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UNITED STATES
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 3, 1997
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 16, 1997, there were 48,568,109 shares of Shoney's,
Inc., $1 par value common stock outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
SHONEY'S, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
August 3, October 27,
1997 1996
------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,809,796 $ 13,968,882
Notes and accounts receivable, less allowance
for doubtful accounts of $1,483,000 in 1997
and $1,504,000 in 1996 11,824,844 13,012,160
Inventories 46,076,422 44,248,060
Deferred income taxes and other current assets 43,922,823 38,496,158
Net assets held for disposal 40,619,500 16,605,300
-------------- --------------
Total current assets 159,253,385 126,330,560
Property, plant and equipment, at cost 811,687,480 865,150,325
Less accumulated depreciation and amortization (334,262,617) (317,243,085)
-------------- --------------
Net property, plant and equipment 477,424,863 547,907,240
Other assets:
Goodwill (net of accumulated amortization of
$2,606,000 in 1997 and $622,000 in 1996) 51,742,545 57,021,411
Deferred charges and other intangible assets 5,113,464 7,289,488
Other assets 9,533,322 8,532,742
-------------- --------------
Total other assets 66,389,331 72,843,641
-------------- --------------
$ 703,067,579 $ 747,081,441
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 39,656,843 $ 44,746,056
Federal and state income taxes 3,614,019
Other accrued liabilities 105,611,906 110,294,109
Reserve for litigation settlement due within one year 21,613,299 22,887,523
Debt and capital lease obligations
due within one year 85,714,147 33,823,795
-------------- --------------
Total current liabilities 252,596,195 215,365,502
Long-term senior debt and capital lease obligations 255,320,181 334,180,233
Zero coupon subordinated convertible debentures 101,663,628 95,357,650
Subordinated convertible debentures, net of bond discount
of $4,088,000 in 1997 and $4,561,000 in 1996 47,474,630 47,002,392
Reserve for litigation settlement 311,670 16,000,000
Deferred credits:
Income taxes 17,923,295
Income and other liabilities 22,006,499 20,724,789
Shareholders' equity:
Common stock, $1 par value: authorized
200,000,000 shares issued 48,568,109
in 1997 and 48,458,231 in 1996 48,568,109 48,458,231
Additional paid-in capital 136,847,101 113,889,253
Unrealized gain on securities available for sale 52,642 243,481
Retained earnings (deficit) (161,773,076) (162,063,385)
-------------- ---------------
Total shareholders' equity 23,694,776 527,580
-------------- --------------
$ 703,067,579 $ 747,081,441
============== ==============
</TABLE>
See notes to consolidated condensed financial statements.
2
<PAGE> 3
SHONEY'S, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Forty
Weeks Ended
August 3, August 4,
1997 1996
------------- ------------
<S> <C> <C>
Revenues
Net sales $ 934,227,876 $795,305,943
Franchise fees 11,573,374 17,160,173
Other income 7,106,545 2,466,084
------------- ------------
952,907,795 814,932,200
Costs and expenses
Cost of sales 844,603,044 711,205,419
General and administrative expenses 61,543,570 51,979,171
Impairment write down of long-lived assets 17,612,067
Interest expense 34,972,805 27,599,142
------------- ------------
Total costs and expenses 958,731,486 790,783,732
------------- ------------
Income (loss) from continuing operations before income taxes (5,823,691) 24,148,468
Provision for (benefit from) income taxes (6,114,000) 9,473,000
------------- ------------
Income from continuing operations 290,309 14,675,468
Income from discontinued operations, net of income taxes 397,816
Gain on sale of discontinued operations, net of income taxes 22,080,375
------------- ------------
Net income $ 290,309 $ 37,153,659
============= ============
Earnings per common share
Primary:
Income from continuing operations $ 0.01 $ 0.35
Income from discontinued operations 0.00 0.01
Gain on sale of discontinued operations 0.00 0.53
------------- ------------
Net income $ 0.01 $ 0.89
============= ============
Fully diluted:
Income from continuing operations $ 0.01 $ 0.39
Income from discontinued operations 0.00 0.01
Gain on sale of discontinued operations 0.00 0.47
------------- ------------
Net income $ 0.01 $ 0.87
============= ============
Weighted average shares outstanding
Primary 48,567,993 41,709,280
Fully diluted 48,567,993 46,926,890
Common shares outstanding 48,568,109 41,664,367
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 3, August 4,
1997 1996
------------- ------------
<S> <C> <C>
Revenues
Net sales $ 288,036,321 $251,150,233
Franchise fees 3,546,231 5,404,985
Other income 2,626,199 488,130
------------- ------------
294,208,751 257,043,348
Costs and expenses
Cost of sales 258,043,190 222,523,799
General and administrative expenses 18,276,209 15,458,729
Interest expense 10,405,702 8,633,925
------------- ------------
Total costs and expenses 286,725,101 246,616,453
------------- ------------
Income before income taxes 7,483,650 10,426,895
Provision for (benefit from) income taxes (1,283,000) 3,806,000
------------- ------------
Net income $ 8,766,650 $ 6,620,895
============= ============
Earnings per common share
Primary:
Net income $ 0.18 $ 0.16
============= ============
Fully diluted:
Net income $ 0.18 $ 0.16
============= ============
Weighted average shares outstanding
Primary 48,596,429 41,808,671
Fully diluted 48,596,429 41,808,671
Common shares outstanding 48,568,109 41,664,367
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 3, August 4,
1997 1996
------------ ------------
<S> <C> <C>
Operating activities
Net income $ 290,309 $ 37,153,659
Adjustments to reconcile net income to net cash
provided by operating activities:
Income from discontinued operations, net of taxes (397,816)
Gain on sale of discontinued operations, net of taxes (22,080,375)
Depreciation and amortization 41,528,403 33,995,638
Amortization of deferred charges and other
non-cash charges 9,964,369 9,259,600
Impairment write down of long-lived assets 17,612,067
Change in deferred income taxes 2,390,000 5,544,000
Changes in operating assets and liabilities (17,208,751) (17,424,262)
------------ ------------
Net cash provided by continuing operating activities 54,576,397 46,050,444
Net cash used by discontinued operating activities (655,622)
------------ ------------
Net cash provided by operating activities 54,576,397 45,394,822
Investing activities
Cash required for property, plant and equipment (33,884,102) (60,416,682)
Proceeds from disposal of property, plant
and equipment 26,244,638 8,492,792
Proceeds from disposal of discontinued operations 51,279,601
Cash required for other assets (442,654) (5,072,556)
------------ ------------
Net cash used by investing activities (8,082,118) (5,716,845)
Financing activities
Payments on long-term debt and
capital lease obligations (25,790,078) (75,534,716)
Proceeds from long-term debt 47,175,000
Net proceeds from short-term borrowings (452,000) 8,336,000
Payments on litigation settlement (16,962,554) (17,515,535)
Cash required for debt issue costs (604,450) (3,337,416)
Proceeds from exercise of employee stock options 155,717 518,250
------------ ------------
Net cash used by financing activities (43,653,365) (40,358,417)
------------ ------------
Change in cash and cash equivalents $ 2,840,914 $ (680,440)
============ ============
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE> 6
SHONEY'S, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
August 3, 1997
(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 1997 presentation. Operating
results for the twelve and forty week periods ended August 3,1997 are not
necessarily indicative of the results that may be expected for all or any
balance of the fiscal year ending October 26, 1997. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Shoney's, Inc. Annual Report on Form 10-K for the year ended October 27,
1996.
NOTE 2 - IMPAIRMENT OF LONG-LIVED ASSETS AND ASSETS HELD FOR DISPOSAL
The Company adopted FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), at
the beginning of the first quarter of fiscal 1997. Based on a review of the
Company's restaurants which had incurred operating losses or had negative cash
flow during fiscal 1996 and a review of the cash flow from individual restaurant
properties rented to others ("rental properties"), the Company determined that
certain of its restaurant assets and rental properties were impaired and
recorded a loss to write them down to their estimated fair values. The charge
related to the initial adoption of SFAS 121 was $17.6 million ($11.2 million net
of taxes). Approximately $11.2 million of the asset impairment write down
related to properties that are held for disposal and approximately $6.4 million
related to assets to be held and used in the Company's operations.
Management's projections of the expected future undiscounted cash flows from
these restaurants indicated that such cash flows were insufficient to recover
the asset carrying value; therefore, such carrying values were written down to
fair values less estimated costs to sell. Under SFAS 121, the potential
impairment evaluation is made on an individual restaurant basis and involves
considerable management judgment as to the expected future sales and
profitability of each individual restaurant. Actual results of these restaurants
are likely to differ from management's estimates.
In connection with the Company's market rationalization program, which involves
a strategic shift to focus resources for the Company's restaurant operations to
its core 13 state southeastern markets, the Company announced on January 21,
1997, that it was closing approximately 55 under-performing restaurants and
would sell those assets and use the net proceeds to reduce the Company's bank
debt. At August 3, 1997 five of these restaurants continue to be operated due to
lease restrictions that prohibit closure of the units until suitable new tenants
are secured, 14 properties had been sold, subleased or had the lease terminated,
and 41 properties (including the 5 operating units) are being actively marketed.
For the first three quarters
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of 1997, the five operating restaurants in this group had revenues of $3.3
million and reported operating losses before interest and taxes of approximately
$465,000. In addition, the Company identified 27 other restaurant properties
that it intended to sell, however, the Company has elected to operate these
restaurants until buyers are found. At the end of the third quarter of fiscal
1997, four of these 27 properties had been disposed of or had the lease
terminated and 23 restaurants are being operated while they are being actively
marketed. During the first three quarters of 1997, these 23 restaurants had
revenues of $18.4 million and reported operating losses before interest and
taxes of $1.3 million.
In addition to the properties previously discussed, the Company had available
for future sale approximately 72 surplus properties and 58 rental properties,
most of which are former restaurant sites or land acquired for future expansion.
The Company has been actively marketing approximately 100 of these properties
and will use the proceeds to reduce its bank debt. Through the end of the third
quarter of 1997, the Company had sold, leased or entered into lease
terminations for approximately 37 of such surplus or rental properties. At
August 3, 1997, the Company had a total of approximately 125 properties to be
disposed of (including restaurants closed and to be closed, rental properties
and surplus properties). The carrying value of these properties was
approximately $40.6 million which has been reflected on the balance sheet as
net assets held for disposal. Under the provisions of SFAS 121, depreciation
and amortization are not recorded during the period in which assets are being
held for disposal.
NOTE 3 - ACQUISITIONS
As of September 9, 1996, the Company completed the acquisition of substantially
all the assets of TPI Enterprises, Inc. ("TPI") which operated 176 Shoney's
Restaurants and 67 Captain D's restaurants as a franchisee of the Company. The
purchase price was $164.4 million consisting of the issuance of 6,785,114 shares
of the Company's common stock valued at $59.1 million, the assumption of $46.9
million of TPI 8.25% convertible subordinated debentures, the assumption or
satisfaction of all remaining TPI debt of approximately $59.1 million,
transaction costs of $3.0 million and net of $3.7 million cash acquired. The
Company borrowed $100 million under a bridge loan to finance the acquisition and
to provide additional liquidity and working capital for the Company.
Approximately $43 million of the bridge loan proceeds were utilized to retire
TPI debt at the date of closing.
The acquisition has been accounted for as a purchase and the results of
operations acquired from TPI have been included in the Company's consolidated
financial statements since September 9, 1996. The purchase price was allocated
based on estimated fair values at the date of acquisition and resulted in an
excess of purchase price over net assets acquired (goodwill) of approximately
$50.6 million, which is being amortized on a straight line basis over 20 years.
This allocation was based on preliminary estimates and may be revised at a later
date.
At August 3, 1997, the Company had closed 28 of the acquired Shoney's
Restaurants, two commissary and distribution facilities that had provided TPI's
restaurants with food and supplies, and the former TPI corporate headquarters in
West Palm Beach, Florida. The Company closed 19 of the acquired Shoney's
Restaurants during the first three quarters of 1997 and plans to close an
additional 7 of the acquired Shoney's restaurants in connection with the
Company's strategic focus of its restaurant operations in its core 13 state
southeastern markets. The majority of these restaurants had been targeted for
closure during the Company's due diligence process as under-performing units.
Costs to exit these businesses were accrued as liabilities assumed in the
purchase accounting and consisted principally of severance pay for certain
employees, costs for leased property and equipment, and the accrual of future
minimum lease
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<PAGE> 8
obligations in excess of anticipated sublease rental income. The total amount of
such liabilities included in the purchase price allocation was approximately $21
million. The Company plans to dispose of the owned property and equipment either
by sale or lease. For leased property and equipment, the Company will seek to
terminate the leases or to enter into subleases or lease assignments covering
the remaining term of the leases. During the second quarter of 1997, the TPI
corporate office lease was terminated upon its assumption by a new tenant and
one of the TPI commissaries was subleased to a new tenant.
NOTE 4 - DISCONTINUED OPERATIONS AND RESTRUCTURING
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 decision to divest 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 concept to
form a casual dining group (See Note 11).
The Company sold its Lee's Famous Recipe restaurants, in October 1995, to RTM
Restaurant Group for $24.5 million cash and a $4 million promissory note. The
transaction removed the Company from the fast-food chicken line of business. The
promissory note is due in monthly installments over five years, is guaranteed by
RTM, Inc. and is further secured by perfected security interests in the Lee's
Famous Recipe trademarks and in the franchise license agreements of Lee's Famous
Recipe. The balance of the note receivable from RTM was $2.5 million at August
3, 1997.
The Company sold Mike Rose Foods, Inc. ("MRF") to Levmark Capital Corporation
for $55 million in cash in the first quarter of 1996. The transaction was
effected through the sale of all issued and outstanding capital shares of MRF
and resulted in a gain on sale of discontinued operations of $22.1 million, net
of income taxes. The Company also 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 company-owned restaurants.
For financial reporting purposes, the results of operations and cash flows of
MRF have been treated as discontinued operations in the accompanying financial
statements and are presented net of any related income tax expense.
NOTE 5 - 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 includes the
assumed conversion of the Company's two issues of subordinated convertible
debentures. This calculation adjusts earnings for the interest that would not be
paid if such debentures were converted. The primary and fully diluted earnings
per share for the third quarter and first three quarters of 1997 were computed
using the weighted average number of shares of common stock and common stock
equivalents outstanding. No consideration was given to either of the convertible
debentures for the third quarters of 1997 and 1996 and
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<PAGE> 9
first three quarters of 1997 because the effect was anti-dilutive. The fully
diluted earnings per share from continuing operations for the first three
quarters of 1996 are anti-dilutive, but have been presented on a fully diluted
basis, as required under generally accepted accounting principles, because fully
diluted net income per share was less than primary net income per share.
NOTE 6 - INCOME TAXES
Income taxes for the forty week periods ended August 3, 1997 and August 4, 1996
were provided based on the Company's estimate of its effective tax rates (36.3%
and 39.2%) for the entire respective fiscal years. During the third quarter of
1997, excess income tax liabilities totaling approximately $26.5 million related
to a fiscal 1993 transaction were reversed. Approximately $22.5 million of the
reduction in tax liability was credited to additional paid in capital since the
related deferred tax liability arose from an equity transaction. The remaining
$4 million, which represented accrued interest, was reversed as a reduction to
income tax expense.
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.
A valuation allowance has been established for tax credit carryforwards that are
not expected to be realized. The Company believes it is more likely than not
that the remaining deferred tax assets will be realized through the reversal of
existing taxable temporary differences within the carryforward period, the
carryback of existing deductible temporary differences to prior years' taxable
income or through the use of alternative tax planning strategies.
NOTE 7 - 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 3, 1997 was $159.6
million. Scheduled reductions in the maximum amount available under the Revolver
of $30 million and $37.5 million will occur on October 22, 1997 and April 22,
1998, respectively. At August 3, 1997, the Company had borrowed $135 million
under the Revolver and had outstanding letters of credit of $13.0 million which
also were supported by the Revolver. The interest rate for borrowings under this
facility is a floating rate (the London Interbank Offered Rate ("LIBOR") plus
2%). The weighted average interest rate for borrowings under this facility at
August 3, 1997 was 7.75%.
During the second quarter of 1996, the Company obtained a senior secured Bridge
Loan for $100 million from a bank ("Bridge Loan"). The Bridge Loan was obtained
to provide a source of financing for the 1996 acquisition of substantially all
of the assets of TPI, as well as to provide additional liquidity and working
capital for the Company (See Note 3). The Company borrowed $20 million under the
Bridge Loan concurrent with its execution, and those proceeds were used to
reduce the outstanding balance under the Company's Revolver. The remaining $80
million available under the Bridge Loan was drawn September 9, 1996 concurrent
with the closing of the acquisition. The Bridge Loan bears interest at LIBOR
plus 3.0% (or the announced Alternative Base Rate of the bank plus 2.0%) with
0.5% increases in the interest rate effective September 1997 and March 1998. The
Bridge Loan converts 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
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<PAGE> 10
Loan at the conversion date. Under the terms of the Bridge Loan, the Company is
generally required to apply all proceeds from asset sales to reduce the Bridge
Loan unless such assets were encumbered by a mortgage financing arrangement. At
August 3, 1997, the balance outstanding under the Bridge Loan was $83.3 million
and the weighted average interest rate for borrowings under this facility was
8.92%.
At August 3, 1997, the Company had lines of credit of $21.7 million under which
the Company had borrowed $1.7 million. Subsequent to the end of the third
quarter of 1997, one bank line of credit in the amount of $1.7 million was
repaid and will no longer be available. The interest rate on the remaining $20
million secured line of credit was 8.5% at August 3, 1997.
Substantially all material assets of the Company have been pledged as collateral
for the Company's various credit agreements. 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 Company was in compliance
with all of its debt covenants as of August 3, 1997.
The Company has $107.3 million of debt and litigation payments due in the next
twelve months and expects to incur cash interest expense of approximately $32.0
million in that same time period resulting in total cash needs before income
taxes and capital expenditures of approximately $139.3 million. The Company
does not expect its cash flow from operations, supplemented by its available
lines of credit, to be sufficient to meet these obligations and to provide cash
needed for capital expenditures over the next twelve months. In addition,
unless modified by its existing lenders, management expects that at the end of
the fourth quarter it will not be in compliance with certain financial
covenants in its credit agreements, which together with the inability of the
Company to fund the scheduled principal payment due during the fourth quarter
will place the Company in default under its credit agreements and the lenders
may accelerate demand for payment thereunder. As a result, the Company is
seeking to refinance its existing debt obligations and based on current
discussions believes that a firm commitment for such refinancing will be
executed during the fourth quarter and will provide adequate liquidity for the
immediate needs of its business; however, no assurance can be given that such
commitment will be executed or if executed will be successfully consummated. In
the event that such refinancing does not occur, the Company expects to seek
modification of certain financial covenants and a rescheduling of principal
payments under its existing credit agreements to provide the liquidity and
capital needed for its business; however, there can be no assurance that the
Company will be successful in obtaining the necessary modifications to its
existing credit agreements.
NOTE 8 - RESERVE FOR LITIGATION SETTLEMENT
In January 1993, court approval was granted for a consent decree settling
litigation against the Company and a former 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
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<PAGE> 11
an estimated $2.3 million in 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 the
remaining payments are $5.5 million each due September 1, 1997 and December 1,
1997 and a final payment of $10.0 million due March 1, 1998.
NOTE 9 - LITIGATION
The Company was a defendant in a federal Court suit styled "J&J Seafood, Inc.
and Sunbelt Restaurant Management, Inc. v. 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 which claims that the Company imposes a "tying" arrangement by requiring
franchisees to purchase food products from the Company's commissary. The
complaint sought 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 suit in the Chancery Court of
Tennessee in Davidson County ("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 31, 1996, J&J Seafood, Inc. had filed a third
lawsuit against the Company, certain members of the Captain D's franchisee
advisory council and two suppliers styled "J&J Seafood, Inc. v. Shoney's, Inc.
et al.," which was filed in the Chancery Court of Tennessee in Wilson County.
The Plaintiff sought class certification for two unspecified classes of
allegedly similarly situated plaintiffs. Some allegations in the lawsuit were
similar to claims made in the Plaintiff's previous two lawsuits against the
Company and included additional allegations.
The Company and J&J Seafood, Inc. entered into a Settlement Agreement on May 30,
1997. Pursuant to the terms of that agreement, the Company purchased the
franchised Captain D's restaurant operated by J&J Seafood, Inc. for
approximately $900,000. In addition, J&J Seafood, Inc. and the Company have
executed mutual releases, orders of dismissal have been filed with the
respective courts and all litigation has been dismissed with respect to all
defendants. The claims asserted by Sunbelt Restaurant Management, Inc. against
the Company in the lawsuit referenced above also have been dismissed.
On December 1, 1995, five current and/or former Shoney's Restaurant managers or
assistant restaurant managers filed the case of "Robert Belcher, et al. v.
Shoney's, Inc." in the U.S. District Court for the Middle District of Tennessee
claiming that the Company had violated the overtime provisions of the Fair Labor
Standards Act. Plaintiffs purported to act on behalf of similarly situated
current and former employees and requested Court supervised notice of their
lawsuit be sent to other potential plaintiffs. The Court granted provisional
class status, and directed notice be sent to 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. Approximately 900 potential class members opted to participate in the suit
as of the cutoff date set by the Court. After the cut-off date set by the Court,
approximately 190 additional potential class members opted to participate in the
suit, but the Court has not yet ruled on their participation in the lawsuit. 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 August 26, 1997, plaintiffs in the case of "Robert Belcher, et al v.
Shoney's, Inc." filed a motion to add to their complaint representative
plaintiffs from the Captain D's concept restaurants. Plaintiffs also requested
in their motion that the Court issue notice of the case to present and former
general managers and
11
<PAGE> 12
assistant managers who were employed by the Company at its Captain D's concept
restaurants within the three years preceding December 1, 1995. Plaintiffs seek
to assert the same claims on behalf of Captain D's concept managers and
assistant managers as previously asserted on behalf of Shoney's concept managers
and assistant managers. The Company has filed pleadings opposing plaintiffs'
motion to add representative plaintiffs from the Captain D's concept restaurants
and also has opposed plaintiffs' request for court-supervised notice to present
and former managers and assistant managers employed at the Captain D's concept
restaurants. The Court has not yet ruled on plaintiffs' motion.
On January 2, 1996, five current and/or former Shoney's hourly and/or
fluctuating work week employees filed the case of "Bonnie Belcher, et al. v.
Shoney's, Inc." in the U.S. District Court for the Middle District of Tennessee
claiming that the Company violated the Fair Labor Standards Act by either not
paying them for all hours worked or improperly paying them for regular and/or
overtime hours worked. Plaintiffs purported to act on behalf of similarly
situated current and former employees and requested Court supervised notice of
their lawsuit be sent to other potential plaintiffs. The Court granted
provisional class status and directed notice be sent to all current and former
Shoney's concept hourly and fluctuating work week employees who were employed
during the three years prior to filing of the suit. Approximately 18,000
potential class members opted to participate in this suit as of the cutoff date
set by the Court. After the cut-off date set by the Court, approximately 1,625
additional potential class members opted to participate in the suit, but the
Court has not yet ruled on their participation in the lawsuit. 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.
In both lawsuits, the plaintiffs claim to be entitled to recover unpaid wages,
liquidated damages, attorneys' fees and expenses, for an unspecified period of
time, claiming that certain of Shoney's acts resulted in a tolling of the
statute of limitations. Discovery is proceeding in both cases, but is in a
preliminary stage. Management believes it has substantial defenses to the claims
made and intends to vigorously defend the 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 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, based upon information currently available, the ultimate
liability with respect to these actions will not materially affect the operating
results or the financial position of the Company.
NOTE 10 - SALE OF SHONEY'S LODGING, INC. AND RELATED INVESTMENTS
As of August 3, 1997, the Company owned approximately 6,500 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. During the
second quarter of 1997, the Company sold approximately 30,000 shares of ShoLodge
common stock and realized a gain of approximately $171,000. At August 3, 1997,
the Company's investment in ShoLodge common stock had a fair value of $104,000
and the Company had an unrealized gain of approximately $53,000, which is
included as a separate component of shareholders' equity. During 1996, the
Company also owned additional shares and certain warrants to acquire ShoLodge
common stock which were obtained in the 1992 sale of the Company's lodging
division to ShoLodge. During 1996 and 1997, under the provisions of FASB
Statement No. 115, "Accounting for Certain
12
<PAGE> 13
Investments in Debt and Equity Securities", the ShoLodge common stock and
certain of these warrants were classified as securities available for sale.
These ShoLodge common shares and warrants have been carried at their fair value
and increases and decreases in fair value are reflected as a component of
shareholders' equity. At October 27, 1996 the Company's investment in ShoLodge
common stock and warrants had a fair value of $506,000 and the Company had an
unrealized gain of $243,000.
NOTE 11 - SALE OF BARBWIRE'S STEAKHOUSE AND SALOON RESTAURANTS
On May 28, 1997 the Company entered into an agreement to sell five of its seven
BarbWire's Steakhouse and Saloon restaurants to TW - TENNESSEE, LLC. The Company
closed the remaining two BarbWire's restaurants during July 1997 and plans to
sell those two properties. The sale of four BarbWire's restaurants closed on
August 1, 1997. The sale of the remaining unit closed on August 5, 1997. The net
proceeds from the sale of the four restaurants of $3.9 million are reflected in
the third quarter financial statements and the proceeds of $1.1 million from the
sale of the remaining unit will be reflected in the Company's fourth quarter
financial statements. The sales price for the five units approximated the
Company's carrying value for these restaurants. The BarbWire's concept had
revenues of $1.9 million and $7.4 million for the third quarter and first three
quarters of fiscal 1997, respectively, and incurred losses before interest and
taxes of $368,000 and $633,000 for the third quarter and first three quarters of
fiscal 1997, respectively.
NOTE 12 - PENDING ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128 ("SFAS 128" ), "Earnings per Share" which
supersedes Accounting Principles Board Opinion 15 ("APB 15"), "Earnings per
Share". SFAS 128 was issued to simplify the computation of earnings per share
("EPS") by replacing Primary EPS, which considers common shares and common stock
equivalents in its denominator, with Basic EPS, which considers only the
weighted average common shares outstanding. SFAS 128 also replaces Fully Diluted
EPS with Diluted EPS, which considers all securities that are exercisable or
convertible into common stock and which would either dilute or not effect Basic
EPS. SFAS 128 is effective for both interim and annual periods ending after
December 15, 1997 and early adoption is not permitted. Therefore, the Company
will adopt this new standard during the first quarter of fiscal 1998. The
Company does not believe that the adoption of SFAS 128 will have a material
impact on reported earnings per share.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130 ("SFAS 130"), "Reporting Comprehensive
Income". SFAS 130 requires that companies report comprehensive income in either
the Statement of Shareholders' Equity or in the Statement of Operations.
Comprehensive income is the change in shareholders' equity from nonowner
sources. Comprehensive income includes all changes in equity during a period
except those resulting from investments by owners and distributions to owners.
SFAS 130 is effective for fiscal years beginning after December 15, 1997. The
Company plans to adopt SFAS 130 in the first quarter of 1998 and does not
anticipate its adoption to have a material impact on the presentation of the
financial position or results of operations of the Company.
13
<PAGE> 14
NOTE 13 - SUBSEQUENT EVENT
On August 11, 1997 the Company and Raymond D. Schoenbaum, on behalf of the
Shoney's Shareholders' Committee ("Shareholders' Committee"), jointly announced
a settlement of a pending proxy contest initiated by the Shareholders' Committee
to replace the Company's Board of Directors. In connection with the settlement
agreement, the Company agreed to pay $2.5 million for certain legal and
professional expenses incurred by the Shareholders' Committee in conjunction
with their proxy solicitation.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
In June 1997, a dissident shareholder group launched a proxy contest to replace
the Company's Board of Directors and certain key executives. That proxy contest
was settled August 10, 1997 (See Note 13 Subsequent Event). On July 15, 1997, a
committee of the Board of Directors of the Company authorized the execution of
certain Management Retention Agreements with the officers of the Company to
assist in the retention of key management personnel. The agreements provided
for payment of between one and two years of base salary in the event that the
executives were terminated without good cause or if the executives resigned for
"good reason" (as defined in the agreements) within a one year period following
a change in control of the Company. The settlement of the proxy contest did not
constitute a change in control as defined in these agreements. The agreements
restrict the covered executives from owning, managing, operating, controlling
or participating in a competing food service business. The Company's total
contingent liability with respect to these agreements is approximately $4.6
million.
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<PAGE> 15
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 1997 and 1996 covered periods of twelve and forty weeks,
respectively. All references are to fiscal years unless otherwise noted. The
forward-looking statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") relating to certain
matters, which reflect management's best judgment based on factors currently
known, involve risks and uncertainties, including anticipated financial
performance, availability of financing, adequacy of management personnel
resources, shortages of restaurant labor, commodity price increases, product
shortages, adverse general economic conditions, turnover and retention of key
management personnel and a variety of other factors. Actual results and
experience could differ materially from the anticipated results or other
expectations expressed in the Company's forward- looking statements as a result
of a number of factors, including but not limited to those discussed in MD&A.
Forward-looking information provided by the Company pursuant to the safe harbor
established under the Private Securities Litigation Reform Act of 1995 should be
evaluated in the context of these factors. In addition, the Company disclaims
any intent or obligation to update these forward-looking statements.
On September 9, 1996, the Company completed the acquisition of
substantially all of the operating assets of TPI Enterprises, Inc. ("TPI"),
which as the Company's largest franchisee, operated 176 Shoney's Restaurants and
67 Captain D's restaurants. The acquisition was accounted for as a purchase and
the results of operations of the acquired business are included in the third
quarter and first three quarters of 1997 financial statements with no comparable
amounts in the same periods of 1996.
RESULTS OF OPERATIONS
REVENUES
Revenues from continuing operations for the third quarter of 1997
increased 14% ($37.2 million) to $294.2 million as compared to revenues of
$257.0 million in the third quarter of 1996. For the first three quarters of
1997, revenues increased 17% ($138.0 million) to $952.9 million as compared to
the same period in 1996. The following table summarizes the components of the
increase in revenues:
<TABLE>
<CAPTION>
$ in Millions
-------------
12 Weeks 40 Weeks
Ended August 3, Ended August 3,
1997 1997
---- ----
<S> <C> <C>
Restaurant revenue $ 42.7 $155.8
Commissary, and other
sales (5.8) (16.8)
Franchise fees (1.8) (5.6)
Other income 2.1 4.6
------ ------
$ 37.2 $138.0
====== ======
</TABLE>
15
<PAGE> 16
Restaurant revenues increased $42.7 million during the third quarter
and $155.8 million during the first three quarters of 1997 principally due to
the addition of the TPI restaurants acquired in September 1996. This increase
was partially offset by a 4.1% decline in comparable store sales during the
third quarter and a 3.2% decline in comparable store sales in the first three
quarters of 1997. The comparable store sales decrease during the third quarter
and first three quarters of 1997 included a .8% menu price increase and a 1.6%
menu price increase, respectively. Revenues also declined due to a net reduction
of 59 company operated restaurants during the first three quarters of 1997
stemming principally from the closure of under-performing Shoney's Restaurants.
The following table summarizes the change in number of restaurants
operated by the Company and its franchisees during the first three quarters of
1997 and 1996:
<TABLE>
<CAPTION>
Forty Weeks Forty Weeks
1997 1996
----------- -----------
<S> <C> <C>
Company-owned restaurants opened (1) 11 31
Company-owned restaurants closed (70) (5)
Franchised restaurants opened 8 5
Franchised restaurants closed (1) (27) (60)
-------- -------
(78) (29)
======== =======
</TABLE>
(1) Includes five and seventeen units acquired from franchisees during the
first three quarters of 1997 and 1996, respectively.
The Company's Shoney's Restaurants continue to experience negative
overall comparable store sales. Shoney's Restaurants reported comparable store
sales declines of 4.3% and 3.5% for the third quarter and first three quarters
of 1997, respectively, including the effects of menu price increases of 1.1% in
the third quarter and 2.4% in the first three quarters of 1997. The Company has
implemented a number of performance improvement initiatives for its Shoney's
Restaurants. The goal of these initiatives is to improve food quality, service
and operational consistency which are expected to improve comparable store
sales trends and profitability. These initiatives have not been successful to
date in reversing overall negative trends in comparable store sales. In
addition to operational improvement initiatives, the Company continues to
implement its market rationalization program, which focuses resources on the
Company's core 13 state southeastern markets and includes the divestiture of
under-performing restaurants.
The Company's Captain D's restaurants reported comparable store sales
decline of 2.4% and 1.6% in the third quarter and the first three quarters of
1997, including the effects of menu price increases of .4% in the third quarter
and .9% in the first three quarters of 1997. The decline in comparable store
sales at the Company's Captain D's restaurants follows a period of comparable
store sales growth during 1996 and the first quarter of 1997. Management
believes that the decline in sales at Captain D's is principally the result of
relatively less effective Captain D's advertising in fiscal 1997. The Company
has taken a number of steps which management believes will address this decline
in comparable store sales including the introduction of a new advertising
campaign, new promotional menu items, such as "Buffalo" (hot and spicy) style
chicken, fish and shrimp dinners and the introduction of a new "Coastal Classic"
menu featuring upscale offerings such as broiled salmon, orange roughy and
broiled flounder dinners in certain key markets.
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<PAGE> 17
Commissary and other revenues declined $5.8 million (15%) during the
third quarter of 1997 and declined $16.8 million (13%) for the first three
quarters of 1997 as compared to the same periods last year. This decline in
revenues resulted from a decrease in the number of franchised or third-party
restaurants being served by the Commissary coupled with variations in the volume
purchased by customers. The decline is primarily due to the loss of Lee's Famous
Recipe Chicken as a customer during the fourth quarter of 1996 as well as a net
decrease of 19 franchised restaurants in operation during the first three
quarters of 1997. During the first three quarters of 1997, Commissary revenues
declined approximately $2.3 million as a result of the closure of the Company's
bakery and coleslaw manufacturing operations during the latter half of 1996 and
a decline in revenues at the Company's meat processing plant due to the loss of
sales to TPI following the acquisition of their restaurants in the fourth
quarter of 1996.
Franchise fees declined $1.8 million (34%) in the third quarter of 1997
and declined $5.6 million (33%) in the first three quarters of 1997 as compared
to the same periods in the prior year as a result of a 271 unit decline in the
number of franchised restaurants in operation as compared to the third quarter
of 1996. This decline in franchised restaurants is principally the result of the
Company's fourth quarter 1996 acquisition of 176 Shoney's and 67 Captain D's
Restaurants from TPI.
Other income increased $2.1 million and $4.6 million, respectively, in
the third quarter and first three quarters of 1997 as compared to the same
periods last year principally due to an increase in asset sales and additional
revenue from an insurance service operation acquired from TPI during the fourth
quarter of 1996.
COSTS AND EXPENSES
Cost of sales increased during the third quarter and first three
quarters of 1997 compared to the same period last year principally as a result
of the acquisition from TPI of 176 Shoney's and 67 Captain D's restaurants in
the fourth quarter of 1996. Cost of sales, as a percentage of revenues, for the
third quarter of 1997 increased 1.1% over the same quarter in 1996 to 87.7% in
1997. Cost of sales, as a percentage of revenues, increased by 1.3% for the
first three quarters of 1997 to 88.6% as compared with 87.3% for the same period
last year. Food and supplies costs, as a percentage of revenues, decreased 1.9%
and 1.8% for the first three quarters and third quarter of 1997, respectively,
as compared to the same periods last year, due to the decline in commissary
sales. Commissary sales have a much higher percentage of food cost and lower
operating expenses, as a percentage of revenue, when compared to the Company's
restaurant operations. Therefore, when outside commissary sales decline,
consolidated food and supplies expense, as a percentage of revenues, decreases.
Food and supplies cost at the restaurant level were essentially unchanged for
the third quarter and first three quarters of 1997 compared to the same periods
in the prior year.
Restaurant labor increased as a percentage of total revenues because of
the decline in Commissary revenue and franchise revenues (which have no
associated restaurant labor in their cost of sales). Restaurant labor as a
percentage of restaurant revenues was 29.3% in the third quarter of 1997
compared with 28.9% in 1996 and was 30.1% for the first three quarters of 1997
as compared with 30.0% in the first three quarters of 1996. Increased average
wage rates at the restaurant level were offset by increased productivity at the
Company's Shoney's Restaurants (as measured by higher sales per dollar of
restaurant labor). Shoney's Restaurants labor costs as a percentage of
restaurant revenues improved by .23% comparing the third quarter of 1997 with
the same period last year and improved by .57% comparing the first three
quarters of 1997 and 1996. However, higher overall restaurant labor costs as a
percentage of restaurant revenues at Captain D's and the Company's Casual Dining
restaurants mitigated these savings for combined restaurant operations.
17
<PAGE> 18
Operating expenses as a percentage of revenues increased 1.6% in the
third quarter and 1.9% in the first three quarters of 1997 as compared to the
same periods in 1996. This increase was principally due to the decline in
comparable store sales (for Company restaurants combined) of 4.1% and 3.2% for
the third quarter and first three quarters of 1997, respectively. The Company
also experienced increased costs for utilities, repairs and maintenance and
advertising. In addition, the restaurants acquired from TPI in the fourth
quarter of 1996 have lower average unit sales volumes which cause fixed
operating expenses, as a percentage of revenues, to be higher.
General and administrative expenses increased by $2.8 million and $9.6
million in the third quarter and first three quarters of 1997, respectively, as
compared with the same periods last year. General and administrative expenses as
a percentage of revenues increased to 6.2% in the third quarter of 1997 from
6.0% in the third quarter of 1996 and increased to 6.5% for the first three
quarters of 1997 as compared to 6.4% for the same period last year. The
increases in general and administrative expenses as a percentage of revenues is
partially due to the lower average unit sales volumes of the Shoney's and
Captain D's restaurants acquired from TPI. Higher general and administrative
expense levels resulted from increased goodwill amortization expense associated
with the TPI acquisition, financial advisory, legal and other costs associated
with the Company's proxy contest (settled during the fourth quarter of 1997),
and higher costs for travel, postage and package delivery, consulting fees and
depreciation expense on new computer equipment.
These increased general and administrative expense levels include
approximately $1.5 million of costs related to the proxy contest accrued during
the third quarter of 1997. The Company expects that expenses of the proxy
contest in the fourth quarter of 1997 will be an additional $4.0 to $4.5
million, including the payment of $2.5 million of expenses incurred by the
dissident shareholder group agreed to under the settlement of the proxy contest.
The Company has taken steps to reduce certain corporate general and
administrative expenses in conjunction with a reduction in revenues due to the
closure of under- performing, non-core market restaurants. Such cost reduction
measures include the downsizing of the real estate, construction and
architectural departments in recognition of the Company's plans to indefinitely
delay construction of new units. Declines in comparable store sales and
increased expenses during 1997 have mitigated these cost savings and overall
general and administrative expenses have increased slightly as a percentage of
revenue. Management intends to seek further reductions in general and
administrative expenses to manage its overhead costs.
Interest expense for the third quarter and first three quarters of 1997
increased $1.8 million and $7.4 million, respectively, as compared to the same
periods last year. Interest costs increased principally due to higher
outstanding debt used to finance the acquisition of substantially all of the
operating assets of TPI in the fourth quarter of 1996. In addition, interest
expense increased comparing the third quarter of 1997 and the third quarter of
1996 as a result of additional interest expense for capital leases which were
assumed in connection with the TPI acquisition, and the increase in non-cash
interest related to the Company's zero coupon subordinated debentures. For the
first three quarters of 1997, an increase in interest expense occurred due to
the same factors previously discussed as well as an increase in the amortization
of deferred debt issue costs.
18
<PAGE> 19
The following table summarizes the components of the change in pretax profits:
<TABLE>
<CAPTION>
EARNINGS BEFORE INTEREST AND TAXES (EBIT)
($ in millions)
---------------
40 Weeks 40 Weeks
Ended Ended Increase
August 3,1997 August 4,1996 (Decrease)
------------- ------------- ----------
<S> <C> <C> <C>
Restaurants $ 26.6 $ 25.4 $ 1.2
Commissary 8.7 8.2 .5
Franchising 8.1 13.1 (5.0)
Other 3.4 5.0 (1.6)
------ ------ ------
Total 46.8 51.7 (4.9)
Interest Expense (35.0) (27.6) (7.4)
------ ------ ------
Pretax Profit(1) $ 11.8 $ 24.1 $(12.3)
====== ====== ======
</TABLE>
(1) Excludes the $17.6 million non-cash charge ($11.2 million net of taxes)
for the initial adoption of SFAS 121 (asset impairments) recorded in the
first quarter of 1997.
The Company recorded an income tax benefit of $6.1 million for the first three
quarters of 1997 on a pretax loss of $5.8 million and an income tax benefit of
$1.3 million for the third quarter of 1997 on pretax income of $7.5 million. The
Company has provided income taxes for fiscal 1997 at an effective tax rate of
36.3% as compared with 36.5% in the third quarter of 1996 and 39.2% for the
first three quarters of 1996. During the third quarter of 1997, excess income
tax liabilities totaling approximately $26.5 million related to a fiscal 1993
transaction were reversed. Approximately $22.5 million of the reduction in tax
liability was credited to additional paid in capital since the related deferred
tax liability arose from an equity transaction. The remaining $4 million
decrease in the tax liability, which represented accrued interest, reduced
income tax expense for the third quarter and the first three quarters of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has met its liquidity requirements with cash
provided by operating activities supplemented by external borrowing, principally
from banks. The Company's cash provided by continuing operating activities
improved by approximately $8.5 million during the first three quarters of 1997
compared with the same period in 1996. Net income for the first three quarters
of 1997 was significantly impacted by a non-cash charge for asset impairments of
$17.6 million ($11.2 million net of taxes) in the first quarter of 1997. The
first quarter of 1996 included a non-recurring gain on sale and income from
discontinued operations totaling approximately $22.4 million (net of taxes).
Cash flow from operating activities increased despite the decline in net income
as a result of a significant increase in depreciation and amortization,
principally related to the September 1996 acquisition of substantially all of
the assets of TPI, and a $17.6 million non-cash asset impairment charge recorded
in the first quarter of 1997. The increase in non-cash expense items was
partially offset by a reduction in deferred income taxes.
Cash used by investing activities during the first three quarters of
1997 totaled $8.1 million compared to $5.7 million in the same period of 1996.
The Company had $51.3 million in proceeds from the sale of a discontinued
operation (Mike Rose Foods) in the first quarter of 1996 and no comparable
amount in 1997.
19
<PAGE> 20
This decrease in cash flow from 1996 was offset by a $31.2 million decrease in
capital spending for property, plant and equipment and goodwill arising from
franchise acquisitions during the first three quarters of 1997 as compared to
the same period last year and a $17.7 million increase in proceeds from property
disposals associated with the closure and sale of under-performing restaurants
and surplus properties.
During the first three quarters of 1997, the Company's cash used by
financing activities was $43.7 million compared with $40.4 million in the same
period in 1996. Significant 1997 financing activities included payments to
reduce debt and capital lease obligations of $25.8 million and scheduled
payments of $17.0 million on the Company's litigation settlement liability.
Significant financing activities during the first three quarters of 1996
included long-term debt reduction of $75.5 million, $51.3 million of which was
from the proceeds of the sale of Mike Rose Foods, $27.0 million in borrowings
under the Company's Revolver, net borrowings of $8.3 million from short-term
credit facilities and scheduled payments of $17.5 million on the Company's
litigation settlement liability. In addition, the Company arranged financing of
$100 million under the Bridge Loan during 1996 to provide working capital and a
source of financing for the acquisition of substantially all of the operating
assets of TPI. During the second quarter of 1996, the Company borrowed $20
million under that facility which was used to reduce short term debt under the
Company's Revolver and thereby provide greater liquidity. The remaining $80
million available under the Bridge Loan was drawn in the fourth quarter of 1996
upon closing of the TPI acquisition. The Company intends to retire the Bridge
Loan either through proceeds from asset divestitures or a refinancing of its
overall debt.
In conjunction with the Company's market rationalization program,
during the first quarter of 1997, the Company elected to close approximately 82
under-performing restaurants, of which 54 had been closed as of August 3, 1997.
The remainder are expected to close as soon as buyers or tenants are located for
the properties. The Company is aggressively marketing these properties and
leasehold interests and will utilize the proceeds to reduce the Bridge Loan or
other debt for which these properties serve as collateral.
The Company has identified an additional 74 restaurants which have been
given increased supervisory management attention in an effort to immediately
improve their financial performance. If the performance of these restaurants
does not improve, management will consider their potential closure and the sale
or sublease of these properties to generate additional cash flow to reduce debt.
Revenues were $63.8 million and the loss before interest and taxes was $4.8
million for this group of restaurants for the first three quarters of 1997 and
their carrying value was $24.5 million at August 3, 1997. In addition, the
Company has approximately 72 surplus properties and 58 rental properties, most
of which are former Company restaurants or parcels of land acquired for future
expansion. The Company has been actively marketing approximately 100 of these
properties has applied the proceeds from such sales to reduce debt. At the end
of the third quarter, the Company had sold, subleased or terminated leases
related to approximately 37 of such properties.
Capital expenditures for fiscal 1997 were originally budgeted to be
approximately $65 million. In light of the Company's negative comparable store
sales trends and lower than expected operating performance for the first three
quarters of 1997, management reduced its budgeted capital expenditures for 1997
to approximately $43 million. Actual capital expenditures through the third
quarter of 1997 were approximately $33.9 million. The reduction in capital
spending was achieved by postponement of construction of new and replacement
restaurants, reductions in maintenance capital expenditures and postponement of
the remodeling of certain restaurants acquired from TPI. The curtailment of new
unit construction is not expected to materially impact 1997 results of
operations. The postponement of remodeling expenditures related to the
restaurants acquired from TPI has delayed expected improvements
20
<PAGE> 21
in the comparable store sales and operating profits of those units during 1997,
which had a negative impact on cash flow from operations.
At August 3, 1997, the Company had cash and cash equivalents of
approximately $16.8 million and had lines of credit totaling $21.7 million under
which the Company had borrowed $1.7 million at the end of the third quarter.
Subsequent to the end of the third quarter of 1997, one bank line of credit in
the amount of $1.7 million was repaid and will no longer be available. The
interest rate on the remaining $20 million secured line of credit was 8.5% at
August 3, 1997.
The Company has $107.3 million of debt and litigation payments due in
the next twelve months and expects to incur cash interest expense of
approximately $32.0 million in that same time period resulting in total cash
needs before income taxes and capital expenditures of approximately $139.3
million. The Company had $135 million outstanding under its Revolver at August
3, 1997 and had approximately $13.0 million in letters of credit which also are
supported by the Revolver which had a maximum available credit of $159.6
million. The maximum amount available under the Revolver is scheduled to be
reduced by $30 million on October 22, 1997 and by $37.5 million on April 22,
1998. Based on the amount currently outstanding, the Company will be required
to repay $18.4 million to reduce the outstanding balance under the Revolver
(including letters of credit) to the scheduled maximum of $129.6 million in
October 1997. In addition, the Company has a mortgage financing of $17.4
million due November 1, 1997. The Company's credit agreements generally require
proceeds from asset sales to be applied to reduce the Bridge Loan. Accordingly,
cash flows generated from further planned asset sales will not be available to
meet these upcoming debt payments. Based on the Company's operating results
during the first three quarters of 1997, expected operating results for the
fourth quarter, including the expenses incurred in connection with the recently
settled proxy contest, management does not believe that its cash flow from
operations, supplemented by its available unused line of credit, will be
sufficient to permit the Company to fund the scheduled payment of $18.4 million
due on the Revolver on October 22, 1997 and the $17.4 million mortgage
financing due on November 1, 1997. In addition, unless modified by its
existing lenders, management expects that at the end of the fourth quarter it
will not be in compliance with certain financial covenants in its credit
agreements, which together with the inability of the Company to fund the
scheduled principal payment due during the fourth quarter will place the
Company in default under its credit agreements and the lenders may accelerate
demand for payment thereunder. As a result, the Company is seeking to refinance
its existing debt obligations and based on current discussions believes that a
firm commitment for such refinancing will be executed during the fourth quarter
and will provide adequate liquidity for the immediate needs of its business;
however, no assurance can be given that such commitment will be executed or if
executed will be successfully consummated. In the event that such refinancing
does not occur, the Company expects to seek modification of certain financial
covenants and a rescheduling of principal payments under its existing credit
agreements to provide the liquidity and capital needed for its business;
however, there can be no assurance that the Company will be successful in
obtaining the necessary modifications to its existing credit agreements.
As more fully discussed in Note 9 to the consolidated condensed
financial statements, the Company is a defendant in two class action lawsuits
which allege the Company violated provisions of the Fair Labor Standards Act.
Discovery is proceeding in both cases but is in a preliminary stage. Management
believes that 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 currently be determined and accordingly, no provision for any
potential liability has been accrued in the financial statements. In the event
of an unfavorable outcome in these cases resulting in a material award for the
plaintiffs, the Company's financial position, results of operations and
liquidity could be adversely affected.
21
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Item 3 of the Company's Annual Report on Form 10-K, filed with the
Commission on January 27, 1997, is incorporated herein by this reference. See
also Note 9 to the Notes to Consolidated Condensed Financial Statements at pages
11-12 of this Quarterly Report on Form 10-Q.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) In accordance with the provisions of Item 601 of Regulation S-K,
the following have been furnished as Exhibits to this Quarterly Report on Form
10-Q:
3(ii) Restated Bylaws of Shoney's, Inc. dated August 21, 1997.
10.1 Management Retention Agreement dated as of July 15, 1997
between the Company and Betty J. Marshall.
10.2 Management Retention Agreement dated as of July 15, 1997
between the Company and Haney A. Long, Jr.
10.3 Management Retention Agreement dated as of July 15, 1997
between the Company and Robert A. Speck.
10.4 Management Retention Agreement dated as of July 15, 1997
between the Company and James W. Arnett.
10.5 Management Retention Agreement dated as of July 15, 1997
between the Company and David A. Jordan.
10.6 Management Retention Agreement dated as of July 15, 1997
between the Company and Ronald E. Walker.
10.7 Management Retention Agreement dated as of July 15, 1997
between the Company and F.E. McDaniel, Jr.
10.8 Management Retention Agreement dated as of July 15, 1997
between the Company and Gregory A. Hayes.
11 Statement regarding computation of per share earnings.
27 Financial Data Schedule.
(b) The Company filed a report on Form 8-K on June 23, 1997 to report,
under Item 5, the adoption of amended bylaws on June 22, 1997, and the amended
bylaws were filed as Exhibit 3 to such Form 8-K. In addition, the Company filed
a report on Form 8-K on August 12, 1997 to report under Item 5, the Settlement
Agreement dated August 10, 1997, by and among the Company, Raymond D. Schoenbaum
and Betty J. Schoenbaum and, in connection therewith, approved certain
amendments to the Company's Restated Bylaws. The Settlement Agreement and the
Amended Bylaws were filed as Exhibit 10 and Exhibit 3, respectively, to such
Form 8-K.
22
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized both on behalf of the registrant and in
his capacity as principal financial officer of the registrant.
Date: September 17, 1997 By: /s/ W. Craig Barber
------------------------------------------------
W. Craig Barber
Senior Executive Vice President,
Chief Administrative Officer, and Chief
Financial Officer (Principal Financial and Chief
Accounting Officer)
23
<PAGE> 1
EXHIBIT 3(ii)
RESTATED BY-LAWS
OF
SHONEY'S, INC.
ARTICLE I
OFFICES
The executive offices of the Corporation shall be in Davidson County,
Tennessee, but the Corporation may have other offices at such places as the
Board of Directors may from time to time decide or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders
shall be held at the call of the Board of Directors on a date and at a time and
place, either within or without the State of Tennessee, as may be selected by
the Board of Directors.
Section 2. Special Meeting. Special Meetings of the shareholders may
be called at any time by the Chairman of the Board or the Board of Directors,
and shall be called by the Board of Directors if the holders of at least ten
percent (10%) of all the votes entitled to be cast on any issue proposed to be
considered at the proposed special meeting sign, date and deliver to the
Corporation's Secretary one (1) or more written demands for the meeting
describing the purpose or purposes for which it is to be held. The special
meeting shall be held at such time and place, either within or without the State
of Tennessee, as is designated in the call of the meeting by the Chairman of the
Board or the Board of Directors. The Board of Directors shall fix the record
date (which shall be a future date) for a special meeting. If the meeting is to
be called by the Board of Directors pursuant to demands delivered by the holders
of at least ten percent (10%) of all votes entitled to be cast on any issue
proposed to be considered at the proposed special meeting, then, within 20 days
after the date on which such demands are received, the Board of Directors shall
fix the record date. If no record date has been fixed by the Board of Directors
within 20 days of the date on which such demands are received, the record date
for the special meeting shall be the thirtieth day after the date on which such
demands were received.
Any shareholder of record seeking to join with other shareholders in
demanding a special meeting shall, by written notice to the Secretary, request
the Board of Directors to fix a record date to determine the shareholders
entitled to demand a special meeting. The Board of
<PAGE> 2
Directors shall promptly, but in all events within 15 days after the date on
which such a request is received, adopt a resolution fixing the record date to
determine the shareholders entitled to demand a special meeting, which record
date shall not exceed 30 days from the date on which the request was received.
If no record date has been fixed by the Board of Directors within 15 days of the
date on which such a request is received, the record date for the determination
of shareholders entitled to demand a special meeting shall be the thirtieth day
after the date on which such request was received.
Section 3. Notice of Meeting. Written notice stating the place, day
and hour of annual and special meetings of shareholders shall be given to each
shareholder, either personally or by mail to his last address of record with the
Corporation, not less than ten (10) nor more than sixty (60) days before the
date of the meeting. Notice of any special meeting of shareholders shall state
the purpose or purposes for which the meeting is called and person or persons
calling the meeting, and, if the meeting is being called pursuant to demands
delivered by the holders of at least ten percent (10%) of all the votes entitled
to be cast on any issue proposed to be considered at the proposed special
meeting, that the meeting is being so called. Notice of any meeting so called
shall be given within one month after the date the demands were delivered to the
Corporation's Secretary. Only such business shall be conducted at a special
meeting of shareholders as shall have been brought before the meeting pursuant
to the notice of meeting.
Section 4. Voting. At all meetings of shareholders, all shareholders
of record shall be entitled to one vote for each share of stock standing in
their name and may vote either in person or by proxy. Proxies shall be filed
with the Secretary of the meeting before being voted or counted for the purpose
of determining the presence of a quorum.
Section 5. Quorum. At all meetings of shareholders, a majority of the
outstanding shares of stock entitled to vote, represented in person or by proxy,
shall constitute a quorum for the transaction of business. Unless a greater vote
specifically is required by the Tennessee Business Corporation Act or the
Corporation's charter or By-laws, if a quorum is present at a meeting of the
Corporation's shareholders, a matter that may come before the meeting is adopted
if the number of votes cast in favor of the matter exceeds the number of votes
cast against the proposal. If, however, such majority shall not be present or
represented by proxy at any meeting of the shareholders, the presiding officer
or a majority of the shares so represented may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until the requisite
number of shares shall be represented so that any business may be transacted
which might have been transacted at the meeting as provided in the original
notice.
Section 6. Action by Consent. Whenever the shareholders of the
Corporation are required or permitted to take any action by vote, such action
may be taken without a meeting on written consent, setting forth the action so
taken, signed by all of the persons or entities entitled to vote thereon.
2
<PAGE> 3
Section 7. Advance Notice of Shareholder Proposals. At any annual or
special meeting of shareholders, proposals by shareholders and persons nominated
for election as Directors by shareholders shall be considered only if advance
notice thereof has been timely given as provided herein and such proposals or
nominations are otherwise proper for consideration under applicable law and the
Charter and By-Laws of the Corporation. Notice of any proposal to be presented
by any shareholder or of the name of any person to be nominated by any
shareholder for election as a Director of the Corporation at any meeting of
shareholders shall be delivered to the Secretary of the Corporation at its
principal executive office not less than 60 nor more than 90 days prior to the
date of the meeting; provided, however, that if the date of the meeting is first
publicly announced or disclosed (in a public filing or otherwise) less than 70
days prior to the date of the meeting, such notice shall be given not more than
ten days after such date is first so announced or disclosed. Public notice shall
be deemed to have been given more than 70 days in advance of the annual meeting
if the Corporation shall have previously disclosed, in these ByLaws or
otherwise, that the annual meeting in each year is to be held on a determinable
date, unless and until the Board determines to hold the meeting on a different
date. Any shareholder who gives notice of any such proposal shall deliver
therewith the text of the proposal to be presented and a brief written statement
of the reasons why such shareholder favors the proposal and setting forth such
shareholder's name and address, the number and class of all shares of each class
of stock of the Corporation beneficially owned by such shareholder and any
material interest of such shareholder in the proposal (other than as a
shareholder). Any shareholder desiring to nominate any person for election as a
Director of the Corporation shall deliver with such notice a statement in
writing setting forth the name of the person to be nominated, the number and
class of all shares of each class of stock of the Corporation beneficially owned
by such person, the information regarding such person required by paragraphs
(a), (e) and (f) of Item 401 of Regulation S-K adopted by the Securities and
Exchange Commission (or the corresponding provisions of any regulation
subsequently adopted by the Securities and Exchange Commission applicable to the
Corporation), such person's signed consent to serve as a Director of the
Corporation if elected, such shareholder's name and address and the number and
class of all shares of each class of stock of the Corporation beneficially owned
by such shareholder. As used herein, shares "beneficially owned" shall mean all
shares as to which such person, together with such person's affiliates and
associates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934),
may be deemed to beneficially own pursuant to Rules 13d-3 and 13d-5 under the
Securities Exchange Act of 1934, as well as all shares as to which such person,
together with such person's affiliates and associates, has the right to become
the beneficial owner pursuant to any agreement or understanding, or upon the
exercise of warrants, options or rights to convert or exchange (whether such
rights are exercisable immediately or only after the passage of time or the
occurrence of conditions). The person presiding at the meeting, in addition to
making any other determinations that may be appropriate to the conduct of the
meeting, shall determine whether such notice has been duly given and shall
direct that proposals and nominees not be considered if such notice has not been
given.
3
<PAGE> 4
Section 8. Inspectors of Election; Opening and Closing the Polls. The
Board of Directors by resolution shall appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives, to act at the meetings of shareholders and make a written
report thereof. One or more persons may be designated as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate has been
appointed to act or is able to act at a meeting of shareholders, the Chairman of
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before discharging his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall have the
duties prescribed by law.
The Chairman of the meeting shall fix and announce at the meeting the
date and time of the opening and the closing of the polls for each matter upon
which the shareholders will vote at a meeting.
ARTICLE III
DIRECTORS
Section 1. Number and Qualifications. The business and affairs of the
Corporation shall be managed and controlled by a Board of Directors consisting
of twelve directors. Directors need not be shareholders of the Corporation. In
addition to the Directors who are elected by the shareholders, the Board of
Directors, from time to time, may appoint persons as advisory directors, to
serve such terms and perform such duties as the Board of Directors shall
determine upon appointing any person as an advisory director. Advisory directors
shall not be entitled to vote on any matter to come before the Board of
Directors. Advisory directors may be removed at any time by a vote of the Board
of Directors. The provisions of Article III, Sections 2 through 12 of these
Bylaws shall not apply to advisory directors.
Section 2. Nominations by Shareholders. Shareholders who wish to
nominate persons for election as Directors of the Corporation shall comply with
the requirements of ARTICLE II, Section 7 of these By-Laws.
Section 3. Election and Term of Office. The Directors shall be
elected at the annual meeting of shareholders; but if any such annual meeting is
not held or if the Directors are not elected at any such annual meeting, the
Directors may be elected at any special meeting of the shareholders. Directors
shall be elected by a plurality of the votes cast. The Directors shall hold
office until the next annual meeting of shareholders and thereafter until their
respective successors have been elected and qualified.
Section 4. Meetings. Regular meetings of the Directors shall be held
annually following the annual meeting of the shareholders and may be held
without notice at such other
4
<PAGE> 5
places and times as may be determined by the Board of Directors. In addition,
during the four month period from August 10, 1997 through and including December
10, 1997, the Board of Directors shall hold at least one regularly scheduled
meeting every month at such times as may from time to time be fixed by the Board
of Directors and the Board of Directors shall hold regular meetings every month
thereafter until such time as the Board of Directors determines that such
monthly meeting is not necessary. Special meetings of the Directors may be
called at any time by the Chairman of the Board, the Chairman of the Executive
Committee of the Board of Directors, or a majority of the Directors or by the
other persons authorized to call such a meeting pursuant to these Bylaws, on at
least one day's notice sent by any usual means of communication. Notice of any
such meeting may be waived by the person or persons entitled thereto by signing
a written waiver of notice at any time before or after the meeting is completed.
Attendance of a Director at a meeting shall constitute a waiver of notice
thereof unless such attendance is for the express purpose of objecting to such
meeting. Any meeting of the Board of Directors may be held within or without the
State of Tennessee at such place as may be determined by the person or persons
calling the meeting.
Section 5. Quorum. A majority of the total number of Directors then
in office shall constitute a quorum for the transaction of business; and the
vote or action of a majority of the Directors present at any meeting at which a
quorum is had shall decide any matter that may come before the meeting and shall
be the act of the Board unless otherwise specifically required by law or by
express provision of the charter or By-laws of the Corporation.
Section 6. Action by Consent. Any action required or permitted to be
taken by the Directors of the Corporation may be taken without a meeting on
written consent, setting forth the action so taken, signed by all the Directors
entitled to vote thereon.
Section 7. Vacancies. Vacancies in the Board of Directors occurring
for any reason, including an increase in the number of Directors, resignation,
or the removal of any Director with or without cause, may be filled by vote of a
majority of the Directors then in office although less than a quorum exists; but
if the offices of a majority of the entire Board of Directors shall be vacant at
the same time, such vacancies shall be filled only by vote of the shareholders.
A director elected to fill any vacancy shall hold office until the next annual
meeting of shareholders and thereafter until his successor has been elected and
qualified.
Section 8. Removal and Resignation. Any or all of the Directors may
be removed with or without cause, at any time, by vote of the shareholders. Any
Director may resign at any time, such resignation to be made in writing and to
take effect immediately or on such later date as may be specified therein
without acceptance.
Section 9. Committees.
(a) The Executive Committee of the Board of Directors shall
act on behalf of the Board of Directors between scheduled meetings of
the Board of Directors and
5
<PAGE> 6
exercise all powers of the Board of Directors and the powers granted to
the Chairman of the Board of Directors by Article IV, Section 3 of
these Bylaws, including, without limitation, the power to call meetings
of the Board of Directors and to set the agenda for meetings of the
Board of Directors; provided, however, that the Executive Committee
shall not have the authority to take any action that is prohibited by
the Tennessee Business Corporation Act. The Chairman of the Executive
Committee shall have the power to call meetings of the Board of
Directors or the Executive Committee and, from and after the date that
B. Franklin Skinner is no longer the Chairman of the Executive
Committee, any two members of the Executive Committee acting together
shall be entitled to call meetings of the Board of Directors or the
Executive Committee on at least one day's notice sent by any usual
means of communication. Each member of the Executive Committee shall
have the right to add items to the agenda of meetings of the Board of
Directors or the Executive Committee. The quorum for all meetings of
the Executive Committee shall be three, at least one of whom shall be a
Committee Nominee (as defined in the Agreement dated as of August 10,
1997 (the "Agreement"), as the same shall be amended from time to time,
among the Company, Raymond D. Schoenbaum and Betty J. Schoenbaum (the
Schoenbaums being collectively referred to as the "Shareholders
Committee")), and the act of a majority of those present at a meeting
of the Executive Committee at which a quorum is present shall be the
act of the committee.
(b) The Operations Committee of the Board of Directors shall
consist of four members and shall review and make recommendations to
the Board of Directors concerning all aspects of the Company's business
and its current and future business and financial strategies,
transactional opportunities and the enhancement of shareholder value.
In addition, the Operations Committee shall have oversight
responsibility with respect to all aspects of the day-to-day operations
of the Company, including the marketing, capital expenditure and budget
plans for the Company, and shall review and make recommendations
regarding the debt structure and capital structure of the Company. The
Operations Committee shall hold meetings as often as the Operations
Committee believes necessary but in any event for the first two months
after August 10, 1997 the Operations Committee shall meet no less than
every two weeks. Each member of the Operations Committee shall have,
and management of the Company shall ensure that each member of the
Operations Committee shall have, access to all such information
regarding the Company and all contacts with such employees and
franchisees as such member shall request. The Operations Committee
shall make a report to the Board on a monthly basis (or more often, if
necessary or appropriate) and the agenda of each Board meeting shall
provide for the making by the Operations Committee of such report. The
members of the Operations Committee shall receive the information set
forth on Annex I hereto in accordance with the time frames set forth in
such Annex I. The quorum for all meetings of the Operations Committee
shall be two members, at least one of whom shall be a Committee Nominee
and one of whom shall be a person other than a Committee Nominee. The
act of a majority of those present at
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<PAGE> 7
a meeting of the Operations Committee at which a quorum is present
shall be the act of such committee.
(c) From time to time, a majority of the entire Board of
Directors may by resolution appoint any other committee or committees
for the purpose or purposes to the extent permitted by law, which
committee or committees shall have such powers as shall be specified in
the resolution of appointment.
Section 10. Participation in Meetings. The members of the Board of
Directors, or any committee appointed by the Board, may participate in a meeting
of the Board or of such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to such
means shall constitute presence in person at such meeting. The Directors shall
be promptly furnished a copy of the minutes of the Board of Directors' meetings.
Section 11. Compensation. The Directors shall receive compensation or
salary for their services as Directors, said sum to be fixed by proper
resolution of the Board of Directors, and said salary and compensation may
include a fixed sum for expenses of attending the meetings of the Board of
Directors. A Director may serve the Corporation in a capacity other than that of
a Director and receive compensation for services rendered in such other
capacity.
Section 12. Access to Information. Each member of the Board of
Directors shall be entitled to receive promptly upon request all information
regarding the Corporation which such director requests.
ARTICLE IV
OFFICERS
Section 1. Designation. The officers of the Corporation shall be a
Chairman Emeritus of the Board (which office shall be optional with the Board of
Directors), a Chairman of the Board, a President, one or more Division
Presidents, one or more Vice Presidents, a Secretary and a Treasurer and such
other officers, agents and employees as may from time to time be elected, chosen
or appointed by the Board of Directors. Any Vice President may be designated as
Executive Vice President or Senior Vice President or such other title as the
Board may determine. Any two or more of such offices may be held by the same
person except the offices of President and Secretary.
Section 2. Chairman Emeritus. The Chairman Emeritus of the Board
shall be an honorary and optional position. The Chairman Emeritus shall be an
Advisory director of the Corporation pursuant to Article III of these Bylaws. In
addition, the Chairman Emeritus shall
7
<PAGE> 8
have such duties with regard to the general and active management of the
Corporation as may be prescribed from time to time by the Board of Directors or
by the By-laws.
Section 3. Chairman of the Board of Directors. The Chairman of the
Board of Directors shall preside at all meetings of the shareholders and the
Board of Directors, and he shall call regular and special meetings of the
shareholders and Board of Directors in accordance with these By-laws. He shall
perform such other duties as may be prescribed by the Board. The Board may
designate the Chairman chief executive officer of the Corporation.
Section 4. President. The President shall have general supervision of
the affairs and property of the Corporation, subject to the direction of the
Board of Directors and the Chairman of the Board. He shall manage and control
the regular business of the Corporation; and he may appoint agents and employees
of the Corporation, other than officers elected or appointed by the Board,
subject to the approval of the Board. In the absence of the Chairman of the
Board, the President shall preside at any meeting of the shareholders or the
Board of Directors. He shall perform such other duties as may from time to time
be prescribed by the Board.
Section 5. Division President. The Division President or Division
Presidents shall assist the President in the management of the Corporation,
shall have general supervision of the affairs and property of that division of
the Corporation over which he is President, and shall have such other duties as
may from time to time be prescribed by the Board, the Chairman of the Board, or
President. In the absence, disqualification or incapacity of the President, the
senior Division President, if senior to the senior Vice President, shall perform
the duties and exercise the powers of the President.
Section 6. Vice President. The Vice President or Vice Presidents shall
assist the President in the management of the Corporation and shall have such
other powers and perform such other duties as may from time to time be
prescribed by the Board, or President. In the absence, disqualification or
incapacity of the President, the senior Vice President shall perform the duties
and exercise the powers of the President.
Section 7. Secretary. The Secretary shall keep the minutes of all
meetings of the shareholders and the Board of Directors in appropriate books,
and he shall attend to the giving of all notices for the Corporation. He shall
have charge of the seal and stock books of the Corporation and such other books
and papers as the Board may direct, and he shall in general perform all duties
incident to the office of Secretary of the Corporation. He shall perform such
other duties as may from time to time be prescribed by the Board, the Chairman
of the Board, or President.
Section 8. Treasurer. The Treasurer shall have the care and custody of
all funds and securities of the Corporation, and he shall in general perform all
duties incident to the office of
8
<PAGE> 9
Treasurer of the Corporation. He shall perform such other duties as may from
time to time be prescribed by the Board, the Chairman of the Board, or
President.
Section 9. Other Officers. The Board of Directors may appoint, or may
authorize the Chairman of the Board or President to appoint, assistant
secretaries and assistant treasurers and such other officers as the Board may
from time to time decide, who shall have such authority and perform such duties
as may from time to time be prescribed by the Board or designated by the
President.
Section 10. Election and Term of Office. The officers shall be elected
or appointed at the regular meeting of the Board of Directors following the
annual meeting of shareholders, provided that any vacancy or newly created
office may be filled at a special meeting or other regular meeting of the Board.
Unless otherwise determined by the Board, each officer shall hold office until
the next regular meeting of the Board following the annual meeting of
shareholders and thereafter until his successor has been elected or appointed
and qualified.
Section 11. Compensation. The Board of Directors, or one of its duly
appointed committees, shall fix the salaries of the officers of the Corporation.
The compensation of other agents and employees of the Corporation may be fixed
by the Board of Directors or by an officer or officers for whom that function
has been delegated by the Board.
ARTICLE V
SHARES
Section 1. Certificates. The shares of the Corporation shall be
represented by certificates in such form as the Board of Directors may from time
to time prescribe. Such certificates shall be numbered consecutively in the
order in which they are issued, which numbering system may be separated by class
or series if there shall be more than one class or series of shares. The
certificates shall be signed by the Chairman of the Board and Secretary unless
the Board of Directors shall otherwise designate any two officers of the
Corporation for such purpose.
Section 2. Record. The name and address of all persons to whom the
shares of the Corporation are issued, the number of shares, and the date of
issue shall be entered on the books of the Corporation. It shall be the duty of
each shareholder to notify the Corporation of his address.
Section 3. Transfers. The shares of the Corporation are transferable
only on the books of the Corporation by the registered holder thereof, either in
person or by power of attorney, and upon delivery and surrender of the
certificate representing such shares properly
9
<PAGE> 10
endorsed for transfer. Certificates exchanged or surrendered shall be canceled
by the Secretary and placed in the corporate records.
Section 4. Loss of Certificates. In case of the loss, mutilation or
destruction of a certificate representing shares of the Corporation, a duplicate
certificate may be issued on such terms as the Board of Directors shall
prescribe.
Section 5. Transfer Agent, Registrar. The Board of Directors may
appoint a transfer agent or agents and/or a registrar, and a dividend disbursing
agent for the Corporation.
ARTICLE VI
SEAL
Section 1. Authority to Adopt. The Corporation may have a seal in such
form as the Board of Directors may adopt, and the Board of Directors may from
time to time change the form of the seal of the Corporation.
Section 2. Scroll Seal. In the event the Board shall not have adopted
a seal or if it is inconvenient to use the adopted seal at any time, an
authorized signature made in the name of and on behalf of the Corporation
followed by the word "Seal" enclosed in parentheses or scroll shall be deemed
the seal of the Corporation.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall end on the last Sunday of
October of each year, but the Board of Directors may from time to time change
the fiscal year of the Corporation.
ARTICLE VIII
DIVIDENDS, SURPLUS AND RESERVES
Section 1. Dividends. The Board of Directors may declare dividends
from the Corporation's net earnings, or from the surplus of its assets over its
liabilities, including capital, but not otherwise. The Board of Directors may
issue stock dividends, provided the Corporation has a surplus equal in value, at
a fair valuation, to such stock issued as a
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<PAGE> 11
dividend; and provided, further, that the surplus of the Corporation is reduced
in an amount equal to the value of the stock issued as a stock dividend.
Section 2. Surplus and Reserves. Before making any distribution of
proceeds, there may be set aside out of the net proceeds of the Corporation such
sums for maintaining any property of the Corporation, or for any other purpose,
and any profits of any year not distributed as dividends shall be deemed to have
been thus set aside until otherwise disposed of by the Board of Directors, and
the Board of Directors may abolish any such reserve in its absolute discretion.
ARTICLE IX
INDEMNITY
Any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including any action by or in the
right of the Corporation) by reason of the fact that he is or was serving as an
officer or director or employee of the Corporation or is or was serving at the
request of the Corporation as a Director or officer of the Corporation,
partnership, joint venture, trust or other enterprise, shall be indemnified by
the Corporation against expenses (including reasonable attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith for a purpose which he reasonably believed to be in the best interest of
the corporation, and, in criminal proceedings, in addition, had no reasonable
cause to believe that his conduct was unlawful, to the maximum extent permitted
by, and in the manner provided by, the Tennessee Business Corporation Act. In
the event of a settlement, however, the indemnification herein shall apply only
when the Board of Directors approves such settlement and reimbursement as being
in the best interest of the Corporation. The foregoing right of indemnification
shall be in addition to and not exclusive of all rights to which said Directors,
officers or employees may be entitled.
ARTICLE X
AMENDMENTS
The shareholders of the Corporation may adopt new Bylaws and may amend
or repeal any or all of these Bylaws at any annual or special meeting provided,
however, that notice of intention to amend shall have been contained in the
notice of any special meeting called for that purpose; and also the Board of
Directors may adopt new Bylaws and may amend or repeal these Bylaws by the vote
of a majority of the entire Board, and provided further that any bylaw adopted
by the Board may be amended or repealed by the shareholders. Notwithstanding
11
<PAGE> 12
the foregoing, until June 30, 1998 the Board of Directors will not amend the
provisions of the first sentence of Section 1, Sections 4, 9(a), 9(b), 9(c) or
12 of Article III, this Article X, or Article XI of these Bylaws, or adopt any
new bylaw which is inconsistent in any manner with such provisions, without the
affirmative vote of at least 75% of the members of the Board of Directors. The
Board of Directors may amend Bylaws adopted by the shareholders, provided that
shareholders may from time to time specify particular provisions of these Bylaws
which shall not be amended by the Board of Directors.
ARTICLE XI
SIGNIFICANT TRANSACTIONS
No Significant Transaction (as defined below) shall be undertaken
without the specific approval of the Board of Directors of such Significant
Transaction. Significant Transaction shall mean (i) the sale, lease, exchange or
other disposition of all or substantially all of the business operations or
assets of the Company in a single transaction or in a series of transactions,
(ii) the sale, lease or exchange or other disposition of (A) the Shoney's
division, the Captain D's division or any individual asset or group of related
assets of the Company in a single transaction or in a series of related
transactions involving more than $5 million (except that transactions shall not
be considered to be related solely because they are adopted by the Board as part
of a common plan), (B) assets in a single transaction or in a series of
transactions to a single purchaser involving more than $5 million (C) any asset
or group of related assets to any current or former officer, director, or
employee of the Company, any person who has an ongoing material business or
financial relationship with any such current or former officer, director or
employee of the Company, any Affiliate or Associate (each as defined in Rule
12b- 2 under the Securities Exchange Act of 1934 and shall include persons who
become Affiliates or Associates of any person subsequent to August 10, 1997) of
the foregoing, or any entity owned in whole or in part by any of the foregoing
(other than an entity whose securities are publicly traded and in which the
foregoing own less than 5% of the outstanding equity interests of such entity),
(iii) the acquisition of (A) any restaurant or restaurants in a single
transaction or series of related transactions involving more than $5 million or
(B) business operations or assets in a single transaction or series of related
transactions involving more than $5 million other than, in the case of this
clause (B), those acquisitions contained in the capital budget plan of the
Company previously approved by the Board, (iv) the authorization of the
dissolution of the Company or the winding up or seeking of voluntary bankruptcy
or voluntary insolvency protection, (v) the consent by the Company to a
third-party seeking an order authorizing the involuntary dissolution or
involuntary bankruptcy of the Company, (vi) the authorization of any merger,
consolidation, reorganization or other business combination (other than any
merger in which both (A) the Company is the surviving ultimate parent entity and
(B) the holders of the voting securities of the Company prior to such
transaction continue to hold at least 85% of the equity interests and voting
power of the Company after the transaction), (vii) the declaration of any
dividend or authorization of any distribution in excess of regular and
12
<PAGE> 13
customary dividends, or (viii) the approval of any restructuring of indebtedness
of the Company or any of its subsidiaries involving amounts in excess of $25
million, or the material modification of the terms of any indebtedness or
obligation of the Company or any of its subsidiaries for borrowed money
involving amounts in excess of $25 million.
13
<PAGE> 1
AGREEMENT
This Agreement is entered into as of the 15th day of July, 1997, by and
between Shoney's, Inc. ("Employer"), a Tennessee corporation with its principal
place of business at 1727 Elm Hill Pike, Nashville, Tennessee 37210 and Betty J.
Marshall ("Executive").
W I T N E S S E T H:
WHEREAS, the Executive is currently employed by Employer as the Senior
Vice President, Corporate Communications & Community Relations of Employer, and
Employer and Executive desire to set forth certain rights and obligations of
Employer and Executive in the event of a change in control of Employer.
NOW, THEREFORE, in consideration of the premises hereof and of the mutual
promises and agreements contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. BENEFITS UPON TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN CONTROL.
If at any time within one year following the occurrence of a Change in Control
(as defined in Section 14 below) (i) the employment of Executive with Employer
is terminated by Employer for any reason other than Good Cause (as defined in
Section 14 below), or (ii) Executive terminates his or her employment with
Employer for Good Reason (as defined in Section 14 below), the following
provisions will apply:
(a) Employer shall pay Executive an amount equal to 200% of Executive's
Base Salary (as defined in Section 14 below). Such amount will be paid
to Executive in equal weekly payments using Employer's regular payroll
periods.
(b) For purposes of any Incentive Plans, Executive shall be given service
credit for all purposes for, and shall be deemed to be an employee of
Employer during the Coverage Period (as defined in Section 14 below),
notwithstanding the fact that Executive is not an employee of Employer
or any Affiliate (as defined in Section 14 below) thereof during the
Coverage Period; provided that, if the terms of any of such Incentive
Plans do not permit such credit or deemed employee treatment, Employer
will make payments and distributions to Executive outside of the
Incentive Plans in amounts substantially equivalent to the payments
and distributions Executive would have received pursuant to the terms
of the Incentive Plans and attributable to such credit or deemed
employee treatment, had such credit or deemed employee treatment been
permitted pursuant to the terms of the Incentive Plans.
(c) During the Coverage Period, Executive and his or her spouse and family
will continue to be covered by all Welfare Plans (as defined in
Section 14 below), maintained by Employer in which Executive or his or
her spouse or family were participating immediately prior to the date
of Executive's
<PAGE> 2
termination as if Executive continued to be an employee of Employer;
provided that, if participation in any one or more of such Welfare
Plans is not possible under the terms thereof, Employer will provide
substantially identical benefits. If, however, Executive obtains
employment with another employer during the Coverage Period, such
coverage shall be provided until the earlier of: (i) the end of the
Coverage Period or (ii) the date on which the Executive and his or her
spouse and family can be covered under the plans of a new employer
without being excluded from full coverage because of any actual
pre-existing condition. Nothing contained herein is intended to in any
way limit Employee's rights under COBRA.
Compensation under Section 1(a), (b) and (c) hereof is contingent upon
Executive's compliance with Section 4 hereof.
2. SETOFF. With respect to Section 1, no payments or benefits payable to or
with respect to Executive pursuant to this Agreement shall be reduced by any
amount Executive or his or her spouse may earn or receive from employment with
another employer or from any other source, except as expressly provided in
Section 1(c).
3. DEATH. If Executive dies during the Coverage Period:
(a) All amounts not theretofore paid described in Section 1(a) shall be
paid to his or her estate.
(b) The spouse and family of Executive shall, during the remainder of
the Coverage Period, be covered under all Welfare Plans made available by
Employer to Executive or his or her spouse immediately prior to the date of
Executive's death; provided that, if participation in any one or more of such
plans and arrangements is not possible under the terms thereof, Employer will
provide substantially identical benefits.
Any benefits payable under this Section 3 are in addition to any other
benefit due to Executive or his or her spouse or beneficiaries from Employer,
including, but not limited to, payments under any Incentive Plans.
4. RESTRICTIVE COVENANTS.
(a) Confidential Information. Executive agrees not to disclose,
following termination of his or her employment hereunder under the circumstances
described in Section 1 hereof, to any person (other than to any person
specifically authorized by the Board of Directors of Employer) any material
confidential information concerning the Employer or any of its Affiliates,
including, but not limited to, strategic plans, contract terms, financial costs,
pricing terms, sales data or business opportunities whether for existing, new or
developing businesses.
(b) Non-Competition. In the event of any termination of Executive's
employment pursuant to Section 1 hereby, Executive covenants and agrees that,
for a period of
2
<PAGE> 3
one year from the effective date of his or her termination from active
employment with the Employer, Executive will not engage in, own, manage,
operate, control, or participate in any food service business that conducts or
franchises activities which are the same as or similar to the restaurant
concepts and operations of Employer as an employer, employee, principal,
partner, director, agent, or otherwise, directly or indirectly, anywhere in the
United States of America.
(c) Enforcement. Executive and the Employer acknowledge and agree that
any of the covenants contained in this Section 4 may be specifically enforced
through injunctive relief but such right to injunctive relief shall not preclude
the Employer from other remedies which may be available to it.
5. EXECUTIVE ASSIGNMENT. No interest of Executive or his or her spouse or
any other beneficiary under this Agreement, or any right to receive any payment
or distribution hereunder, shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other alienation or encumbrance
of any kind, nor may such interest or right to receive a payment or distribution
be taken, voluntarily or involuntarily, for the satisfaction of the obligations
or debts of, or other claims against, Executive or his or her spouse or other
beneficiary, including claims for alimony, support, separate maintenance, and
claims in bankruptcy proceedings.
6. BENEFITS UNFUNDED. All rights of Executive and his or her spouse or
other beneficiary under this Agreement shall at all times be entirely unfunded
and no provision shall at any time be made with respect to segregating any
assets of Employer for payment of any amounts due hereunder. Neither Executive
nor his or her spouse or other beneficiary shall have any interest in or rights
against any specific assets of Employer, and Executive and his or her spouse or
other beneficiary shall have only the rights of a general unsecured creditor of
Employer.
7. COST OF ENFORCEMENT; INTEREST. In the event that Executive collects any
part or all of the payments or benefits due hereunder or otherwise enforces the
terms of this Agreement following a dispute with Employer regarding the terms of
this Agreement by or through a lawyer or lawyers, Employer will pay all costs of
such collection or enforcement, including reasonable attorneys' and accountants'
fees and other out-of-pocket expenses incurred by the Executive, up to that
point when Employer offers to settle the dispute for an amount equal to the
amount which the Executive actually recovers; provided, however, that if the
Executive violates any provision of Section 4, this Section 7 shall be void and
of no further force and effect.
8. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail to Executive's residence in the case of Executive, or to its principal
office in the case of the Employer and the date of mailing shall be deemed the
date which such notice has been provided.
9. WAIVER OF BREACH. The waiver by either party of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
by the other party.
10. ASSIGNMENT; SUCCESSORS. The rights and obligations of the Employer
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the
3
<PAGE> 4
Employer, including the surviving entity in any merger, consolidation, share
exchange or other transaction described in Section 14(c)(ii) hereof or any
person, entity or group that has acquired a majority of the outstanding shares
of Common Stock (or securities convertible into Common Stock) of Employer or
all, or substantially all, of the assets of Employer. The Executive acknowledges
that the services to be rendered by him or her are unique and personal, and
Executive may not assign any of his or her rights or delegate any of his or her
duties or obligations under this Agreement.
11. ENTIRE AGREEMENT. This instrument contains the entire agreement of the
parties and supersedes all other prior agreements, employment contracts and
understandings, both written and oral, express or implied with respect to the
subject matter of this Agreement and may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
12. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Tennessee, without giving effect to the principles of conflicts of law
thereof.
13. HEADINGS. The sections, subjects and headings of this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
14. DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning set forth in the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(b) "Base Salary" means the higher of (i) Executive's annual base
salary in effect immediately prior to the occurrence of the Change in Control
giving rise of an obligation on the part of Employer to make any payments under
this Agreement or (ii) Executive's annual base salary in effect immediately
prior to the termination of Executive's employment under the circumstances
described in Section 1 above.
(c) "Change in Control" shall mean the occurrence of any of the
following:
(i) if any person or entity, including a "group" as defined in
Section 13(d)(3) of the Exchange Act, other than Employer or
a wholly-owned subsidiary thereof or any employee benefit
plan of Employer or any of its subsidiaries, becomes the
beneficial owner of Employer securities having 50% or more
of the combined voting power of the then outstanding
securities of Employer that may be cast for the election of
directors of Employer; or
(ii) as the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale
of substantially all of the assets or contested election, or
any combination of the foregoing transactions less than a
majority of the combined voting
4
<PAGE> 5
power of the then-outstanding securities of Employer or any
successor corporation or entity entitled to vote generally
in the election of the directors of the Employer or such
other corporation or entity after such transaction is held
in the aggregate by the holders of Employer securities
entitled to vote generally in the election of directors of
Employer immediately prior to such transaction; or
(iii) following the date of this Agreement, individuals who on
such date constitute the Board of Directors of Employer
cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for election
by Employer's shareholders, of each director of Employer
first elected following such date was approved by a vote of
at least two-thirds of the directors of Employer then still
in office who were directors on the date of this Agreement.
(d) "Coverage Period" shall mean the period beginning on the date the
Executive's employment with Employer terminates under circumstances described in
Section 1 and ending on the date that is twelve (12) months thereafter.
(e) "Good Cause" shall mean the occurrence of any one of the following
after a Change in Control:
(i) Executive's personal dishonesty;
(ii) Executive's willful misconduct;
(iii) breach of fiduciary duty involving personal profit by
Executive;
(iv) conviction of Executive for any felony or crime involving
moral turpitude;
(v) material intentional breach by Executive of any provision of
this Agreement; or
(vi) unsatisfactory performance by Executive of the duties
designated for Executive as a result of alcohol or drug use
by Executive.
Without limiting the generality of the foregoing, if Executive acted in
good faith and in a manner he or she reasonably believed to be in, and not
opposed to, the best interest of Employer and had no reasonable cause to believe
his or her conduct was unlawful in connection with any action taken by Executive
in connection with his or her duties, it shall not constitute Good Cause.
5
<PAGE> 6
Notwithstanding anything herein to the contrary, in the event Employer
shall terminate the employment of Executive for Good Cause hereunder, Employer
shall give at least 30 days prior written notice to Executive specifying in
detail the reason or reasons for Executive's termination.
(f) "Good Reason" shall exist if after the occurrence of a Change of
Control:
(i) there is a significant change in the nature or the scope of
Executive's authority;
(ii) there is a reduction in Executive's rate of base salary;
(iii) Employer changes the principal location in which Executive
is required to perform services outside a thirty-five mile
radius of such location without Executive's consent;
(iv) there is a reasonable determination by Executive that, as a
result of a change in circumstances significantly affecting
his or her position, Executive is unable to exercise the
authority, powers, function or duties attached to his or her
position; or
(v) Employer terminates or amends any Incentive Plan so that,
when considered in the aggregate with any substitute plan or
other substitute compensation, the Incentive Plan in which
Executive is participating fails to provide Executive with a
level of benefits equivalent to at least 75% of the value of
the level of benefits provided in the aggregate by the
terminated or amended Incentive Plan at the date of such
termination or amendment; provided, however, that Good
Reason shall not be deemed to exist under this clause (v) if
the decline in Incentive Plan compensation is related to a
decline in performance.
(g) "Incentive Plans" shall mean any incentive, bonus, deferred
compensation or similar plan or arrangement currently or hereafter made
available by Employer in which Executive is eligible to participate.
(h) "Welfare Plans" shall mean any health and dental plan, disability plan,
survivor income plan and life insurance plan or arrangement currently or
hereafter made available by Employer in which Executive is eligible to
participate.
15. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original.
16. SEVERABILITY; CONSTRUCTION. In the event any provision of this
Agreement is held illegal or invalid, the remaining provisions of this Agreement
shall not be affected thereby. In the
6
<PAGE> 7
event that Section 4(b) is deemed by any court of competent jurisdiction to be
invalid due to overbreadth, such Section 4(b) shall be construed as narrowly
as necessary to be enforceable.
17. EXCLUSIVITY. The benefits provided Executive pursuant to this
Agreement shall be the exclusive benefits to which Executive is entitled upon
termination of employment following a Change in Control notwithstanding any
other plan or agreement in effect, whether written or oral, between Executive
and Employer providing for the payment of benefits following a termination of
employment.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.
-----------------------------------------------------
Betty J. Marshall
SHONEY'S, INC.
By:
--------------------------------------------------
Title: Chairman, Chief Executive Officer & President
7
<PAGE> 1
AGREEMENT
This Agreement is entered into as of the 15th day of July, 1997, by and
between Shoney's, Inc. ("Employer"), a Tennessee corporation with its principal
place of business at 1727 Elm Hill Pike, Nashville, Tennessee 37210 and Haney A.
Long, Jr. ("Executive").
W I T N E S S E T H:
WHEREAS, the Executive is currently employed by Employer as the Senior Vice
President, Purchasing of Employer, and Employer and Executive desire to set
forth certain rights and obligations of Employer and Executive in the event of a
change in control of Employer.
NOW, THEREFORE, in consideration of the premises hereof and of the mutual
promises and agreements contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. BENEFITS UPON TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN CONTROL.
If at any time within one year following the occurrence of a Change in Control
(as defined in Section 14 below) (i) the employment of Executive with Employer
is terminated by Employer for any reason other than Good Cause (as defined in
Section 14 below), or (ii) Executive terminates his or her employment with
Employer for Good Reason (as defined in Section 14 below), the following
provisions will apply:
(a) Employer shall pay Executive an amount equal to 200% of
Executive's Base Salary (as defined in Section 14 below). Such
amount will be paid to Executive in equal weekly payments using
Employer's regular payroll periods.
(b) For purposes of any Incentive Plans, Executive shall be given
service credit for all purposes for, and shall be deemed to be an
employee of Employer during the Coverage Period (as defined in
Section 14 below), notwithstanding the fact that Executive is not
an employee of Employer or any Affiliate (as defined in Section
14 below) thereof during the Coverage Period; provided that, if
the terms of any of such Incentive Plans do not permit such
credit or deemed employee treatment, Employer will make payments
and distributions to Executive outside of the Incentive Plans in
amounts substantially equivalent to the payments and
distributions Executive would have received pursuant to the terms
of the Incentive Plans and attributable to such credit or deemed
employee treatment, had such credit or deemed employee treatment
been permitted pursuant to the terms of the Incentive Plans.
(c) During the Coverage Period, Executive and his or her spouse and
family will continue to be covered by all Welfare Plans (as
defined in Section 14 below), maintained by Employer in which
Executive or his or her spouse or family were participating
immediately prior to the date of Executive's
<PAGE> 2
termination as if Executive continued to be an employee of
Employer; provided that, if participation in any one or more of
such Welfare Plans is not possible under the terms thereof,
Employer will provide substantially identical benefits. If,
however, Executive obtains employment with another employer
during the Coverage Period, such coverage shall be provided until
the earlier of: (i) the end of the Coverage Period or (ii) the
date on which the Executive and his or her spouse and family can
be covered under the plans of a new employer without being
excluded from full coverage because of any actual pre-existing
condition. Nothing contained herein is intended to in any way
limit Employee's rights under COBRA.
Compensation under Section 1(a), (b) and (c) hereof is contingent upon
Executive's compliance with Section 4 hereof.
2. SETOFF. With respect to Section 1, no payments or benefits payable to or
with respect to Executive pursuant to this Agreement shall be reduced by any
amount Executive or his or her spouse may earn or receive from employment with
another employer or from any other source, except as expressly provided in
Section 1(c).
3. DEATH. If Executive dies during the Coverage Period:
(a) All amounts not theretofore paid described in Section 1(a) shall be
paid to his or her estate.
(b) The spouse and family of Executive shall, during the remainder of
the Coverage Period, be covered under all Welfare Plans made available by
Employer to Executive or his or her spouse immediately prior to the date of
Executive's death; provided that, if participation in any one or more of such
plans and arrangements is not possible under the terms thereof, Employer will
provide substantially identical benefits.
Any benefits payable under this Section 3 are in addition to any other
benefit due to Executive or his or her spouse or beneficiaries from Employer,
including, but not limited to, payments under any Incentive Plans.
4. RESTRICTIVE COVENANTS.
(a) Confidential Information. Executive agrees not to disclose,
following termination of his or her employment hereunder under the circumstances
described in Section 1 hereof, to any person (other than to any person
specifically authorized by the Board of Directors of Employer) any material
confidential information concerning the Employer or any of its Affiliates,
including, but not limited to, strategic plans, contract terms, financial costs,
pricing terms, sales data or business opportunities whether for existing, new or
developing businesses.
(b) Non-Competition. In the event of any termination of Executive's
employment pursuant to Section 1 hereby, Executive covenants and agrees that,
for a period of
2
<PAGE> 3
one year from the effective date of his or her termination from active
employment with the Employer, Executive will not engage in, own, manage,
operate, control, or participate in any food service business that conducts or
franchises activities which are the same as or similar to the restaurant
concepts and operations of Employer as an employer, employee, principal,
partner, director, agent, or otherwise, directly or indirectly, anywhere in the
United States of America.
(c) Enforcement. Executive and the Employer acknowledge and agree that
any of the covenants contained in this Section 4 may be specifically enforced
through injunctive relief but such right to injunctive relief shall not preclude
the Employer from other remedies which may be available to it.
5. EXECUTIVE ASSIGNMENT. No interest of Executive or his or her spouse or
any other beneficiary under this Agreement, or any right to receive any payment
or distribution hereunder, shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other alienation or encumbrance
of any kind, nor may such interest or right to receive a payment or distribution
be taken, voluntarily or involuntarily, for the satisfaction of the obligations
or debts of, or other claims against, Executive or his or her spouse or other
beneficiary, including claims for alimony, support, separate maintenance, and
claims in bankruptcy proceedings.
6. BENEFITS UNFUNDED. All rights of Executive and his or her spouse or
other beneficiary under this Agreement shall at all times be entirely unfunded
and no provision shall at any time be made with respect to segregating any
assets of Employer for payment of any amounts due hereunder. Neither Executive
nor his or her spouse or other beneficiary shall have any interest in or rights
against any specific assets of Employer, and Executive and his or her spouse or
other beneficiary shall have only the rights of a general unsecured creditor of
Employer.
7. COST OF ENFORCEMENT; INTEREST. In the event that Executive collects any
part or all of the payments or benefits due hereunder or otherwise enforces the
terms of this Agreement following a dispute with Employer regarding the terms of
this Agreement by or through a lawyer or lawyers, Employer will pay all costs of
such collection or enforcement, including reasonable attorneys' and accountants'
fees and other out-of-pocket expenses incurred by the Executive, up to that
point when Employer offers to settle the dispute for an amount equal to the
amount which the Executive actually recovers; provided, however, that if the
Executive violates any provision of Section 4, this Section 7 shall be void and
of no further force and effect.
8. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail to Executive's residence in the case of Executive, or to its principal
office in the case of the Employer and the date of mailing shall be deemed the
date which such notice has been provided.
9. WAIVER OF BREACH. The waiver by either party of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
by the other party.
10. ASSIGNMENT; SUCCESSORS. The rights and obligations of the Employer
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the
3
<PAGE> 4
Employer, including the surviving entity in any merger, consolidation, share
exchange or other transaction described in Section 14(c)(ii) hereof or any
person, entity or group that has acquired a majority of the outstanding shares
of Common Stock (or securities convertible into Common Stock) of Employer or
all, or substantially all, of the assets of Employer. The Executive acknowledges
that the services to be rendered by him or her are unique and personal, and
Executive may not assign any of his or her rights or delegate any of his or her
duties or obligations under this Agreement.
11. ENTIRE AGREEMENT. This instrument contains the entire agreement of the
parties and supersedes all other prior agreements, employment contracts and
understandings, both written and oral, express or implied with respect to the
subject matter of this Agreement and may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
12. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Tennessee, without giving effect to the principles of conflicts of law
thereof.
13. HEADINGS. The sections, subjects and headings of this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
14. DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning set forth in the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(b) "Base Salary" means the higher of (i) Executive's annual base
salary in effect immediately prior to the occurrence of the Change in Control
giving rise of an obligation on the part of Employer to make any payments under
this Agreement or (ii) Executive's annual base salary in effect immediately
prior to the termination of Executive's employment under the circumstances
described in Section 1 above.
(c) "Change in Control" shall mean the occurrence of any of the
following:
(i) if any person or entity, including a "group" as defined in
Section 13(d)(3) of the Exchange Act, other than Employer or
a wholly-owned subsidiary thereof or any employee benefit
plan of Employer or any of its subsidiaries, becomes the
beneficial owner of Employer securities having 50% or more
of the combined voting power of the then outstanding
securities of Employer that may be cast for the election of
directors of Employer; or
(ii) as the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale
of substantially all of the assets or contested election, or
any combination of the foregoing transactions less than a
majority of the combined voting
4
<PAGE> 5
power of the then-outstanding securities of Employer or any
successor corporation or entity entitled to vote generally
in the election of the directors of the Employer or such
other corporation or entity after such transaction is held
in the aggregate by the holders of Employer securities
entitled to vote generally in the election of directors of
Employer immediately prior to such transaction; or
(iii) following the date of this Agreement, individuals who on
such date constitute the Board of Directors of Employer
cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for election
by Employer's shareholders, of each director of Employer
first elected following such date was approved by a vote of
at least two-thirds of the directors of Employer then still
in office who were directors on the date of this Agreement.
(d) "Coverage Period" shall mean the period beginning on the date the
Executive's employment with Employer terminates under circumstances described in
Section 1 and ending on the date that is twelve (12) months thereafter.
(e) "Good Cause" shall mean the occurrence of any one of the following
after a Change in Control:
(i) Executive's personal dishonesty;
(ii) Executive's willful misconduct;
(iii) breach of fiduciary duty involving personal profit by
Executive;
(iv) conviction of Executive for any felony or crime involving
moral turpitude;
(v) material intentional breach by Executive of any provision of
this Agreement; or
(vi) unsatisfactory performance by Executive of the duties
designated for Executive as a result of alcohol or drug use
by Executive.
Without limiting the generality of the foregoing, if Executive acted in
good faith and in a manner he or she reasonably believed to be in, and not
opposed to, the best interest of Employer and had no reasonable cause to believe
his or her conduct was unlawful in connection with any action taken by Executive
in connection with his or her duties, it shall not constitute Good Cause.
5
<PAGE> 6
Notwithstanding anything herein to the contrary, in the event Employer
shall terminate the employment of Executive for Good Cause hereunder, Employer
shall give at least 30 days prior written notice to Executive specifying in
detail the reason or reasons for Executive's termination.
(f) "Good Reason" shall exist if after the occurrence of a
Change of Control:
(i) there is a significant change in the nature or the
scope of Executive's authority;
(ii) there is a reduction in Executive's rate of base
salary;
(iii) Employer changes the principal location in which
Executive is required to perform services outside a
thirty-five mile radius of such location without
Executive's consent;
(iv) there is a reasonable determination by Executive that,
as a result of a change in circumstances significantly
affecting his or her position, Executive is unable to
exercise the authority, powers, function or duties
attached to his or her position; or
(v) Employer terminates or amends any Incentive Plan so
that, when considered in the aggregate with any
substitute plan or other substitute compensation, the
Incentive Plan in which Executive is participating
fails to provide Executive with a level of benefits
equivalent to at least 75% of the value of the level of
benefits provided in the aggregate by the terminated or
amended Incentive Plan at the date of such termination
or amendment; provided, however, that Good Reason shall
not be deemed to exist under this clause (v) if the
decline in Incentive Plan compensation is related to a
decline in performance.
(g) "Incentive Plans" shall mean any incentive, bonus, deferred
compensation or similar plan or arrangement currently or hereafter made
available by Employer in which Executive is eligible to participate.
(h) "Welfare Plans" shall mean any health and dental plan, disability
plan, survivor income plan and life insurance plan or arrangement currently or
hereafter made available by Employer in which Executive is eligible to
participate.
15. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original.
16. SEVERABILITY; CONSTRUCTION. In the event any provision of this
Agreement is held illegal or invalid, the remaining provisions of this Agreement
shall not be affected thereby. In the
6
<PAGE> 7
event that Section 4(b) is deemed by any court of competent jurisdiction to
be invalid due to overbreadth, such Section 4(b) shall be construed as narrowly
as necessary to be enforceable.
17. EXCLUSIVITY. The benefits provided Executive pursuant to this
Agreement shall be the exclusive benefits to which Executive is entitled upon
termination of employment following a Change in Control notwithstanding any
other plan or agreement in effect, whether written or oral, between Executive
and Employer providing for the payment of benefits following a termination of
employment.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.
-----------------------------------------------------
Haney A. Long, Jr.
SHONEY'S, INC.
By:
--------------------------------------------------
Title: Chairman, Chief Executive Officer & President
7
<PAGE> 1
AGREEMENT
This Agreement is entered into as of the 15th day of July, 1997, by and
between Shoney's, Inc. ("Employer"), a Tennessee corporation with its principal
place of business at 1727 Elm Hill Pike, Nashville, Tennessee 37210 and Robert
A. Speck ("Executive").
W I T N E S S E T H:
WHEREAS, the Executive is currently employed by Employer as the Senior Vice
President, Strategic Planning of Employer, and Employer and Executive desire to
set forth certain rights and obligations of Employer and Executive in the event
of a change in control of Employer.
NOW, THEREFORE, in consideration of the premises hereof and of the mutual
promises and agreements contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. BENEFITS UPON TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN CONTROL.
If at any time within one year following the occurrence of a Change in Control
(as defined in Section 14 below) (i) the employment of Executive with Employer
is terminated by Employer for any reason other than Good Cause (as defined in
Section 14 below), or (ii) Executive terminates his or her employment with
Employer for Good Reason (as defined in Section 14 below), the following
provisions will apply:
(a) Employer shall pay Executive an amount equal to 200% of
Executive's Base Salary (as defined in Section 14 below). Such
amount will be paid to Executive in equal weekly payments using
Employer's regular payroll periods.
(b) For purposes of any Incentive Plans, Executive shall be given
service credit for all purposes for, and shall be deemed to be an
employee of Employer during the Coverage Period (as defined in
Section 14 below), notwithstanding the fact that Executive is not
an employee of Employer or any Affiliate (as defined in Section
14 below) thereof during the Coverage Period; provided that, if
the terms of any of such Incentive Plans do not permit such
credit or deemed employee treatment, Employer will make payments
and distributions to Executive outside of the Incentive Plans in
amounts substantially equivalent to the payments and
distributions Executive would have received pursuant to the terms
of the Incentive Plans and attributable to such credit or deemed
employee treatment, had such credit or deemed employee treatment
been permitted pursuant to the terms of the Incentive Plans.
(c) During the Coverage Period, Executive and his or her spouse and
family will continue to be covered by all Welfare Plans (as
defined in Section 14 below), maintained by Employer in which
Executive or his or her spouse or family were participating
immediately prior to the date of Executive's
<PAGE> 2
termination as if Executive continued to be an employee of
Employer; provided that, if participation in any one or more of
such Welfare Plans is not possible under the terms thereof,
Employer will provide substantially identical benefits. If,
however, Executive obtains employment with another employer
during the Coverage Period, such coverage shall be provided until
the earlier of: (i) the end of the Coverage Period or (ii) the
date on which the Executive and his or her spouse and family can
be covered under the plans of a new employer without being
excluded from full coverage because of any actual pre-existing
condition. Nothing contained herein is intended to in any way
limit Employee's rights under COBRA.
Compensation under Section 1(a), (b) and (c) hereof is contingent upon
Executive's compliance with Section 4 hereof.
2. SETOFF. With respect to Section 1, no payments or benefits payable to or
with respect to Executive pursuant to this Agreement shall be reduced by any
amount Executive or his or her spouse may earn or receive from employment with
another employer or from any other source, except as expressly provided in
Section 1(c).
3. DEATH. If Executive dies during the Coverage Period:
(a) All amounts not theretofore paid described in Section 1(a) shall be
paid to his or her estate.
(b) The spouse and family of Executive shall, during the remainder of
the Coverage Period, be covered under all Welfare Plans made available by
Employer to Executive or his or her spouse immediately prior to the date of
Executive's death; provided that, if participation in any one or more of such
plans and arrangements is not possible under the terms thereof, Employer will
provide substantially identical benefits.
Any benefits payable under this Section 3 are in addition to any other
benefit due to Executive or his or her spouse or beneficiaries from Employer,
including, but not limited to, payments under any Incentive Plans.
4. RESTRICTIVE COVENANTS.
(a) Confidential Information. Executive agrees not to disclose,
following termination of his or her employment hereunder under the circumstances
described in Section 1 hereof, to any person (other than to any person
specifically authorized by the Board of Directors of Employer) any material
confidential information concerning the Employer or any of its Affiliates,
including, but not limited to, strategic plans, contract terms, financial costs,
pricing terms, sales data or business opportunities whether for existing, new or
developing businesses.
(b) Non-Competition. In the event of any termination of Executive's
employment pursuant to Section 1 hereby, Executive covenants and agrees that,
for a period of
2
<PAGE> 3
one year from the effective date of his or her termination from active
employment with the Employer, Executive will not engage in, own, manage,
operate, control, or participate in any food service business that conducts or
franchises activities which are the same as or similar to the restaurant
concepts and operations of Employer as an employer, employee, principal,
partner, director, agent, or otherwise, directly or indirectly, anywhere in the
United States of America.
(c) Enforcement. Executive and the Employer acknowledge and agree that
any of the covenants contained in this Section 4 may be specifically enforced
through injunctive relief but such right to injunctive relief shall not preclude
the Employer from other remedies which may be available to it.
5. EXECUTIVE ASSIGNMENT. No interest of Executive or his or her spouse or
any other beneficiary under this Agreement, or any right to receive any payment
or distribution hereunder, shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other alienation or encumbrance
of any kind, nor may such interest or right to receive a payment or distribution
be taken, voluntarily or involuntarily, for the satisfaction of the obligations
or debts of, or other claims against, Executive or his or her spouse or other
beneficiary, including claims for alimony, support, separate maintenance, and
claims in bankruptcy proceedings.
6. BENEFITS UNFUNDED. All rights of Executive and his or her spouse or
other beneficiary under this Agreement shall at all times be entirely unfunded
and no provision shall at any time be made with respect to segregating any
assets of Employer for payment of any amounts due hereunder. Neither Executive
nor his or her spouse or other beneficiary shall have any interest in or rights
against any specific assets of Employer, and Executive and his or her spouse or
other beneficiary shall have only the rights of a general unsecured creditor of
Employer.
7. COST OF ENFORCEMENT; INTEREST. In the event that Executive collects any
part or all of the payments or benefits due hereunder or otherwise enforces the
terms of this Agreement following a dispute with Employer regarding the terms of
this Agreement by or through a lawyer or lawyers, Employer will pay all costs of
such collection or enforcement, including reasonable attorneys' and accountants'
fees and other out-of-pocket expenses incurred by the Executive, up to that
point when Employer offers to settle the dispute for an amount equal to the
amount which the Executive actually recovers; provided, however, that if the
Executive violates any provision of Section 4, this Section 7 shall be void and
of no further force and effect.
8. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail to Executive's residence in the case of Executive, or to its principal
office in the case of the Employer and the date of mailing shall be deemed the
date which such notice has been provided.
9. WAIVER OF BREACH. The waiver by either party of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
by the other party.
10. ASSIGNMENT; SUCCESSORS. The rights and obligations of the Employer
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the
3
<PAGE> 4
Employer, including the surviving entity in any merger, consolidation, share
exchange or other transaction described in Section 14(c)(ii) hereof or any
person, entity or group that has acquired a majority of the outstanding shares
of Common Stock (or securities convertible into Common Stock) of Employer or
all, or substantially all, of the assets of Employer. The Executive acknowledges
that the services to be rendered by him or her are unique and personal, and
Executive may not assign any of his or her rights or delegate any of his or her
duties or obligations under this Agreement.
11. ENTIRE AGREEMENT. This instrument contains the entire agreement of the
parties and supersedes all other prior agreements, employment contracts and
understandings, both written and oral, express or implied with respect to the
subject matter of this Agreement and may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
12. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Tennessee, without giving effect to the principles of conflicts of law
thereof.
13. HEADINGS. The sections, subjects and headings of this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
14. DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning set forth in the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(b) "Base Salary" means the higher of (i) Executive's annual base
salary in effect immediately prior to the occurrence of the Change in Control
giving rise of an obligation on the part of Employer to make any payments under
this Agreement or (ii) Executive's annual base salary in effect immediately
prior to the termination of Executive's employment under the circumstances
described in Section 1 above.
(c) "Change in Control" shall mean the occurrence of any of the
following:
(i) if any person or entity, including a "group" as defined in
Section 13(d)(3) of the Exchange Act, other than Employer or
a wholly-owned subsidiary thereof or any employee benefit
plan of Employer or any of its subsidiaries, becomes the
beneficial owner of Employer securities having 50% or more
of the combined voting power of the then outstanding
securities of Employer that may be cast for the election of
directors of Employer; or
(ii) as the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale
of substantially all of the assets or contested election, or
any combination of the foregoing transactions less than a
majority of the combined voting
4
<PAGE> 5
power of the then-outstanding securities of Employer or any
successor corporation or entity entitled to vote generally
in the election of the directors of the Employer or such
other corporation or entity after such transaction is held
in the aggregate by the holders of Employer securities
entitled to vote generally in the election of directors of
Employer immediately prior to such transaction; or
(iii) following the date of this Agreement, individuals who on
such date constitute the Board of Directors of Employer
cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for election
by Employer's shareholders, of each director of Employer
first elected following such date was approved by a vote of
at least two-thirds of the directors of Employer then still
in office who were directors on the date of this Agreement.
(d) "Coverage Period" shall mean the period beginning on the date the
Executive's employment with Employer terminates under circumstances described in
Section 1 and ending on the date that is twelve (12) months thereafter.
(e) "Good Cause" shall mean the occurrence of any one of the following
after a Change in Control:
(i) Executive's personal dishonesty;
(ii) Executive's willful misconduct;
(iii) breach of fiduciary duty involving personal profit by
Executive;
(iv) conviction of Executive for any felony or crime involving
moral turpitude;
(v) material intentional breach by Executive of any provision of
this Agreement; or
(vi) unsatisfactory performance by Executive of the duties
designated for Executive as a result of alcohol or drug use
by Executive.
Without limiting the generality of the foregoing, if Executive acted in
good faith and in a manner he or she reasonably believed to be in, and not
opposed to, the best interest of Employer and had no reasonable cause to believe
his or her conduct was unlawful in connection with any action taken by Executive
in connection with his or her duties, it shall not constitute Good Cause.
5
<PAGE> 6
Notwithstanding anything herein to the contrary, in the event Employer
shall terminate the employment of Executive for Good Cause hereunder, Employer
shall give at least 30 days prior written notice to Executive specifying in
detail the reason or reasons for Executive's termination.
(f) "Good Reason" shall exist if after the occurrence of a Change of
Control:
(i) there is a significant change in the nature or the scope of
Executive's authority;
(ii) there is a reduction in Executive's rate of base salary;
(iii) Employer changes the principal location in which Executive
is required to perform services outside a thirty-five mile
radius of such location without Executive's consent;
(iv) there is a reasonable determination by Executive that, as a
result of a change in circumstances significantly affecting
his or her position, Executive is unable to exercise the
authority, powers, function or duties attached to his or her
position; or
(v) Employer terminates or amends any Incentive Plan so that,
when considered in the aggregate with any substitute plan or
other substitute compensation, the Incentive Plan in which
Executive is participating fails to provide Executive with a
level of benefits equivalent to at least 75% of the value of
the level of benefits provided in the aggregate by the
terminated or amended Incentive Plan at the date of such
termination or amendment; provided, however, that Good
Reason shall not be deemed to exist under this clause (v) if
the decline in Incentive Plan compensation is related to a
decline in performance.
(g) "Incentive Plans" shall mean any incentive, bonus, deferred
compensation or similar plan or arrangement currently or hereafter made
available by Employer in which Executive is eligible to participate.
(h) "Welfare Plans" shall mean any health and dental plan, disability
plan, survivor income plan and life insurance plan or arrangement currently or
hereafter made available by Employer in which Executive is eligible to
participate.
15. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original.
16. SEVERABILITY; CONSTRUCTION. In the event any provision of this
Agreement is held illegal or invalid, the remaining provisions of this Agreement
shall not be affected thereby. In the
6
<PAGE> 7
event that Section 4(b) is deemed by any court of competent jurisdiction to be
invalid due to overbreadth, such Section 4(b) shall be construed as narrowly
as necessary to be enforceable.
17. EXCLUSIVITY. The benefits provided Executive pursuant to this Agreement
shall be the exclusive benefits to which Executive is entitled upon termination
of employment following a Change in Control notwithstanding any other plan or
agreement in effect, whether written or oral, between Executive and Employer
providing for the payment of benefits following a termination of employment.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first written above.
-----------------------------------------------------
Robert A. Speck
SHONEY'S, INC.
By:
--------------------------------------------------
Title: Chairman, Chief Executive Officer & President
7
<PAGE> 1
AGREEMENT
This Agreement is entered into as of the 15th day of July, 1997, by and
between Shoney's, Inc. ("Employer"), a Tennessee corporation with its principal
place of business at 1727 Elm Hill Pike, Nashville, Tennessee 37210 and James W.
Arnett ("Executive").
W I T N E S S E T H:
WHEREAS, the Executive is currently employed by Employer as the Senior Vice
President, Operations of Employer, and Employer and Executive desire to set
forth certain rights and obligations of Employer and Executive in the event of a
change in control of Employer.
NOW, THEREFORE, in consideration of the premises hereof and of the mutual
promises and agreements contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. BENEFITS UPON TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN CONTROL.
If at any time within one year following the occurrence of a Change in Control
(as defined in Section 14 below) (i) the employment of Executive with Employer
is terminated by Employer for any reason other than Good Cause (as defined in
Section 14 below), or (ii) Executive terminates his or her employment with
Employer for Good Reason (as defined in Section 14 below), the following
provisions will apply:
(a) Employer shall pay Executive an amount equal to 200% of
Executive's Base Salary (as defined in Section 14 below). Such
amount will be paid to Executive in equal weekly payments using
Employer's regular payroll periods.
(b) For purposes of any Incentive Plans, Executive shall be given
service credit for all purposes for, and shall be deemed to be an
employee of Employer during the Coverage Period (as defined in
Section 14 below), notwithstanding the fact that Executive is not
an employee of Employer or any Affiliate (as defined in Section
14 below) thereof during the Coverage Period; provided that, if
the terms of any of such Incentive Plans do not permit such
credit or deemed employee treatment, Employer will make payments
and distributions to Executive outside of the Incentive Plans in
amounts substantially equivalent to the payments and
distributions Executive would have received pursuant to the terms
of the Incentive Plans and attributable to such credit or deemed
employee treatment, had such credit or deemed employee treatment
been permitted pursuant to the terms of the Incentive Plans.
(c) During the Coverage Period, Executive and his or her spouse and
family will continue to be covered by all Welfare Plans (as
defined in Section 14 below), maintained by Employer in which
Executive or his or her spouse or family were participating
immediately prior to the date of Executive's
<PAGE> 2
termination as if Executive continued to be an employee of
Employer; provided that, if participation in any one or more of
such Welfare Plans is not possible under the terms thereof,
Employer will provide substantially identical benefits. If,
however, Executive obtains employment with another employer
during the Coverage Period, such coverage shall be provided until
the earlier of: (i) the end of the Coverage Period or (ii) the
date on which the Executive and his or her spouse and family can
be covered under the plans of a new employer without being
excluded from full coverage because of any actual pre-existing
condition. Nothing contained herein is intended to in any way
limit Employee's rights under COBRA.
Compensation under Section 1(a), (b) and (c) hereof is contingent upon
Executive's compliance with Section 4 hereof.
2. SETOFF. With respect to Section 1, no payments or benefits payable to or
with respect to Executive pursuant to this Agreement shall be reduced by any
amount Executive or his or her spouse may earn or receive from employment with
another employer or from any other source, except as expressly provided in
Section 1(c).
3. DEATH. If Executive dies during the Coverage Period:
(a) All amounts not theretofore paid described in Section 1(a) shall be
paid to his or her estate.
(b) The spouse and family of Executive shall, during the remainder of
the Coverage Period, be covered under all Welfare Plans made available by
Employer to Executive or his or her spouse immediately prior to the date of
Executive's death; provided that, if participation in any one or more of such
plans and arrangements is not possible under the terms thereof, Employer will
provide substantially identical benefits.
Any benefits payable under this Section 3 are in addition to any other
benefit due to Executive or his or her spouse or beneficiaries from Employer,
including, but not limited to, payments under any Incentive Plans.
4. RESTRICTIVE COVENANTS.
(a) Confidential Information. Executive agrees not to disclose,
following termination of his or her employment hereunder under the circumstances
described in Section 1 hereof, to any person (other than to any person
specifically authorized by the Board of Directors of Employer) any material
confidential information concerning the Employer or any of its Affiliates,
including, but not limited to, strategic plans, contract terms, financial costs,
pricing terms, sales data or business opportunities whether for existing, new or
developing businesses.
(b) Non-Competition. In the event of any termination of Executive's
employment pursuant to Section 1 hereby, Executive covenants and agrees that,
for a period of
2
<PAGE> 3
one year from the effective date of his or her termination from active
employment with the Employer, Executive will not engage in, own, manage,
operate, control, or participate in any food service business that conducts or
franchises activities which are the same as or similar to the restaurant
concepts and operations of Employer as an employer, employee, principal,
partner, director, agent, or otherwise, directly or indirectly, anywhere in the
United States of America.
(c) Enforcement. Executive and the Employer acknowledge and agree that
any of the covenants contained in this Section 4 may be specifically enforced
through injunctive relief but such right to injunctive relief shall not preclude
the Employer from other remedies which may be available to it.
5. EXECUTIVE ASSIGNMENT. No interest of Executive or his or her spouse or
any other beneficiary under this Agreement, or any right to receive any payment
or distribution hereunder, shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other alienation or encumbrance
of any kind, nor may such interest or right to receive a payment or distribution
be taken, voluntarily or involuntarily, for the satisfaction of the obligations
or debts of, or other claims against, Executive or his or her spouse or other
beneficiary, including claims for alimony, support, separate maintenance, and
claims in bankruptcy proceedings.
6. BENEFITS UNFUNDED. All rights of Executive and his or her spouse or
other beneficiary under this Agreement shall at all times be entirely unfunded
and no provision shall at any time be made with respect to segregating any
assets of Employer for payment of any amounts due hereunder. Neither Executive
nor his or her spouse or other beneficiary shall have any interest in or rights
against any specific assets of Employer, and Executive and his or her spouse or
other beneficiary shall have only the rights of a general unsecured creditor of
Employer.
7. COST OF ENFORCEMENT; INTEREST. In the event that Executive collects any
part or all of the payments or benefits due hereunder or otherwise enforces the
terms of this Agreement following a dispute with Employer regarding the terms of
this Agreement by or through a lawyer or lawyers, Employer will pay all costs of
such collection or enforcement, including reasonable attorneys' and accountants'
fees and other out-of-pocket expenses incurred by the Executive, up to that
point when Employer offers to settle the dispute for an amount equal to the
amount which the Executive actually recovers; provided, however, that if the
Executive violates any provision of Section 4, this Section 7 shall be void and
of no further force and effect.
8. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail to Executive's residence in the case of Executive, or to its principal
office in the case of the Employer and the date of mailing shall be deemed the
date which such notice has been provided.
9. WAIVER OF BREACH. The waiver by either party of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
by the other party.
10. ASSIGNMENT; SUCCESSORS. The rights and obligations of the Employer
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the
3
<PAGE> 4
Employer, including the surviving entity in any merger, consolidation, share
exchange or other transaction described in Section 14(c)(ii) hereof or any
person, entity or group that has acquired a majority of the outstanding shares
of Common Stock (or securities convertible into Common Stock) of Employer or
all, or substantially all, of the assets of Employer. The Executive acknowledges
that the services to be rendered by him or her are unique and personal, and
Executive may not assign any of his or her rights or delegate any of his or her
duties or obligations under this Agreement.
11. ENTIRE AGREEMENT. This instrument contains the entire agreement of the
parties and supersedes all other prior agreements, employment contracts and
understandings, both written and oral, express or implied with respect to the
subject matter of this Agreement and may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
12. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Tennessee, without giving effect to the principles of conflicts of law
thereof.
13. HEADINGS. The sections, subjects and headings of this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
14. DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning set forth in the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(b) "Base Salary" means the higher of (i) Executive's annual base
salary in effect immediately prior to the occurrence of the Change in Control
giving rise of an obligation on the part of Employer to make any payments under
this Agreement or (ii) Executive's annual base salary in effect immediately
prior to the termination of Executive's employment under the circumstances
described in Section 1 above.
(c) "Change in Control" shall mean the occurrence of any of the
following:
(i) if any person or entity, including a "group" as defined in
Section 13(d)(3) of the Exchange Act, other than Employer or
a wholly-owned subsidiary thereof or any employee benefit
plan of Employer or any of its subsidiaries, becomes the
beneficial owner of Employer securities having 50% or more
of the combined voting power of the then outstanding
securities of Employer that may be cast for the election of
directors of Employer; or
(ii) as the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale
of substantially all of the assets or contested election, or
any combination of the foregoing transactions less than a
majority of the combined voting
4
<PAGE> 5
power of the then-outstanding securities of Employer or any
successor corporation or entity entitled to vote generally
in the election of the directors of the Employer or such
other corporation or entity after such transaction is held
in the aggregate by the holders of Employer securities
entitled to vote generally in the election of directors of
Employer immediately prior to such transaction; or
(iii) following the date of this Agreement, individuals who on
such date constitute the Board of Directors of Employer
cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for election
by Employer's shareholders, of each director of Employer
first elected following such date was approved by a vote of
at least two-thirds of the directors of Employer then still
in office who were directors on the date of this Agreement.
(d) "Coverage Period" shall mean the period beginning on the date the
Executive's employment with Employer terminates under circumstances described in
Section 1 and ending on the date that is twelve (12) months thereafter.
(e) "Good Cause" shall mean the occurrence of any one of the following
after a Change in Control:
(i) Executive's personal dishonesty;
(ii) Executive's willful misconduct;
(iii) breach of fiduciary duty involving personal profit by
Executive;
(iv) conviction of Executive for any felony or crime involving
moral turpitude;
(v) material intentional breach by Executive of any provision of
this Agreement; or
(vi) unsatisfactory performance by Executive of the duties
designated for Executive as a result of alcohol or drug use
by Executive.
Without limiting the generality of the foregoing, if Executive acted in
good faith and in a manner he or she reasonably believed to be in, and not
opposed to, the best interest of Employer and had no reasonable cause to believe
his or her conduct was unlawful in connection with any action taken by Executive
in connection with his or her duties, it shall not constitute Good Cause.
5
<PAGE> 6
Notwithstanding anything herein to the contrary, in the event Employer
shall terminate the employment of Executive for Good Cause hereunder, Employer
shall give at least 30 days prior written notice to Executive specifying in
detail the reason or reasons for Executive's termination.
(f) "Good Reason" shall exist if after the occurrence of a Change of
Control:
(i) there is a significant change in the nature or the scope of
Executive's authority;
(ii) there is a reduction in Executive's rate of base salary;
(iii) Employer changes the principal location in which Executive
is required to perform services outside a thirty-five mile
radius of such location without Executive's consent;
(iv) there is a reasonable determination by Executive that, as a
result of a change in circumstances significantly affecting
his or her position, Executive is unable to exercise the
authority, powers, function or duties attached to his or her
position; or
(v) Employer terminates or amends any Incentive Plan so that,
when considered in the aggregate with any substitute plan or
other substitute compensation, the Incentive Plan in which
Executive is participating fails to provide Executive with a
level of benefits equivalent to at least 75% of the value of
the level of benefits provided in the aggregate by the
terminated or amended Incentive Plan at the date of such
termination or amendment; provided, however, that Good
Reason shall not be deemed to exist under this clause (v) if
the decline in Incentive Plan compensation is related to a
decline in performance.
(g) "Incentive Plans" shall mean any incentive, bonus, deferred
compensation or similar plan or arrangement currently or hereafter made
available by Employer in which Executive is eligible to participate.
(h) "Welfare Plans" shall mean any health and dental plan, disability
plan, survivor income plan and life insurance plan or arrangement currently or
hereafter made available by Employer in which Executive is eligible to
participate.
15. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original.
16. SEVERABILITY; CONSTRUCTION. In the event any provision of this
Agreement is held illegal or invalid, the remaining provisions of this Agreement
shall not be affected thereby. In the
6
<PAGE> 7
event that Section 4(b) is deemed by any court of competent jurisdiction to be
invalid due to overbreadth, such Section 4(b) shall be construed as narrowly as
necessary to be enforceable.
17. EXCLUSIVITY. The benefits provided Executive pursuant to this Agreement
shall be the exclusive benefits to which Executive is entitled upon termination
of employment following a Change in Control notwithstanding any other plan or
agreement in effect, whether written or oral, between Executive and Employer
providing for the payment of benefits following a termination of employment.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first written above.
-----------------------------------------------------
James W. Arnett
SHONEY'S, INC.
By:
--------------------------------------------------
Title: Chairman, Chief Executive Officer & President
7
<PAGE> 1
AGREEMENT
This Agreement is entered into as of the 15th day of July, 1997, by and
between Shoney's, Inc. ("Employer"), a Tennessee corporation with its principal
place of business at 1727 Elm Hill Pike, Nashville, Tennessee 37210 and David A.
Jordan ("Executive").
W I T N E S S E T H:
WHEREAS, the Executive is currently employed by Employer as the Senior
Vice President, Business Development of Employer, and Employer and Executive
desire to set forth certain rights and obligations of Employer and Executive in
the event of a change in control of Employer.
NOW, THEREFORE, in consideration of the premises hereof and of the
mutual promises and agreements contained herein, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. BENEFITS UPON TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN
CONTROL. If at any time within one year following the occurrence of a Change in
Control (as defined in Section 14 below) (i) the employment of Executive with
Employer is terminated by Employer for any reason other than Good Cause (as
defined in Section 14 below), or (ii) Executive terminates his or her employment
with Employer for Good Reason (as defined in Section 14 below), the following
provisions will apply:
(a) Employer shall pay Executive an amount equal to 200% of
Executive's Base Salary (as defined in Section 14 below). Such
amount will be paid to Executive in equal weekly payments using
Employer's regular payroll periods.
(b) For purposes of any Incentive Plans, Executive shall be given
service credit for all purposes for, and shall be deemed to be an
employee of Employer during the Coverage Period (as defined in
Section 14 below), notwithstanding the fact that Executive is not
an employee of Employer or any Affiliate (as defined in Section
14 below) thereof during the Coverage Period; provided that, if
the terms of any of such Incentive Plans do not permit such
credit or deemed employee treatment, Employer will make payments
and distributions to Executive outside of the Incentive Plans in
amounts substantially equivalent to the payments and
distributions Executive would have received pursuant to the terms
of the Incentive Plans and attributable to such credit or deemed
employee treatment, had such credit or deemed employee treatment
been permitted pursuant to the terms of the Incentive Plans.
(c) During the Coverage Period, Executive and his or her spouse and
family will continue to be covered by all Welfare Plans (as
defined in Section 14 below), maintained by Employer in which
Executive or his or her spouse
<PAGE> 2
or family were participating immediately prior to the date of
Executive's termination as if Executive continued to be an
employee of Employer; provided that, if participation in any one
or more of such Welfare Plans is not possible under the terms
thereof, Employer will provide substantially identical benefits.
If, however, Executive obtains employment with another employer
during the Coverage Period, such coverage shall be provided until
the earlier of: (i) the end of the Coverage Period or (ii) the
date on which the Executive and his or her spouse and family can
be covered under the plans of a new employer without being
excluded from full coverage because of any actual pre-existing
condition. Nothing contained herein is intended to in any way
limit Employee's rights under COBRA.
Compensation under Section 1(a), (b) and (c) hereof is contingent upon
Executive's compliance with Section 4 hereof.
2. SETOFF. With respect to Section 1, no payments or benefits payable
to or with respect to Executive pursuant to this Agreement shall be reduced by
any amount Executive or his or her spouse may earn or receive from employment
with another employer or from any other source, except as expressly provided in
Section 1(c).
3. DEATH. If Executive dies during the Coverage Period:
(a) All amounts not theretofore paid described in Section 1(a) shall
be paid to his or her estate.
(b) The spouse and family of Executive shall, during the
remainder of the Coverage Period, be covered under all Welfare Plans made
available by Employer to Executive or his or her spouse immediately prior to the
date of Executive's death; provided that, if participation in any one or more of
such plans and arrangements is not possible under the terms thereof, Employer
will provide substantially identical benefits.
Any benefits payable under this Section 3 are in addition to any other
benefit due to Executive or his or her spouse or beneficiaries from Employer,
including, but not limited to, payments under any Incentive Plans.
4. RESTRICTIVE COVENANTS.
(a) Confidential Information. Executive agrees not to disclose,
following termination of his or her employment hereunder under the circumstances
described in Section 1 hereof, to any person (other than to any person
specifically authorized by the Board of Directors of Employer) any material
confidential information concerning the Employer or any of its Affiliates,
including, but not limited to, strategic plans, contract terms, financial costs,
pricing terms, sales data or business opportunities whether for existing, new or
developing businesses.
2
<PAGE> 3
(b) Non-Competition. In the event of any termination of Executive's
employment pursuant to Section 1 hereby, Executive covenants and agrees that,
for a period of one year from the effective date of his or her termination from
active employment with the Employer, Executive will not engage in, own, manage,
operate, control, or participate in any food service business that conducts or
franchises activities which are the same as or similar to the restaurant
concepts and operations of Employer as an employer, employee, principal,
partner, director, agent, or otherwise, directly or indirectly, anywhere in the
United States of America.
(c) Enforcement. Executive and the Employer acknowledge and
agree that any of the covenants contained in this Section 4 may be specifically
enforced through injunctive relief but such right to injunctive relief shall not
preclude the Employer from other remedies which may be available to it.
5. EXECUTIVE ASSIGNMENT. No interest of Executive or his or her spouse
or any other beneficiary under this Agreement, or any right to receive any
payment or distribution hereunder, shall be subject in any manner to sale,
transfer, assignment, pledge, attachment, garnishment, or other alienation or
encumbrance of any kind, nor may such interest or right to receive a payment or
distribution be taken, voluntarily or involuntarily, for the satisfaction of the
obligations or debts of, or other claims against, Executive or his or her spouse
or other beneficiary, including claims for alimony, support, separate
maintenance, and claims in bankruptcy proceedings.
6. BENEFITS UNFUNDED. All rights of Executive and his or her spouse or
other beneficiary under this Agreement shall at all times be entirely unfunded
and no provision shall at any time be made with respect to segregating any
assets of Employer for payment of any amounts due hereunder. Neither Executive
nor his or her spouse or other beneficiary shall have any interest in or rights
against any specific assets of Employer, and Executive and his or her spouse or
other beneficiary shall have only the rights of a general unsecured creditor of
Employer.
7. COST OF ENFORCEMENT; INTEREST. In the event that Executive collects
any part or all of the payments or benefits due hereunder or otherwise enforces
the terms of this Agreement following a dispute with Employer regarding the
terms of this Agreement by or through a lawyer or lawyers, Employer will pay all
costs of such collection or enforcement, including reasonable attorneys' and
accountants' fees and other out-of-pocket expenses incurred by the Executive, up
to that point when Employer offers to settle the dispute for an amount equal to
the amount which the Executive actually recovers; provided, however, that if the
Executive violates any provision of Section 4, this Section 7 shall be void and
of no further force and effect.
8. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail to Executive's residence in the case of Executive, or to its principal
office in the case of the Employer and the date of mailing shall be deemed the
date which such notice has been provided.
9. WAIVER OF BREACH. The waiver by either party of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach by the other party.
3
<PAGE> 4
10. ASSIGNMENT; SUCCESSORS. The rights and obligations of the Employer
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Employer, including the surviving entity in any
merger, consolidation, share exchange or other transaction described in Section
14(c)(ii) hereof or any person, entity or group that has acquired a majority of
the outstanding shares of Common Stock (or securities convertible into Common
Stock) of Employer or all, or substantially all, of the assets of Employer. The
Executive acknowledges that the services to be rendered by him or her are unique
and personal, and Executive may not assign any of his or her rights or delegate
any of his or her duties or obligations under this Agreement.
11. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties and supersedes all other prior agreements, employment contracts and
understandings, both written and oral, express or implied with respect to the
subject matter of this Agreement and may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
12. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Tennessee, without giving effect to the principles of conflicts of law
thereof.
13. HEADINGS. The sections, subjects and headings of this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
14. DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning set forth in the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(b) "Base Salary" means the higher of (i) Executive's annual
base salary in effect immediately prior to the occurrence of the Change in
Control giving rise of an obligation on the part of Employer to make any
payments under this Agreement or (ii) Executive's annual base salary in effect
immediately prior to the termination of Executive's employment under the
circumstances described in Section 1 above.
(c) "Change in Control" shall mean the occurrence of any of the
following:
(i) if any person or entity, including a "group" as defined in
Section 13(d)(3) of the Exchange Act, other than Employer
or a wholly-owned subsidiary thereof or any employee
benefit plan of Employer or any of its subsidiaries,
becomes the beneficial owner of Employer securities having
50% or more of the combined voting power of the then
outstanding securities of Employer that may be cast for
the election of directors of Employer; or
(ii) as the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale
of substantially all
4
<PAGE> 5
of the assets or contested election, or any combination of
the foregoing transactions less than a majority of the
combined voting power of the then-outstanding securities of
Employer or any successor corporation or entity entitled to
vote generally in the election of the directors of the
Employer or such other corporation or entity after such
transaction is held in the aggregate by the holders of
Employer securities entitled to vote generally in the
election of directors of Employer immediately prior to such
transaction; or
(iii) following the date of this Agreement, individuals who on
such date constitute the Board of Directors of Employer
cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for
election by Employer's shareholders, of each director of
Employer first elected following such date was approved by
a vote of at least two-thirds of the directors of Employer
then still in office who were directors on the date of this
Agreement.
(d) "Coverage Period" shall mean the period beginning on the date the
Executive's employment with Employer terminates under circumstances described in
Section 1 and ending on the date that is twelve (12) months thereafter.
(e) "Good Cause" shall mean the occurrence of any one of the following
after a Change in Control:
(i) Executive's personal dishonesty;
(ii) Executive's willful misconduct;
(iii) breach of fiduciary duty involving personal profit by
Executive;
(iv) conviction of Executive for any felony or crime involving
moral turpitude;
(v) material intentional breach by Executive of any provision
of this Agreement; or
(vi) unsatisfactory performance by Executive of the duties
designated for Executive as a result of alcohol or drug
use by Executive.
Without limiting the generality of the foregoing, if Executive acted in
good faith and in a manner he or she reasonably believed to be in, and not
opposed to, the best interest of Employer and had no reasonable cause to believe
his or her conduct was unlawful in connection with any action taken by Executive
in connection with his or her duties, it shall not constitute Good Cause.
5
<PAGE> 6
Notwithstanding anything herein to the contrary, in the event Employer
shall terminate the employment of Executive for Good Cause hereunder, Employer
shall give at least 30 days prior written notice to Executive specifying in
detail the reason or reasons for Executive's termination.
(f) "Good Reason" shall exist if after the occurrence of a Change of
Control:
(i) there is a significant change in the nature or the scope
of Executive's authority;
(ii) there is a reduction in Executive's rate of base salary;
(iii) Employer changes the principal location in which Executive
is required to perform services outside a thirty-five mile
radius of such location without Executive's consent;
(iv) there is a reasonable determination by Executive that, as
a result of a change in circumstances significantly
affecting his or her position, Executive is unable to
exercise the authority, powers, function or duties attached
to his or her position; or
(v) Employer terminates or amends any Incentive Plan so
that, when considered in the aggregate with any substitute
plan or other substitute compensation, the Incentive Plan
in which Executive is participating fails to provide
Executive with a level of benefits equivalent to at least
75% of the value of the level of benefits provided in the
aggregate by the terminated or amended Incentive Plan at
the date of such termination or amendment; provided,
however, that Good Reason shall not be deemed to exist
under this clause (v) if the decline in Incentive Plan
compensation is related to a decline in performance.
(g) "Incentive Plans" shall mean any incentive, bonus, deferred
compensation or similar plan or arrangement currently or hereafter made
available by Employer in which Executive is eligible to participate.
(h) "Welfare Plans" shall mean any health and dental plan, disability
plan, survivor income plan and life insurance plan or arrangement currently or
hereafter made available by Employer in which Executive is eligible to
participate.
15. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original.
16. SEVERABILITY; CONSTRUCTION. In the event any provision of this
Agreement is held illegal or invalid, the remaining provisions of this Agreement
shall not be affected thereby. In the
6
<PAGE> 7
event that Section 4(b) is deemed by any court of competent jurisdiction to
be invalid due to overbreadth, such Section 4(b) shall be construed as narrowly
as necessary to be enforceable.
17. EXCLUSIVITY. The benefits provided Executive pursuant to this
Agreement shall be the exclusive benefits to which Executive is entitled upon
termination of employment following a Change in Control notwithstanding any
other plan or agreement in effect, whether written or oral, between Executive
and Employer providing for the payment of benefits following a termination of
employment.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.
----------------------------------------------------
David A. Jordan
SHONEY'S, INC.
By:
-------------------------------------------------
Title: Chairman, Chief Executive Officer & President
7
<PAGE> 1
AGREEMENT
This Agreement is entered into as of the 15th day of July, 1997, by and
between Shoney's, Inc. ("Employer"), a Tennessee corporation with its principal
place of business at 1727 Elm Hill Pike, Nashville, Tennessee 37210 and Ronald
E. Walker ("Executive").
W I T N E S S E T H:
WHEREAS, the Executive is currently employed by Employer as the
Division President, Captain D's of Employer, and Employer and Executive desire
to set forth certain rights and obligations of Employer and Executive in the
event of a change in control of Employer.
NOW, THEREFORE, in consideration of the premises hereof and of the
mutual promises and agreements contained herein, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. BENEFITS UPON TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN
CONTROL. If at any time within one year following the occurrence of a Change in
Control (as defined in Section 14 below) (i) the employment of Executive with
Employer is terminated by Employer for any reason other than Good Cause (as
defined in Section 14 below), or (ii) Executive terminates his or her employment
with Employer for Good Reason (as defined in Section 14 below), the following
provisions will apply:
(a) Employer shall pay Executive an amount equal to 200% of
Executive's Base Salary (as defined in Section 14 below). Such
amount will be paid to Executive in equal weekly payments using
Employer's regular payroll periods.
(b) For purposes of any Incentive Plans, Executive shall be given
service credit for all purposes for, and shall be deemed to be an
employee of Employer during the Coverage Period (as defined in
Section 14 below), notwithstanding the fact that Executive is not
an employee of Employer or any Affiliate (as defined in Section
14 below) thereof during the Coverage Period; provided that, if
the terms of any of such Incentive Plans do not permit such
credit or deemed employee treatment, Employer will make payments
and distributions to Executive outside of the Incentive Plans in
amounts substantially equivalent to the payments and
distributions Executive would have received pursuant to the terms
of the Incentive Plans and attributable to such credit or deemed
employee treatment, had such credit or deemed employee treatment
been permitted pursuant to the terms of the Incentive Plans.
(c) During the Coverage Period, Executive and his or her spouse and
family will continue to be covered by all Welfare Plans (as
defined in Section 14 below), maintained by Employer in which
Executive or his or her spouse or family were participating
immediately prior to the date of Executive's
<PAGE> 2
termination as if Executive continued to be an employee of
Employer; provided that, if participation in any one or more of
such Welfare Plans is not possible under the terms thereof,
Employer will provide substantially identical benefits. If,
however, Executive obtains employment with another employer
during the Coverage Period, such coverage shall be provided until
the earlier of: (i) the end of the Coverage Period or (ii) the
date on which the Executive and his or her spouse and family can
be covered under the plans of a new employer without being
excluded from full coverage because of any actual pre-existing
condition. Nothing contained herein is intended to in any way
limit Employee's rights under COBRA.
Compensation under Section 1(a), (b) and (c) hereof is contingent upon
Executive's compliance with Section 4 hereof.
2. SETOFF. With respect to Section 1, no payments or benefits payable
to or with respect to Executive pursuant to this Agreement shall be reduced by
any amount Executive or his or her spouse may earn or receive from employment
with another employer or from any other source, except as expressly provided in
Section 1(c).
3. DEATH. If Executive dies during the Coverage Period:
(a) All amounts not theretofore paid described in Section 1(a) shall
be paid to his or her estate.
(b) The spouse and family of Executive shall, during the remainder
of the Coverage Period, be covered under all Welfare Plans made available by
Employer to Executive or his or her spouse immediately prior to the date of
Executive's death; provided that, if participation in any one or more of such
plans and arrangements is not possible under the terms thereof, Employer will
provide substantially identical benefits.
Any benefits payable under this Section 3 are in addition to any other
benefit due to Executive or his or her spouse or beneficiaries from Employer,
including, but not limited to, payments under any Incentive Plans.
4. RESTRICTIVE COVENANTS.
(a) Confidential Information. Executive agrees not to disclose,
following termination of his or her employment hereunder under the circumstances
described in Section 1 hereof, to any person (other than to any person
specifically authorized by the Board of Directors of Employer) any material
confidential information concerning the Employer or any of its Affiliates,
including, but not limited to, strategic plans, contract terms, financial costs,
pricing terms, sales data or business opportunities whether for existing, new or
developing businesses.
(b) Non-Competition. In the event of any termination of Executive's
employment pursuant to Section 1 hereby, Executive covenants and agrees that,
for a period of
2
<PAGE> 3
one year from the effective date of his or her termination from active
employment with the Employer, Executive will not engage in, own, manage,
operate, control, or participate in any food service business that conducts or
franchises activities which are the same as or similar to the restaurant
concepts and operations of Employer as an employer, employee, principal,
partner, director, agent, or otherwise, directly or indirectly, anywhere in the
United States of America.
(c) Enforcement. Executive and the Employer acknowledge and
agree that any of the covenants contained in this Section 4 may be specifically
enforced through injunctive relief but such right to injunctive relief shall not
preclude the Employer from other remedies which may be available to it.
5. EXECUTIVE ASSIGNMENT. No interest of Executive or his or her spouse
or any other beneficiary under this Agreement, or any right to receive any
payment or distribution hereunder, shall be subject in any manner to sale,
transfer, assignment, pledge, attachment, garnishment, or other alienation or
encumbrance of any kind, nor may such interest or right to receive a payment or
distribution be taken, voluntarily or involuntarily, for the satisfaction of the
obligations or debts of, or other claims against, Executive or his or her spouse
or other beneficiary, including claims for alimony, support, separate
maintenance, and claims in bankruptcy proceedings.
6. BENEFITS UNFUNDED. All rights of Executive and his or her spouse or
other beneficiary under this Agreement shall at all times be entirely unfunded
and no provision shall at any time be made with respect to segregating any
assets of Employer for payment of any amounts due hereunder. Neither Executive
nor his or her spouse or other beneficiary shall have any interest in or rights
against any specific assets of Employer, and Executive and his or her spouse or
other beneficiary shall have only the rights of a general unsecured creditor of
Employer.
7. COST OF ENFORCEMENT; INTEREST. In the event that Executive collects
any part or all of the payments or benefits due hereunder or otherwise enforces
the terms of this Agreement following a dispute with Employer regarding the
terms of this Agreement by or through a lawyer or lawyers, Employer will pay all
costs of such collection or enforcement, including reasonable attorneys' and
accountants' fees and other out-of-pocket expenses incurred by the Executive, up
to that point when Employer offers to settle the dispute for an amount equal to
the amount which the Executive actually recovers; provided, however, that if the
Executive violates any provision of Section 4, this Section 7 shall be void and
of no further force and effect.
8. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail to Executive's residence in the case of Executive, or to its principal
office in the case of the Employer and the date of mailing shall be deemed the
date which such notice has been provided.
9. WAIVER OF BREACH. The waiver by either party of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach by the other party.
10. ASSIGNMENT; SUCCESSORS. The rights and obligations of the Employer
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the
3
<PAGE> 4
Employer, including the surviving entity in any merger, consolidation, share
exchange or other transaction described in Section 14(c)(ii) hereof or any
person, entity or group that has acquired a majority of the outstanding shares
of Common Stock (or securities convertible into Common Stock) of Employer or
all, or substantially all, of the assets of Employer. The Executive acknowledges
that the services to be rendered by him or her are unique and personal, and
Executive may not assign any of his or her rights or delegate any of his or her
duties or obligations under this Agreement.
11. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties and supersedes all other prior agreements, employment contracts and
understandings, both written and oral, express or implied with respect to the
subject matter of this Agreement and may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
12. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Tennessee, without giving effect to the principles of conflicts of law
thereof.
13. HEADINGS. The sections, subjects and headings of this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
14. DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning set forth in the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(b) "Base Salary" means the higher of (i) Executive's annual
base salary in effect immediately prior to the occurrence of the Change in
Control giving rise of an obligation on the part of Employer to make any
payments under this Agreement or (ii) Executive's annual base salary in effect
immediately prior to the termination of Executive's employment under the
circumstances described in Section 1 above.
(c) "Change in Control" shall mean the occurrence of any of the
following:
(i) if any person or entity, including a "group" as defined in
Section 13(d)(3) of the Exchange Act, other than Employer or
a wholly-owned subsidiary thereof or any employee benefit
plan of Employer or any of its subsidiaries, becomes the
beneficial owner of Employer securities having 50% or more
of the combined voting power of the then outstanding
securities of Employer that may be cast for the election of
directors of Employer; or
(ii) as the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale
of substantially all of the assets or contested election, or
any combination of the foregoing transactions less than a
majority of the combined voting
4
<PAGE> 5
power of the then-outstanding securities of Employer or any
successor corporation or entity entitled to vote generally
in the election of the directors of the Employer or such
other corporation or entity after such transaction is held
in the aggregate by the holders of Employer securities
entitled to vote generally in the election of directors of
Employer immediately prior to such transaction; or
(iii) following the date of this Agreement, individuals who on
such date constitute the Board of Directors of Employer
cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for election
by Employer's shareholders, of each director of Employer
first elected following such date was approved by a vote of
at least two-thirds of the directors of Employer then still
in office who were directors on the date of this Agreement.
(d) "Coverage Period" shall mean the period beginning on the date the
Executive's employment with Employer terminates under circumstances described in
Section 1 and ending on the date that is twelve (12) months thereafter.
(e) "Good Cause" shall mean the occurrence of any one of the following
after a Change in Control:
(i) Executive's personal dishonesty;
(ii) Executive's willful misconduct;
(iii) breach of fiduciary duty involving personal profit by
Executive;
(iv) conviction of Executive for any felony or crime involving
moral turpitude;
(v) material intentional breach by Executive of any provision
of this Agreement; or
(vi) unsatisfactory performance by Executive of the duties
designated for Executive as a result of alcohol or drug use
by Executive.
Without limiting the generality of the foregoing, if Executive acted in
good faith and in a manner he or she reasonably believed to be in, and not
opposed to, the best interest of Employer and had no reasonable cause to believe
his or her conduct was unlawful in connection with any action taken by Executive
in connection with his or her duties, it shall not constitute Good Cause.
5
<PAGE> 6
Notwithstanding anything herein to the contrary, in the event Employer
shall terminate the employment of Executive for Good Cause hereunder, Employer
shall give at least 30 days prior written notice to Executive specifying in
detail the reason or reasons for Executive's termination.
(f) "Good Reason" shall exist if after the occurrence of a Change of
Control:
(i) there is a significant change in the nature or the scope of
Executive's authority;
(ii) there is a reduction in Executive's rate of base salary;
(iii) Employer changes the principal location in which Executive
is required to perform services outside a thirty-five mile
radius of such location without Executive's consent;
(iv) there is a reasonable determination by Executive that, as a
result of a change in circumstances significantly affecting
his or her position, Executive is unable to exercise the
authority, powers, function or duties attached to his or her
position; or
(v) Employer terminates or amends any Incentive Plan so that,
when considered in the aggregate with any substitute plan or
other substitute compensation, the Incentive Plan in which
Executive is participating fails to provide Executive with a
level of benefits equivalent to at least 75% of the value of
the level of benefits provided in the aggregate by the
terminated or amended Incentive Plan at the date of such
termination or amendment; provided, however, that Good
Reason shall not be deemed to exist under this clause (v) if
the decline in Incentive Plan compensation is related to a
decline in performance.
(g) "Incentive Plans" shall mean any incentive, bonus, deferred
compensation or similar plan or arrangement currently or hereafter made
available by Employer in which Executive is eligible to participate.
(h) "Welfare Plans" shall mean any health and dental plan,
disability plan, survivor income plan and life insurance plan or arrangement
currently or hereafter made available by Employer in which Executive is eligible
to participate.
15. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original.
16. SEVERABILITY; CONSTRUCTION. In the event any provision of this
Agreement is held illegal or invalid, the remaining provisions of this Agreement
shall not be affected thereby. In the
6
<PAGE> 7
event that Section 4(b) is deemed by any court of competent jurisdiction to
be invalid due to overbreadth, such Section 4(b) shall be construed as narrowly
as necessary to be enforceable.
17. EXCLUSIVITY. The benefits provided Executive pursuant to this
Agreement shall be the exclusive benefits to which Executive is entitled upon
termination of employment following a Change in Control notwithstanding any
other plan or agreement in effect, whether written or oral, between Executive
and Employer providing for the payment of benefits following a termination of
employment.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.
----------------------------------------------------
Ronald E. Walker
SHONEY'S, INC.
By:
------------------------------------------------
Title: Chairman, Chief Executive Officer & President
7
<PAGE> 1
AGREEMENT
This Agreement is entered into as of the 15th day of July, 1997, by and
between Shoney's, Inc. ("Employer"), a Tennessee corporation with its principal
place of business at 1727 Elm Hill Pike, Nashville, Tennessee 37210 and F. E.
McDaniel, Jr. ("Executive").
W I T N E S S E T H:
WHEREAS, the Executive is currently employed by Employer as the Senior
Vice President, Secretary & Treasurer of Employer, and Employer and Executive
desire to set forth certain rights and obligations of Employer and Executive in
the event of a change in control of Employer.
NOW, THEREFORE, in consideration of the premises hereof and of the
mutual promises and agreements contained herein, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. BENEFITS UPON TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN
CONTROL. If at any time within one year following the occurrence of a Change in
Control (as defined in Section 14 below) (i) the employment of Executive with
Employer is terminated by Employer for any reason other than Good Cause (as
defined in Section 14 below), or (ii) Executive terminates his or her employment
with Employer for Good Reason (as defined in Section 14 below), the following
provisions will apply:
(a) Employer shall pay Executive an amount equal to 200% of
Executive's Base Salary (as defined in Section 14 below). Such
amount will be paid to Executive in equal weekly payments using
Employer's regular payroll periods.
(b) For purposes of any Incentive Plans, Executive shall be given
service credit for all purposes for, and shall be deemed to be an
employee of Employer during the Coverage Period (as defined in
Section 14 below), notwithstanding the fact that Executive is not
an employee of Employer or any Affiliate (as defined in Section
14 below) thereof during the Coverage Period; provided that, if
the terms of any of such Incentive Plans do not permit such
credit or deemed employee treatment, Employer will make payments
and distributions to Executive outside of the Incentive Plans in
amounts substantially equivalent to the payments and
distributions Executive would have received pursuant to the terms
of the Incentive Plans and attributable to such credit or deemed
employee treatment, had such credit or deemed employee treatment
been permitted pursuant to the terms of the Incentive Plans.
(c) During the Coverage Period, Executive and his or her spouse and
family will continue to be covered by all Welfare Plans (as
defined in Section 14 below), maintained by Employer in which
Executive or his or her spouse
<PAGE> 2
or family were participating immediately prior to the date of
Executive's termination as if Executive continued to be an
employee of Employer; provided that, if participation in any one
or more of such Welfare Plans is not possible under the terms
thereof, Employer will provide substantially identical benefits.
If, however, Executive obtains employment with another employer
during the Coverage Period, such coverage shall be provided until
the earlier of: (i) the end of the Coverage Period or (ii) the
date on which the Executive and his or her spouse and family can
be covered under the plans of a new employer without being
excluded from full coverage because of any actual pre-existing
condition. Nothing contained herein is intended to in any way
limit Employee's rights under COBRA.
Compensation under Section 1(a), (b) and (c) hereof is contingent upon
Executive's compliance with Section 4 hereof.
2. SETOFF. With respect to Section 1, no payments or benefits payable
to or with respect to Executive pursuant to this Agreement shall be reduced by
any amount Executive or his or her spouse may earn or receive from employment
with another employer or from any other source, except as expressly provided in
Section 1(c).
3. DEATH. If Executive dies during the Coverage Period:
(a) All amounts not theretofore paid described in Section 1(a)
shall be paid to his or her estate.
(b) The spouse and family of Executive shall, during the remainder
of the Coverage Period, be covered under all Welfare Plans made available by
Employer to Executive or his or her spouse immediately prior to the date of
Executive's death; provided that, if participation in any one or more of such
plans and arrangements is not possible under the terms thereof, Employer will
provide substantially identical benefits.
Any benefits payable under this Section 3 are in addition to any other
benefit due to Executive or his or her spouse or beneficiaries from Employer,
including, but not limited to, payments under any Incentive Plans.
4. RESTRICTIVE COVENANTS.
(a) Confidential Information. Executive agrees not to disclose,
following termination of his or her employment hereunder under the circumstances
described in Section 1 hereof, to any person (other than to any person
specifically authorized by the Board of Directors of Employer) any material
confidential information concerning the Employer or any of its Affiliates,
including, but not limited to, strategic plans, contract terms, financial costs,
pricing terms, sales data or business opportunities whether for existing, new or
developing businesses.
2
<PAGE> 3
(b) Non-Competition. In the event of any termination of Executive's
employment pursuant to Section 1 hereby, Executive covenants and agrees that,
for a period of one year from the effective date of his or her termination from
active employment with the Employer, Executive will not engage in, own, manage,
operate, control, or participate in any food service business that conducts or
franchises activities which are the same as or similar to the restaurant
concepts and operations of Employer as an employer, employee, principal,
partner, director, agent, or otherwise, directly or indirectly, anywhere in the
United States of America.
(c) Enforcement. Executive and the Employer acknowledge and
agree that any of the covenants contained in this Section 4 may be specifically
enforced through injunctive relief but such right to injunctive relief shall not
preclude the Employer from other remedies which may be available to it.
5. EXECUTIVE ASSIGNMENT. No interest of Executive or his or her spouse
or any other beneficiary under this Agreement, or any right to receive any
payment or distribution hereunder, shall be subject in any manner to sale,
transfer, assignment, pledge, attachment, garnishment, or other alienation or
encumbrance of any kind, nor may such interest or right to receive a payment or
distribution be taken, voluntarily or involuntarily, for the satisfaction of the
obligations or debts of, or other claims against, Executive or his or her spouse
or other beneficiary, including claims for alimony, support, separate
maintenance, and claims in bankruptcy proceedings.
6. BENEFITS UNFUNDED. All rights of Executive and his or her spouse or
other beneficiary under this Agreement shall at all times be entirely unfunded
and no provision shall at any time be made with respect to segregating any
assets of Employer for payment of any amounts due hereunder. Neither Executive
nor his or her spouse or other beneficiary shall have any interest in or rights
against any specific assets of Employer, and Executive and his or her spouse or
other beneficiary shall have only the rights of a general unsecured creditor of
Employer.
7. COST OF ENFORCEMENT; INTEREST. In the event that Executive collects
any part or all of the payments or benefits due hereunder or otherwise enforces
the terms of this Agreement following a dispute with Employer regarding the
terms of this Agreement by or through a lawyer or lawyers, Employer will pay all
costs of such collection or enforcement, including reasonable attorneys' and
accountants' fees and other out-of-pocket expenses incurred by the Executive, up
to that point when Employer offers to settle the dispute for an amount equal to
the amount which the Executive actually recovers; provided, however, that if the
Executive violates any provision of Section 4, this Section 7 shall be void and
of no further force and effect.
8. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail to Executive's residence in the case of Executive, or to its principal
office in the case of the Employer and the date of mailing shall be deemed the
date which such notice has been provided.
9. WAIVER OF BREACH. The waiver by either party of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach by the other party.
3
<PAGE> 4
10. ASSIGNMENT; SUCCESSORS. The rights and obligations of the Employer
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Employer, including the surviving entity in any
merger, consolidation, share exchange or other transaction described in Section
14(c)(ii) hereof or any person, entity or group that has acquired a majority of
the outstanding shares of Common Stock (or securities convertible into Common
Stock) of Employer or all, or substantially all, of the assets of Employer. The
Executive acknowledges that the services to be rendered by him or her are unique
and personal, and Executive may not assign any of his or her rights or delegate
any of his or her duties or obligations under this Agreement.
11. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties and supersedes all other prior agreements, employment contracts and
understandings, both written and oral, express or implied with respect to the
subject matter of this Agreement and may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
12. APPLICABLE LAW. This Agreement shall be governed by the laws of
the State of Tennessee, without giving effect to the principles of conflicts
of law thereof.
13. HEADINGS. The sections, subjects and headings of this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
14. DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning set forth in the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(b) "Base Salary" means the higher of (i) Executive's annual
base salary in effect immediately prior to the occurrence of the Change in
Control giving rise of an obligation on the part of Employer to make any
payments under this Agreement or (ii) Executive's annual base salary in effect
immediately prior to the termination of Executive's employment under the
circumstances described in Section 1 above.
(c) "Change in Control" shall mean the occurrence of any of the
following:
(i) if any person or entity, including a "group" as defined in
Section 13(d)(3) of the Exchange Act, other than Employer or
a wholly-owned subsidiary thereof or any employee benefit
plan of Employer or any of its subsidiaries, becomes the
beneficial owner of Employer securities having 50% or more
of the combined voting power of the then outstanding
securities of Employer that may be cast for the election of
directors of Employer; or
(ii) as the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale
of substantially all
4
<PAGE> 5
of the assets or contested election, or any combination of
the foregoing transactions less than a majority of the
combined voting power of the then-outstanding securities of
Employer or any successor corporation or entity entitled to
vote generally in the election of the directors of the
Employer or such other corporation or entity after such
transaction is held in the aggregate by the holders of
Employer securities entitled to vote generally in the
election of directors of Employer immediately prior to such
transaction; or
(iii) following the date of this Agreement, individuals who on
such date constitute the Board of Directors of Employer
cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for election
by Employer's shareholders, of each director of Employer
first elected following such date was approved by a vote of
at least two-thirds of the directors of Employer then still
in office who were directors on the date of this Agreement.
(d) "Coverage Period" shall mean the period beginning on the
date the Executive's employment with Employer terminates under circumstances
described in Section 1 and ending on the date that is twelve (12) months
thereafter.
(e) "Good Cause" shall mean the occurrence of any one of the
following after a Change in Control:
(i) Executive's personal dishonesty;
(ii) Executive's willful misconduct;
(iii) breach of fiduciary duty involving personal profit by
Executive;
(iv) conviction of Executive for any felony or crime involving
moral turpitude;
(v) material intentional breach by Executive of any provision
of this Agreement; or
(vi) unsatisfactory performance by Executive of the duties
designated for Executive as a result of alcohol or drug use
by Executive.
Without limiting the generality of the foregoing, if Executive acted in
good faith and in a manner he or she reasonably believed to be in, and not
opposed to, the best interest of Employer and had no reasonable cause to believe
his or her conduct was unlawful in connection with any action taken by Executive
in connection with his or her duties, it shall not constitute Good Cause.
5
<PAGE> 6
Notwithstanding anything herein to the contrary, in the event Employer
shall terminate the employment of Executive for Good Cause hereunder, Employer
shall give at least 30 days prior written notice to Executive specifying in
detail the reason or reasons for Executive's termination.
(f) "Good Reason" shall exist if after the occurrence of a Change
of Control:
(i) there is a significant change in the nature or the scope of
Executive's authority;
(ii) there is a reduction in Executive's rate of base salary;
(iii) Employer changes the principal location in which Executive
is required to perform services outside a thirty-five mile
radius of such location without Executive's consent;
(iv) there is a reasonable determination by Executive that, as
a result of a change in circumstances significantly
affecting his or her position, Executive is unable to
exercise the authority, powers, function or duties attached
to his or her position; or
(v) Employer terminates or amends any Incentive Plan so that,
when considered in the aggregate with any substitute plan
or other substitute compensation, the Incentive Plan in
which Executive is participating fails to provide Executive
with a level of benefits equivalent to at least 75% of the
value of the level of benefits provided in the aggregate by
the terminated or amended Incentive Plan at the date of
such termination or amendment; provided, however, that Good
Reason shall not be deemed to exist under this clause (v)
if the decline in Incentive Plan compensation is related to
a decline in performance.
(g) "Incentive Plans" shall mean any incentive, bonus, deferred
compensation or similar plan or arrangement currently or hereafter made
available by Employer in which Executive is eligible to participate.
(h) "Welfare Plans" shall mean any health and dental plan,
disability plan, survivor income plan and life insurance plan or arrangement
currently or hereafter made available by Employer in which Executive is eligible
to participate.
15. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original.
16. SEVERABILITY; CONSTRUCTION. In the event any provision of this
Agreement is held illegal or invalid, the remaining provisions of this Agreement
shall not be affected thereby. In the
6
<PAGE> 7
event that Section 4(b) is deemed by any court of competent jurisdiction to
be invalid due to overbreadth, such Section 4(b) shall be construed as narrowly
as necessary to be enforceable.
17. EXCLUSIVITY. The benefits provided Executive pursuant to this
Agreement shall be the exclusive benefits to which Executive is entitled upon
termination of employment following a Change in Control notwithstanding any
other plan or agreement in effect, whether written or oral, between Executive
and Employer providing for the payment of benefits following a termination of
employment.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.
----------------------------------------------------
F. E. McDaniel, Jr.
SHONEY'S, INC.
By:
------------------------------------------------
Title: Chairman, Chief Executive Officer & President
7
<PAGE> 1
AGREEMENT
This Agreement is entered into as of the 15th day of July, 1997, by and
between Shoney's, Inc. ("Employer"), a Tennessee corporation with its principal
place of business at 1727 Elm Hill Pike, Nashville, Tennessee 37210 and Gregory
A. Hayes ("Executive").
W I T N E S S E T H:
WHEREAS, the Executive is currently employed by Employer as the Senior
Vice President, Controller of Employer, and Employer and Executive desire to set
forth certain rights and obligations of Employer and Executive in the event of a
change in control of Employer.
NOW, THEREFORE, in consideration of the premises hereof and of the
mutual promises and agreements contained herein, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. BENEFITS UPON TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN
CONTROL. If at any time within one year following the occurrence of a Change in
Control (as defined in Section 14 below) (i) the employment of Executive with
Employer is terminated by Employer for any reason other than Good Cause (as
defined in Section 14 below), or (ii) Executive terminates his or her employment
with Employer for Good Reason (as defined in Section 14 below), the following
provisions will apply:
(a) Employer shall pay Executive an amount equal to 200% of
Executive's Base Salary (as defined in Section 14 below). Such
amount will be paid to Executive in equal weekly payments using
Employer's regular payroll periods.
(b) For purposes of any Incentive Plans, Executive shall be given
service credit for all purposes for, and shall be deemed to
be an employee of Employer during the Coverage Period (as
defined in Section 14 below), notwithstanding the fact that
Executive is not an employee of Employer or any Affiliate
(as defined in Section 14 below) thereof during the Coverage
Period; provided that, if the terms of any of such Incentive
Plans do not permit such credit or deemed employee treatment,
Employer will make payments and distributions to Executive
outside of the Incentive Plans in amounts substantially
equivalent to the payments and distributions Executive would
have received pursuant to the terms of the Incentive Plans and
attributable to such credit or deemed employee treatment, had
such credit or deemed employee treatment been permitted pursuant
to the terms of the Incentive Plans.
(c) During the Coverage Period, Executive and his or her spouse and
family will continue to be covered by all Welfare Plans (as
defined in Section 14 below), maintained by Employer in which
Executive or his or her spouse or family were participating
immediately prior to the date of Executive's
<PAGE> 2
termination as if Executive continued to be an employee of
Employer; provided that, if participation in any one or more of
such Welfare Plans is not possible under the terms thereof,
Employer will provide substantially identical benefits. If,
however, Executive obtains employment with another employer
during the Coverage Period, such coverage shall be provided
until the earlier of: (i) the end of the Coverage Period or (ii)
the date on which the Executive and his or her spouse and family
can be covered under the plans of a new employer without being
excluded from full coverage because of any actual pre-existing
condition. Nothing contained herein is intended to in any way
limit Employee's rights under COBRA.
Compensation under Section 1(a), (b) and (c) hereof is contingent upon
Executive's compliance with Section 4 hereof.
2. SETOFF. With respect to Section 1, no payments or benefits payable
to or with respect to Executive pursuant to this Agreement shall be reduced by
any amount Executive or his or her spouse may earn or receive from employment
with another employer or from any other source, except as expressly provided in
Section 1(c).
3. DEATH. If Executive dies during the Coverage Period:
(a) All amounts not theretofore paid described in Section 1(a)
shall be paid to his or her estate.
(b) The spouse and family of Executive shall, during the remainder
of the Coverage Period, be covered under all Welfare Plans made available by
Employer to Executive or his or her spouse immediately prior to the date of
Executive's death; provided that, if participation in any one or more of such
plans and arrangements is not possible under the terms thereof, Employer will
provide substantially identical benefits.
Any benefits payable under this Section 3 are in addition to any other
benefit due to Executive or his or her spouse or beneficiaries from Employer,
including, but not limited to, payments under any Incentive Plans.
4. RESTRICTIVE COVENANTS.
(a) Confidential Information. Executive agrees not to disclose,
following termination of his or her employment hereunder under the circumstances
described in Section 1 hereof, to any person (other than to any person
specifically authorized by the Board of Directors of Employer) any material
confidential information concerning the Employer or any of its Affiliates,
including, but not limited to, strategic plans, contract terms, financial costs,
pricing terms, sales data or business opportunities whether for existing, new or
developing businesses.
(b) Non-Competition. In the event of any termination of Executive's
employment pursuant to Section 1 hereby, Executive covenants and agrees that,
for a period of
2
<PAGE> 3
one year from the effective date of his or her termination from active
employment with the Employer, Executive will not engage in, own, manage,
operate, control, or participate in any food service business that conducts or
franchises activities which are the same as or similar to the restaurant
concepts and operations of Employer as an employer, employee, principal,
partner, director, agent, or otherwise, directly or indirectly, anywhere in the
United States of America.
(c) Enforcement. Executive and the Employer acknowledge and
agree that any of the covenants contained in this Section 4 may be specifically
enforced through injunctive relief but such right to injunctive relief shall not
preclude the Employer from other remedies which may be available to it.
5. EXECUTIVE ASSIGNMENT. No interest of Executive or his or her spouse
or any other beneficiary under this Agreement, or any right to receive any
payment or distribution hereunder, shall be subject in any manner to sale,
transfer, assignment, pledge, attachment, garnishment, or other alienation or
encumbrance of any kind, nor may such interest or right to receive a payment or
distribution be taken, voluntarily or involuntarily, for the satisfaction of the
obligations or debts of, or other claims against, Executive or his or her spouse
or other beneficiary, including claims for alimony, support, separate
maintenance, and claims in bankruptcy proceedings.
6. BENEFITS UNFUNDED. All rights of Executive and his or her spouse or
other beneficiary under this Agreement shall at all times be entirely unfunded
and no provision shall at any time be made with respect to segregating any
assets of Employer for payment of any amounts due hereunder. Neither Executive
nor his or her spouse or other beneficiary shall have any interest in or rights
against any specific assets of Employer, and Executive and his or her spouse or
other beneficiary shall have only the rights of a general unsecured creditor of
Employer.
7. COST OF ENFORCEMENT; INTEREST. In the event that Executive collects
any part or all of the payments or benefits due hereunder or otherwise enforces
the terms of this Agreement following a dispute with Employer regarding the
terms of this Agreement by or through a lawyer or lawyers, Employer will pay all
costs of such collection or enforcement, including reasonable attorneys' and
accountants' fees and other out-of-pocket expenses incurred by the Executive, up
to that point when Employer offers to settle the dispute for an amount equal to
the amount which the Executive actually recovers; provided, however, that if the
Executive violates any provision of Section 4, this Section 7 shall be void and
of no further force and effect.
8. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered or certified
mail to Executive's residence in the case of Executive, or to its principal
office in the case of the Employer and the date of mailing shall be deemed the
date which such notice has been provided.
9. WAIVER OF BREACH. The waiver by either party of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach by the other party.
10. ASSIGNMENT; SUCCESSORS. The rights and obligations of the Employer
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the
3
<PAGE> 4
Employer, including the surviving entity in any merger, consolidation, share
exchange or other transaction described in Section 14(c)(ii) hereof or any
person, entity or group that has acquired a majority of the outstanding shares
of Common Stock (or securities convertible into Common Stock) of Employer or
all, or substantially all, of the assets of Employer. The Executive acknowledges
that the services to be rendered by him or her are unique and personal, and
Executive may not assign any of his or her rights or delegate any of his or her
duties or obligations under this Agreement.
11. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties and supersedes all other prior agreements, employment contracts and
understandings, both written and oral, express or implied with respect to the
subject matter of this Agreement and may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
12. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of Tennessee, without giving effect to the principles of conflicts of law
thereof.
13. HEADINGS. The sections, subjects and headings of this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
14. DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" shall have the meaning set forth in the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(b) "Base Salary" means the higher of (i) Executive's annual
base salary in effect immediately prior to the occurrence of the Change in
Control giving rise of an obligation on the part of Employer to make any
payments under this Agreement or (ii) Executive's annual base salary in effect
immediately prior to the termination of Executive's employment under the
circumstances described in Section 1 above.
(c) "Change in Control" shall mean the occurrence of any of the
following:
(i) if any person or entity, including a "group" as defined
in Section 13(d)(3) of the Exchange Act, other than Employer
or a wholly-owned subsidiary thereof or any employee benefit
plan of Employer or any of its subsidiaries, becomes the
beneficial owner of Employer securities having 50% or more
of the combined voting power of the then outstanding
securities of Employer that may be cast for the election of
directors of Employer; or
(ii) as the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale
of substantially all of the assets or contested election, or
any combination of the foregoing transactions less than a
majority of the combined voting
4
<PAGE> 5
power of the then-outstanding securities of Employer or any
successor corporation or entity entitled to vote generally
in the election of the directors of the Employer or such
other corporation or entity after such transaction is held
in the aggregate by the holders of Employer securities
entitled to vote generally in the election of directors of
Employer immediately prior to such transaction; or
(iii) following the date of this Agreement, individuals who on
such date constitute the Board of Directors of Employer
cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for election
by Employer's shareholders, of each director of Employer
first elected following such date was approved by a vote of
at least two-thirds of the directors of Employer then still
in office who were directors on the date of this Agreement.
(d) "Coverage Period" shall mean the period beginning on the date
the Executive's employment with Employer terminates under circumstances
described in Section 1 and ending on the date that is twelve (12) months
thereafter.
(e) "Good Cause" shall mean the occurrence of any one of the
following after a Change in Control:
(i) Executive's personal dishonesty;
(ii) Executive's willful misconduct;
(iii) breach of fiduciary duty involving personal profit by
Executive;
(iv) conviction of Executive for any felony or crime involving
moral turpitude;
(v) material intentional breach by Executive of any provision of
this Agreement; or
(vi) unsatisfactory performance by Executive of the duties
designated for Executive as a result of alcohol or drug use
by Executive.
Without limiting the generality of the foregoing, if Executive acted in
good faith and in a manner he or she reasonably believed to be in, and not
opposed to, the best interest of Employer and had no reasonable cause to believe
his or her conduct was unlawful in connection with any action taken by Executive
in connection with his or her duties, it shall not constitute Good Cause.
5
<PAGE> 6
Notwithstanding anything herein to the contrary, in the event Employer
shall terminate the employment of Executive for Good Cause hereunder, Employer
shall give at least 30 days prior written notice to Executive specifying in
detail the reason or reasons for Executive's termination.
(f) "Good Reason" shall exist if after the occurrence of a Change
of Control:
(i) there is a significant change in the nature or the
scope of Executive's authority;
(ii) there is a reduction in Executive's rate of base
salary;
(iii) Employer changes the principal location in which
Executive is required to perform services outside a
thirty-five mile radius of such location without
Executive's consent;
(iv) there is a reasonable determination by Executive that,
as a result of a change in circumstances significantly
affecting his or her position, Executive is unable to
exercise the authority, powers, function or duties
attached to his or her position; or
(v) Employer terminates or amends any Incentive Plan so
that, when considered in the aggregate with any
substitute plan or other substitute compensation, the
Incentive Plan in which Executive is participating
fails to provide Executive with a level of benefits
equivalent to at least 75% of the value of the level of
benefits provided in the aggregate by the terminated or
amended Incentive Plan at the date of such termination
or amendment; provided, however, that Good Reason shall
not be deemed to exist under this clause (v) if the
decline in Incentive Plan compensation is related to a
decline in performance.
(g) "Incentive Plans" shall mean any incentive, bonus, deferred
compensation or similar plan or arrangement currently or hereafter made
available by Employer in which Executive is eligible to participate.
(h) "Welfare Plans" shall mean any health and dental plan,
disability plan, survivor income plan and life insurance plan or arrangement
currently or hereafter made available by Employer in which Executive is eligible
to participate.
15. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original.
16. SEVERABILITY; CONSTRUCTION. In the event any provision of this
Agreement is held illegal or invalid, the remaining provisions of this Agreement
shall not be affected thereby. In the
6
<PAGE> 7
event that Section 4(b) is deemed by any court of competent jurisdiction to
be invalid due to overbreadth, such Section 4(b) shall be construed as narrowly
as necessary to be enforceable.
17. EXCLUSIVITY. The benefits provided Executive pursuant to this
Agreement shall be the exclusive benefits to which Executive is entitled upon
termination of employment following a Change in Control notwithstanding any
other plan or agreement in effect, whether written or oral, between Executive
and Employer providing for the payment of benefits following a termination of
employment.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.
----------------------------------------------------
Gregory A. Hayes
SHONEY'S, INC.
By:
------------------------------------------------
Title: Chairman, Chief Executive Officer & President
7
<PAGE> 1
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE - EXHIBIT 11
<TABLE>
<CAPTION>
Forty Weeks Ended
August 3, August 4,
1997 1996
---------- ----------
<S> <C> <C>
Earnings per Common Share - Primary
Average shares outstanding 48,531,790 41,607,778
Net effect of dilutive stock options-based on the treasury
stock method using average market price 36,203 101,502
----------- -----------
Totals 48,567,993 41,709,280
=========== ===========
Income from continuing operations $ 290,309 $14,675,468
Income from discontinued operations 397,816
Gain on sale of discontinued operations, net of income taxes 22,080,375
----------- -----------
Net income $ 290,309 $37,153,659
=========== ===========
Per Share amount:
Income from continuing operations $ .01 $ .35
Income from discontinued operations .01
Gain on sale of discontinued operations, net of income taxes .53
----------- -----------
Net income $ .01 $ .89
=========== ===========
Earnings per Common Share - Fully Diluted:
Average shares outstanding 48,531,790 41,607,778
Net effect of dilutive stock options-based on the treasury
stock method using the average market price 36,203 113,480
Assumed conversion of convertible debentures (A) 5,205,632
----------- -----------
Totals 48,567,993 46,926,890
=========== ===========
Income from continuing operations $ 290,309 $14,675,468
Add convertible debentures interest,
net of income tax (A) 3,524,982
----------- -----------
Total from continuing operations 290,309 18,200,450
Income from discontinued operations 397,816
Gain on sale of discontinued operations, net of income taxes 22,080,375
----------- -----------
Net income $ 290,309 $40,678,641
=========== ===========
Per Share amount:
Income from continuing operations $ .01 $ .39
Income from discontinued operations .01
Gain on sale of discontinued operations, net of income taxes .47
----------- -----------
Net income $ .01 $ .87
=========== ===========
</TABLE>
(A) For the forty weeks ended August 3, 1997, both primary and fully
diluted earnings per share utilized average shares outstanding and common stock
equivalents. No consideration was given to the convertible debentures as they
had an anti-dilutive effect.
<PAGE> 2
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE - EXHIBIT 11
<TABLE>
<CAPTION>
Twelve Weeks Ended
August 3, August 4,
1997 1996
----------- ----------
<S> <C> <C>
Earnings per Common Share - Primary
Average shares outstanding 48,568,109 41,660,319
Net effect of dilutive stock options-based on the treasury
stock method using average market price 28,320 148,352
----------- -----------
Totals 48,596,429 41,808,671
=========== ===========
Net income $ 8,766,650 $ 6,620,895
=========== ===========
Per Share amount:
Net income $ .18 $ .16
=========== ===========
Earnings per Common Share - Fully Diluted:
Average shares outstanding 48,568,109 41,660,319
Net effect of dilutive stock options-based on the treasury
stock method using the average market price 28,320 148,352
Assumed conversion of convertible debentures (A) (A)
----------- -----------
Totals 48,596,429 41,808,671
=========== ===========
Income from continuing operations $ 8,766,650 $ 6,620,895
Add convertible debentures interest,
net of income tax (A) (A)
----------- -----------
Net income $ 8,766,650 $ 6,620,895
=========== ===========
Per Share amount:
Net income $ .18 $ .16
=========== ===========
</TABLE>
(A) For the third quarter of 1997 and 1996, both primary and fully diluted
earnings per share utilized average shares outstanding and common stock
equivalents. No consideration was given to the convertible debentures as they
had an anti-dilutive effect.
<TABLE> <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 3, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-26-1997
<PERIOD-START> OCT-28-1996
<PERIOD-END> AUG-03-1997
<CASH> 16,809,796
<SECURITIES> 0
<RECEIVABLES> 13,307,504
<ALLOWANCES> 1,482,660
<INVENTORY> 46,076,422
<CURRENT-ASSETS> 159,253,385
<PP&E> 811,687,480
<DEPRECIATION> 334,262,617
<TOTAL-ASSETS> 703,067,579
<CURRENT-LIABILITIES> 252,596,195
<BONDS> 404,458,439
0
0
<COMMON> 48,568,109
<OTHER-SE> (24,873,333)
<TOTAL-LIABILITY-AND-EQUITY> 703,067,579
<SALES> 934,227,876
<TOTAL-REVENUES> 952,907,795
<CGS> 844,603,044
<TOTAL-COSTS> 958,731,486
<OTHER-EXPENSES> 79,155,637
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,972,805
<INCOME-PRETAX> (5,823,691)
<INCOME-TAX> (6,114,000)
<INCOME-CONTINUING> 290,309
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 290,309
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
