, or any exchange of
shares involving the Common Stock, any option granted under the Plan shall
automatically be deemed to pertain to the securities and other property to which
a holder of the number of shares of Common Stock covered by the option would
have been entitled to receive in connection with any such event. The Committee
shall have the sole discretion to make all interpretations and determinations
required under this section to the extent it deems equitable and appropriate.
10. Reservation and Delivery of Shares. The Company, during the term of
any options granted hereunder, will at all times reserve and keep available, and
will seek to obtain from any regulatory body having jurisdiction any requisite
authority in order to issue and sell, such number of shares of Common Stock as
shall be sufficient to satisfy the requirements of the options granted under the
Plan. If in the opinion of its counsel, the issuance or sale of any shares of
its stock hereunder shall not be lawful for any reason, including the inability
of the Company to obtain from any regulatory body having jurisdiction authority
deemed by such counsel to be necessary for such issuance or sale, the Company
shall not be obligated to issue or sell any such shares.
11. Event of Defeasance. Any options granted hereunder are specifically
made subject to defeasance by the failure of the shareholders of the Company to
approve the Plan within a period of twelve months from the date the Plan is
adopted by the Board.
12. Securities Laws. Upon the exercise of an option at a time when there
is not in effect under the Securities Act of 1933, a current registration
statement relating to the shares of Common Stock to be received upon such
exercise, the Participant shall represent and warrant in writing to the Company
that the shares purchased are being acquired for investment and not with a view
to the distribution thereof and shall agree to the imposition of a legend on the
certificate or certificates representing said shares evidencing the restrictions
on transfer under the Securities Act of 1933 and the issuance of stop-transfer
instructions by the Company to its transfer agent with respect thereto. No
shares of Common Stock shall be issued or sold upon the exercise of any option
unless and until the then applicable requirements of the Securities Act of 1933,
as any of the same may be amended, the rules and regulations of the Securities
and Exchange Commission and any other regulatory agencies and laws having
jurisdiction over or applicability to the Company, and the rules and regulations
of any securities exchange on which the Common Stock may be listed, shall have
been fully complied with and satisfied.
13. No Rights as Shareholder. A Participant shall not have any rights as a
shareholder with respect to any shares covered by any option granted hereunder
until the issuance of a stock certificate for such shares. No adjustment shall
be made on the issuance of a stock certificate to a Participant as to any
dividends or other rights for which the record date occurred before the issuance
of such certificate.
14. Indemnification and Exculpation. Each person who is or shall have been
a member of the Board or of the Committee shall be indemnified and held harmless
by the Company against and from any and all loss, cost, liability, or expense
that may be imposed upon or reasonably incurred by him/her in connection with or
resulting from any claim, action, suit, or proceeding to which he/she may be or
become involved by reason of any action taken or failure to act under the Plan
and against and from any and all amounts paid by him/her in settlement thereof
(with the Company's written approval) or paid by him/her in satisfaction of a
judgment in any such action, suit, or proceeding, except a judgment in favor of
the Company based upon a finding of his/her lack of good faith; subject,
however, to the condition that upon the institution of any claim, action, suit,
or proceeding against him/her, he/she shall in writing give the Company an
opportunity, at its expense, to handle and defend the same before he/she
undertakes to handle and defend it on his/her own behalf. The foregoing right of
indemnification shall not be exclusive of any other right to which such person
may be entitled as a matter of law or otherwise, or any power that the Company
may have to indemnify him/her or
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hold him/her harmless. Each member of the Board or of the Committee, and each
officer and employee of the Company shall be fully justified in relying or
acting in good faith upon any information furnished in connection with the
administration of the Plan by any appropriate person or persons other than
himself/herself. In no event shall any person who is or shall have been a member
of the Board or of the Committee, or an officer or employee of the Company, be
held liable for any determination made, or other action taken, or any omission
to act in reliance upon any such information as referred to in the preceding
sentence, or for any action (including the furnishing of information) taken or
any omission to act, when any such determination, action, or omission is made in
good faith.
15. Amendment and Discontinuance. The Board or the shareholders of the
Company may terminate or amend the Plan in any respect at any time, except that
(a) no action of the Board or the shareholders may alter or impair a
participant's rights under any outstanding option without the Participant's
consent, and (b) without the approval of the shareholders, the total number of
shares that may be optioned and sold under the Plan may not be increased (except
by adjustment pursuant to Section 9), the provisions of Section 5 regarding
eligibility may not be modified, the price at which shares may be purchased
pursuant to options granted hereunder may not be reduced (except by adjustment
pursuant to Section 9), the expiration date of the Plan may not be extended, and
the provisions of this Section 15 may not be changed.
16. Term of Plan. Subject to the provisions of Section 11, the Plan shall
be effective as of the date of the adoption of the Plan by the Board and shall
expire on September 2, 2001 (except as to options outstanding on that date), and
no option shall be granted under the Plan on or after such expiration date.
17. Construction. As herein used, the singular number shall include the
plural, the plural the singular, and the use of any gender shall be applicable
to all genders, unless the context or use shall fairly require a different
construction. Section or paragraph headings are employed herein solely for
convenience of reference, and such headings shall not affect the validity,
meaning, or enforceability of any provision of the Plan. All references herein
to "section" or "paragraph" shall mean the appropriately numbered section or
paragraph of the Plan except where reference is made to the Code or any other
specified law or instrument.
18. Severability. The invalidity or unenforceability of any provision of
the Plan or any option granted pursuant to the Plan shall not affect the
validity and enforceability of the remaining provisions of the Plan and the
options granted hereunder, and such invalid or unenforceable provision shall be
stricken to the extent necessary to preserve the validity and enforceability of
the Plan and the options granted hereunder.
19. Governing Law. Except as the same may be governed by the Code and any
applicable federal securities laws, the Plan and any options granted hereunder
shall be governed by and construed in accordance with the laws of the State of
Tennessee.
This Shoney's, Inc. 1981 Stock Option Plan, as amended and restated through
May 1, 1996, is executed this 21st day of August, 1996, but effective as of
May 1, 1996.
SHONEY'S, INC.
By: /s/ C. Stephen Lynn
--------------------------------------
Title: Chairman, CEO and President
WITNESS:
By: /s/ Robert M. Langford
- --------------------------------------
Title: Executive Vice President,
General Counsel and Secretary
E-7
<PAGE> 1
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE - EXHIBIT 11
<TABLE>
<CAPTION>
Twelve Weeks Ended
August 4, August 6,
1996 1995
---- ----
<S> <C> <C>
Earnings per Common Share - Primary
Average Shares outstanding 41,660,319 41,466,378
Net effect of dilutive stock options-based on the treasury
stock method using average market price 148,352 147,120
----------- -----------
Totals 41,808,671 41,613,498
=========== ===========
Income from continuing operations $ 6,620,895 $ 8,165,518
Income from discontinued operations 2,034,226
----------- -----------
Net income $ 6,620,895 $10,199,744
=========== ===========
Per Share amount:
Income from continuing operations $ .16 $ .20
Income from discontinued operations .05
----------- -----------
Net income $ .16 $ .25
=========== ===========
Earnings per Common Share - Fully Diluted:
Average shares outstanding 41,660,319 41,466,378
Net effect of dilutive stock options-based on the treasury
stock method using the average market price 148,352 147,120
Assumed conversion of 8.5% zero coupon convertible debentures (A) (A)
----------- -----------
Totals 41,808,671 41,613,498
=========== ===========
Income from continuing operations $ 6,620,895 $ 8,165,518
Add 8.5% zero coupon convertible debentures interest,
net of income tax (A) (A)
----------- -----------
Total from continuing operations 6,620,895 8,165,518
Income from discontinued operations 2,034,226
----------- -----------
Net income $ 6,620,895 $10,199,744
=========== ===========
Per Share amount:
Income from continuing operations $ .16 $ .20
Income from discontinued operations .05
----------- -----------
Net income $ .16 $ .25
=========== ===========
</TABLE>
(A) For the first three quarters of 1995 and third quarters of fiscal 1995
and 1996, both primary and fully diluted earnings per share were calculated
utilizing the average shares outstanding plus common stock equivalents. No
consideration was given to the assumed conversion of the zero coupon
convertible debentures as their assumed conversion would have an anti-dilutive
effect.
<PAGE> 2
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE - EXHIBIT 11
<TABLE>
<CAPTION>
Forty Weeks Ended
August 4, August 6,
1996 1995
---- ----
<S> <C> <C>
Earnings per Common Share - Primary
Average Shares outstanding 41,607,778 41,378,087
Net effect of dilutive stock options-based on the treasury
stock method using average market price 101,502 117,147
----------- -----------
Totals 41,709,280 41,495,234
=========== ===========
Income from continuing operations $14,675,468 $22,379,803
Income from discontinued operations 397,816 6,977,133
Gain on sale of discontinued operations, net of income taxes 22,080,375
----------- -----------
Net income $37,153,659 $29,356,936
=========== ===========
Per Share amount:
Income from continuing operations $ .35 $ .54
Income from discontinued operations .01 .17
Gain on sale of discontinued operations, net of income taxes .53
----------- -----------
Net income $ .89 $ .71
=========== ===========
Earnings per Common Share - Fully Diluted:
Average shares outstanding 41,607,778 41,378,087
Net effect of dilutive stock options-based on the treasury
stock method using the average market price 113,480 117,147
Assumed conversion of 8.5% zero coupon convertible debentures 5,205,632 (A)
----------- -----------
Totals 46,926,890 41,495,234
=========== ===========
Income from continuing operations $14,675,468 $22,379,803
Add 8.5% zero coupon convertible debentures interest,
net of income tax 3,524,982 (A)
----------- -----------
Total from continuing operations 18,200,450 22,379,803
Income from discontinued operations 397,816 6,977,133
Gain on sale of discontinued operations, net of income taxes 22,080,375
----------- -----------
Net income $40,678,641 $29,356,936
=========== ===========
Per Share amount:
Income from continuing operations $ .39 $ .54
Income from discontinued operations .01 .17
Gain on sale of discontinued operations, net of income taxes .47
----------- -----------
Net income $ .87 $ .71
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SHONEY'S, INC. FOR THE PERIOD ENDED AUGUST 4, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-27-1996
<PERIOD-START> OCT-30-1995
<PERIOD-END> AUG-04-1996
<CASH> 6,833,148
<SECURITIES> 0
<RECEIVABLES> 15,033,668
<ALLOWANCES> 2,191,989
<INVENTORY> 39,011,026
<CURRENT-ASSETS> 93,608,651
<PP&E> 749,543,783
<DEPRECIATION> 312,006,039
<TOTAL-ASSETS> 552,012,372
<CURRENT-LIABILITIES> 184,317,660
<BONDS> 0
0
0
<COMMON> 41,664,367
<OTHER-SE> (109,556,144)
<TOTAL-LIABILITY-AND-EQUITY> 552,012,372
<SALES> 795,305,943
<TOTAL-REVENUES> 814,932,200
<CGS> 711,205,419
<TOTAL-COSTS> 790,783,732
<OTHER-EXPENSES> 51,979,171
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,599,142
<INCOME-PRETAX> 24,148,468
<INCOME-TAX> 9,473,000
<INCOME-CONTINUING> 14,675,468
<DISCONTINUED> 397,816
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,153,659
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.87
</TABLE>
