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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
FOR THE FISCAL YEAR ENDED OCTOBER 27, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $1 per share New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Liquid Yield Option Notes, Due 2004 New York Stock Exchange
8.25% Subordinated Convertible
Debentures, Due 2002 NASDAQ
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to Form 10-K. [X]
As of January 23, 1997, there were 47,699,057 shares of
Shoney's, Inc., $1 par value common stock held by non-affiliates with an
aggregate market value of $363,705,310.
As of January 23, 1997, there were 48,531,075 shares of Shoney's,
Inc., $1 par value common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT INCORPORATED INTO
Portions of the Definitive Proxy Statement
for Annual Meeting of Shareholders on March 26,
1997, to be filed with the Securities and
Exchange Commission (the "Commission") within
120 days after the fiscal year ended October 27,
1996 (hereinafter the "1997 Proxy Statement") Part III
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PART I
ITEM 1. BUSINESS.
(a) General development of business.
Shoney's, Inc. (the "Company") operates and franchises a chain of
1,476 restaurants in 34 states. The Company is a diversified food service
chain that consists of three restaurant divisions: Shoney's, Captain D's and a
Casual Dining Group. Based on U.S. system wide food service sales, Shoney's,
Inc. is the 18th largest chain restaurant operator(1). The Company's principal
restaurant concepts include Shoney's Restaurants, which are family dining
restaurants offering full table service and a broad menu, and Captain D's,
which are quick-service restaurants specializing in seafood. The Company also
operates three casual dining restaurant concepts including the Fifth Quarter -
a special occasion steakhouse, BarbWire's Steakhouse - a country & western
themed steakhouse, and Pargo's - a contemporary casual dining restaurant
featuring a wide variety of fresh, made-from-scratch dishes. The Company
operates a commissary business which includes five distribution centers that
support Company and franchised restaurant operations by providing most of the
necessary food and supplies. The commissary operations also have a
manufacturing operation for meat products. During 1996, the Company
discontinued its bakery and coleslaw manufacturing operations and began
purchasing those products from outside suppliers. The Company's fiscal year
ends on the last Sunday in October. Fiscal years 1996, 1995 and 1994 each
included 52 weeks. All references are to fiscal years unless otherwise noted.
Acquisition - Effective September 9, 1996, the Company acquired
substantially all of the assets of TPI Enterprises, Inc. ("TPI"), a franchisee
of the Company's Shoney's and Captain D's restaurant concepts, in exchange for
stock and the assumption of various liabilities of the acquired companies. The
acquisition included the assets of TPI Restaurants, Inc. ("TPIR"), which
principally consisted of 176 Shoney's Restaurants and 67 Captain D's
restaurants. Forty-six (46) of the acquired Shoney's Restaurants were
identified as "under-performing" units to be closed. The Company has closed 22
units and intends to close the remaining 24 units in 1997. The acquisition was
accounted for using the purchase method of accounting.
Reorganization. In January 1995, the Company's Board of Directors
announced a reorganization designed to improve the performance and growth of
the Shoney's Restaurant concept. The reorganization included the divestiture
of certain non-core lines of business including Lee's Famous Recipe, a chain of
over 200 quick-service restaurants specializing in chicken, and Mike Rose
Foods, Inc. ("MRF"), a manufacturer of dressings, sauces, condiments and
various dry-blend products for the food service industry. The sale of Lee's
Famous Recipe was completed in September 1995 and the sale of Mike Rose Foods,
Inc. was completed in November 1995.
These discontinued lines of business had net property, plant and
equipment of $10.6 million at October 29, 1995, revenues of $2.6 million, $86.7
million and $93.7 million for 1996, 1995 and 1994, respectively, and earnings
before interest and taxes of $.6 million, $13.1 million and $16.5 million for
1996, 1995 and 1994, respectively. In 1995, these discontinued lines of
business represented
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(1) Based on the 1996 annual survey of the top 100 restaurant chains
published by Nation's Restaurant News (April 29, 1996).
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approximately 2.5% of net property, plant and equipment, 7.6% of consolidated
revenues and 18.2% of consolidated earnings before interest and taxes. Certain
onetime charges associated with the reorganization and divestitures were
accrued as they were incurred. The sale of Lee's Famous Recipe resulted in a
gain of approximately $5.5 million, net of tax, in 1995. The sale of Mike Rose
Foods, Inc. resulted in a gain of approximately $22.1 million, net of tax, in
1996.
SHONEY'S RESTAURANTS
Concept. Shoney's Restaurants are full-service, family dining
restaurants that generally are open 18 hours each day and serve breakfast,
lunch and dinner. Shoney's Restaurants' menu is diversified to appeal to a
broad spectrum of customer tastes and includes traditional items such as
hamburgers, sandwiches, chicken, seafood, home-style entrees and vegetables, a
variety of pasta and stir-fry dishes, steaks and desserts. Shoney's also
offers its signature features of the soup, salad and fruit bar and the
all-you-care-to-eat breakfast bar. Shoney's Restaurants generally have between
120 and 180 seats and employ 65 people, including management personnel.
In addition to its regular menu, Shoney's Restaurants often feature
promotional menu items offering special entrees for a limited time. These
promotional menu items are used to promote new guest trials and generate
greater dining frequency from existing guests. Promotions also serve as a
vehicle to test new items that, if popular, may be added to the regular menu.
The Company, in conjunction with its franchisees, is continually modifying the
menu to adapt to new food trends, shifts in consumer demands and changes made
to keep the menu appealing to its guests.
Shoney's seeks to differentiate itself from competing restaurants by
offering excellent food and service, warm hospitality and a good value to its
customers. Shoney's Restaurants place significant emphasis on the quality of
food ingredients, proper preparation methods, attractive food presentation and
competitive prices. Buildings are generally brick veneer or dryvit exteriors
and usually include exterior awnings along with halide lighting for greater
visibility at night. The Company's franchise agreements require that all
franchised Shoney's Restaurants conform to express standards of appearance,
service, food quality and menu content.
History. Shoney's Restaurants have been in operation since 1952.
There are 844 restaurants in the system, 544 company-owned and 300 franchised
restaurants, operating in 34 states as of October 27, 1996. During 1996, the
Company opened or acquired 202 restaurants, including the 176 restaurants
acquired through the acquisition of TPIR, and closed 14 restaurants resulting
in a net increase of 188 company-owned restaurants. Franchisees opened 7
restaurants, closed 42 restaurants and 191 restaurants were acquired from
franchisees resulting in a net decrease of 226 franchised restaurants.
Overall, Shoney's Restaurants had a net system wide decrease of 38 restaurants
in 1996.
The Shoney's Restaurant concept accounted for 53% of the Company's
revenues in 1996. Sales at company-owned units for 1996 were $580,276,000
compared to $546,669,000 for 1995 and $541,446,000 for 1994. Earnings before
interest and taxes for 1996 were $15,127,000 compared with $25,532,000 in 1995
and $50,906,000 in 1994. Comparable restaurant sales for 1996 decreased .9%,
including a menu price increase of 2.7%. The average sales volume of
company-owned units open all year in 1996 was $1,498,000 compared with
$1,525,000 in 1995 and $1,548,000 in 1994.
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During fiscal 1996, the Company continued its capital expenditure
program to update and remodel its Shoney's Restaurants which began in 1993.
Overall capital expenditures in 1996 for Shoney's Restaurants were $47,558,000,
with $12,003,000 spent for the remodeling of 87 units, compared to an overall
capital expenditure of $28,305,000 in 1995, with $12,499,000 spent for the
remodeling of 107 units. Management believes that the remedial remodeling
program for its company-owned Shoney's Restaurants was essentially complete at
the end of 1996. The remodeling program is now moving into a maintenance phase
for the Company's Shoney's Restaurants (excluding the restaurants acquired from
TPI during 1996). The Company has budgeted approximately $15 million ($10
million in 1997 and $5 million in 1998) to remodel the Shoney's Restaurants it
acquired from TPI. This remodeling program will bring the acquired units more
in line with Company standards for decor and appearance.
The Company's marketing strategies continue to focus on advertising
designed to increase both guest frequency and new guest trial. During 1996,
the Company began its association with television and film star Andy Griffith
who serves as the celebrity spokesperson for Shoney's Restaurants in
television, radio, and in-store media. The theme of the advertising will
utilize Andy Griffith's unique talents to articulate Shoney's Restaurants'
value-added points of difference. It will focus on the quality and competitive
value of Shoney's "Classic American Food" at breakfast, lunch and dinner as
compared to its specific day part competitors. The Company also plans new
product development in 1996 to include enhancements to its breakfast bar, new
dinner entrees featuring steak, pasta and seafood, new lunch sandwiches,
home-style meals and new dessert offerings.
CAPTAIN D'S
Concept. Captain D's are quick-service seafood restaurants which
offer in-store or drive-thru service and are generally open every day from 11
a.m. until 11 p.m, serving lunch and dinner. The typical Captain D's has 90
seats and employs 20 people, including management personnel.
Captain D's menu includes fried, broiled and baked fish, a variety of
chicken and shrimp dishes, fried clams, stuffed crab, seafood and tossed
salads, baked potatoes, french fries, hush puppies, green beans, coleslaw,
fried okra and a selection of desserts. Captain D's also offer a variety of
non-seafood items to broaden the menu's appeal. Captain D's is constantly
striving to develop appealing new menu items and improve the quality of
existing items.
Through an aggressive worldwide purchasing operation conducted by the
Company, Captain D's is continually diversifying its menu by promoting and
offering a wide variety of seafood and fish species. The Company's commissary
operation purchases bulk quantities of fish and seafood for distribution to
company-owned units and to Captain D's franchisees who elect to purchase their
food from the Company. This combined buying power permits the Company to
obtain favorable pricing and sources of supply for fish and seafood, which are
limited in worldwide supply.
The Company's operational strategy for Captain D's is to increase
comparable restaurant sales through the continued introduction and promotion of
distinctive, high quality menu items, emphasis on fast and reliable service,
and maintaining a strong commitment to high food quality at an affordable price.
History. Captain D's began operation in 1969 when the Company opened
the first unit in Nashville, Tennessee. There are 598 Captain D's restaurants
in 22 states, including 379 company-owned
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and 219 franchised units as of October 27, 1996. Management believes that
Captain D's has the highest average sales volume ($797,000) of any major
quick-service seafood chain. This year's average sales volume represents a
record high for company-owned Captain D's.
The Captain D's concept accounted for 23% of the Company's revenues in
1996. Sales at company-owned units for 1996 were $254,493,000 compared to
$246,479,000 for 1995 and $244,535,000 for 1994. Earnings before interest and
taxes for 1996 were $20,569,000 compared with $19,459,000 in 1995 and
$20,384,000 in 1994. Comparable restaurant sales for 1996 increased 4%,
including a 0.9% menu price increase. The average sales volume of
company-owned Captain D's open all year was $797,000 in 1996 compared with
$767,500 in 1995 and $736,000 in 1994.
Captain D's performance in 1996 continued the very strong financial
performances of 1994 and 1995. Captain D's overall operational strategy, which
is based on extensive customer research, was designed to increase market share
and comparable restaurant sales. It includes a new advertising campaign, a
remodeling program to an enhanced nautical appearance with a new "Seaberry"
exterior color, completion of the roll-out of re-designed, graphics-oriented
drive-thru menus (which have improved sales and reduced drive-thru wait times)
and the continual introduction of a variety of new products and seasonal
promotions.
During 1996, Captain D's introduced the "Fishmarket Menu" in selected
units within the system. The Fishmarket Menu features a variety of upscale
seafood entrees (e.g., Broiled Salmon, Orange Roughy, Fried Oysters, Scallops)
which are offered Thursday through Saturday of each week. These entrees are
changed seasonally, include salad, bread, baked potato and vegetable, and are
priced from $4.99 to $9.99, which is well above the concept's $4.35 average
guest check. The Fishmarket Menu adds broader appeal to customers seeking a
higher quality fish or seafood meal. This program has been successful in test
markets in increasing sales and raising check averages. The Company plans to
expand the Fishmarket Menu in its Captain D's over the next 12 months.
During 1996, Captain D's remodeled 28 company-owned units. Remodeled
units include more windows, enhanced interior and exterior lighting, brighter
colors, neon signs, self-serve drinks and improved menu boards. Additional
landscaping and new, more visible signage have improved the exterior appearance
and street appeal of the restaurants.
CASUAL DINING CONCEPTS
In January 1995, the Company announced a reorganization which included
a plan to divest certain non-core businesses, including Mike Rose Foods, Inc.,
Lee's Famous Recipe Chicken, Pargo's and Fifth Quarter restaurants. In July
1995, the Company announced that it had decided to retain the Pargo's and Fifth
Quarter restaurant concepts and to combine them with the Company's BarbWire's
Steakhouses to form a 32-unit Casual Dining Group. Management believes that
the 1995 results of operations of Pargo's and Fifth Quarter restaurants were
negatively affected by the uncertainties created by initial plans for the
divestiture of the concepts. During 1996, the Casual Dining Group replaced the
majority of its senior management personnel, including many unit level general
managers. Programs were begun to update the concepts' menus, food
presentation, decor, hospitality and service standards. In addition, incentive
compensation programs for operations personnel were redesigned. The Company's
casual dining concepts had declining comparable restaurant sales and
profitability throughout 1996 as increased competition and the effects of the
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aforementioned changes negatively impacted restaurant-level performance.
Management believes that the new programs, when fully implemented in 1997,
should enhance sales and profitability of the casual dining concepts.
Management will continue to evaluate the performance and future growth
prospects for its Casual Dining Group as these changes are implemented. If the
performance and future competitive outlook for these businesses does not
improve during 1997, management will consider other strategic alternatives for
these businesses (including their potential sale).
PARGO'S
Concept. Pargo's are mid-scale, casual dining restaurants that serve
fresh, made-from-scratch entrees designed to cater to a diverse range of
customer tastes. Pargo's goal is to become the "favorite neighborhood
restaurant" in each of its markets. Management training and development
efforts are focused on achieving a "customer centered" operational approach at
each unit.
Pargo's menu includes a variety of appetizers, beef, seafood and
chicken entrees, specialty burgers and sandwich platters, pasta dishes, daily
homemade soups, garden fresh salads, and fresh breads. The menu also features
a number of "Heart Healthy" offerings to better serve customers who are
interested in lower fat and lower cholesterol entrees. Pargo's provides a warm
environment for families by offering balloons, coloring books and crayons for
children, and a special children's menu with value pricing. Pargo's menu
includes daily specials, a daily "fresh catch" entree, and periodic promotional
food events. In January of 1997, Pargo's will begin testing a new menu in its
Brentwood, Tennessee restaurant. The test menu includes a variety of new
entrees, sandwiches and salads and is intended to strengthen the concept's
competitive positioning and increase comparable restaurant sales. If the new
menu test produces the anticipated improvement in sales and profitability, the
Company will likely implement the menu at additional Pargo's locations during
1997.
History. Pargo's was founded in 1983 and acquired by the Company in
March 1986. There are 19 Pargo's in 7 states. During 1996, the Company
acquired the only two franchised Pargo's restaurants. Four new units opened in
1995 in York, Pennsylvania; Raleigh, North Carolina; Columbus, Georgia; and
Winchester, Virginia.
Pargo's sales for 1996 were $39,665,000 compared to $36,386,000 for
1995 and $29,984,000 for 1994. Earnings before interest and taxes for 1996
were $1,801,000 compared to $1,832,000 in 1995 and $2,530,000 in 1994.
Comparable restaurant sales for 1996 declined 5.2%, including a menu price
increase of 0.4%. The average sales volume of company-owned units open all
year in 1996 was $2,201,000 compared with $2,345,000 in 1995 and $2,532,000 in
1994.
STEAKHOUSES
Concept. Steakhouses include eight Fifth Quarter and seven BarbWire's
restaurants. Fifth Quarters are special occasion steakhouses and BarbWire's
are country & western themed steakhouses. Both concepts operate in the
mid-scale steakhouse segment. BarbWire's was introduced in 1993 as a vehicle
to convert under-performing Shoney's Restaurants to a new casual dining
concept. Both steakhouse concepts are open 12 hours daily, seven days a week,
and serve lunch and dinner.
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BarbWire's offers a variety of mesquite grilled USDA choice steaks
which are hand cut in the restaurant, mesquite grilled chicken, seafood,
burgers, soup, salads, baked potatoes, home-style french fries and homemade
desserts. Children have a special menu with a beverage and ice cream included
with each entree.
The Fifth Quarter's menu includes a wide range of USDA choice steaks
and chops, a variety of chicken and seafood entrees, and its signature
slow-cooked prime rib. Fifth Quarter's also offer burgers, sandwiches, soups,
a host of appetizers and side items, an extensive salad bar, and a full
selection of desserts.
History. BarbWire's was founded in 1993 when the first unit opened in
Nashville, Tennessee as a conversion of an existing Shoney's Restaurant. Six
of the seven BarbWire's units are conversions of company-owned Shoney's
Restaurants and one unit was a conversion of another restaurant purchased by
the Company. The BarbWire's conversions initially have generally doubled the
sales volumes of the converted Shoney's Restaurants with an average incremental
remodeling investment of approximately $800,000. Additionally, since the units
converted were in existing Shoney's markets, sales of nearby Shoney's
Restaurants also increased after the conversions.
During 1996, BarbWire's restaurants sales declined significantly. The
average sales volume in 1996 of the six BarbWire's restaurants open the entire
year was $1,655,000 as compared with a 1995 average sales volume of $2,030,000.
The sales and profitability of the BarbWire's restaurants declined
significantly in 1996 due to the decreases in comparable restaurant sales,
operational execution difficulties, substantial turnover of the concept's
management personnel and a significant increase in the number and quality of
competitors in the mid-scale steakhouse category. During 1996, the Company
canceled plans to build five additional BarbWire's as management evaluated the
concept's long-term competitive performance outlook. In early 1997,
management determined that it would not develop additional BarbWire's
restaurants and is evaluating strategic alternatives available for the
BarbWire's units. These alternatives include possible joint venture
arrangements with a competing restaurant concept, the sale of the concept, or
other potential uses of the real estate.
The Fifth Quarter restaurants began operation in 1973 and currently
operate eight units. Two under-performing Fifth Quarter restaurants were
targeted for closure during the fourth quarter of 1995. One unit closed in
that quarter and the other unit was closed early in 1996. Two additional Fifth
Quarter restaurants with low average sales volumes are under consideration for
closure and sale. No new units have been built since November 1991 and the
Company currently has no plans to build additional Fifth Quarter units.
Fifth Quarter restaurants are generally stucco exteriors with
tudor-style architectural elements. Interiors are stucco and brick and
generally include memorabilia and photos relevant to each restaurant's
marketplace. Fifth Quarter restaurants are positioned as local neighborhood
steakhouses and tend to have a well established local clientele. The average
sales volume of the eight Fifth Quarters was $2,185,000 in 1996 compared to
$2,340,000 in 1995 and $2,209,000 in 1994.
Sales of Fifth Quarter restaurants were $17,507,000 in 1996 as
compared to sales of $21,392,000 in 1995 and $22,094,000 in 1994. Earnings
before interest and taxes for the Fifth Quarter restaurants were $1,081,000 in
1996 compared with $1,694,000 in 1995 and $2,182,000 in 1994. Sales for
BarbWire's were $11,281,000 in 1996 as compared to sales of $9,903,000 in 1995
and $3,233,000 in
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1994. BarbWire's reported a loss before interest and taxes of $702,000 in
1996, earnings before interest and taxes of $188,000 in 1995 and break-even
results in 1994. Comparable restaurant sales for the Fifth Quarter concept in
1996 decreased 6.6%, including a menu price increase of 0.8% while BarbWire's
restaurants reported a 14.6% decline in comparable restaurant sales for 1996,
including a 1.7% menu price increase.
MANUFACTURING AND COMMISSARY OPERATIONS
Operations and Strategy. The Manufacturing and Commissary Operations
include five distribution facilities and two manufacturing plants. The
manufacturing operations included a meat processing facility and a facility
that manufactured coleslaw and certain bakery products. During 1996, the
Company discontinued its coleslaw and bakery operations and began purchasing
these products from outside suppliers. Severance and other costs to exit these
businesses were not material to consolidated results of operations. The
objective of the Manufacturing and Commissary Operations is to provide
company-owned and franchised restaurants with a reliable source of quality food
products at the lowest practical cost. The Company utilizes central purchasing
of all major food, supply and equipment items for its restaurants to achieve
consistent quality and control costs.
The Company's ability to maintain consistent quality throughout its
restaurant system depends in part upon the ability to acquire food products and
related items from reliable sources. When the supply of certain products is
uncertain or prices are expected to rise significantly, the Company may enter
into purchase contracts or purchase bulk quantities for future use. The Company
has purchase commitments for food and supplies with a variety of vendors
generally for terms of one year or less. Such commitments generally include a
pricing schedule for the period covered by the agreements.
The Company has established long-term relationships with key seafood
vendors and brokers. Adequate alternative sources of supply are believed to
exist for substantially all products. The Company procures seafood and fish
from a variety of sources. While the supply and availability of certain
seafood species is volatile, the Company believes that it has the ability to
identify and access alternative seafood products as well as the ability to
adjust menus when needed. The Company has a purchasing contract with Mike Rose
Foods for salad dressings and condiments for its company-owned restaurants
which is effective until October 2000.
History. During 1994, the Company made significant investments in its
Manufacturing and Commissary Operations. A new distribution facility was
constructed in Wichita, Kansas which replaced a Dallas, Texas distribution
facility. The meat processing facility was expanded to 60 million pounds of
throughput capacity and quick freezing equipment was upgraded.
As part of the Company's acquisition of the assets of TPI in September
1996, the Company acquired TPIR's two commissary distribution centers located
in Memphis, Tennessee and Charlotte, North Carolina. Immediately upon
consummation of the acquisition, the Company initiated steps to close these two
distribution centers and to shift the distribution functions to the other five
Company distribution facilities. The acquired distribution centers ceased
operations prior to the end of the Company's 1996 fiscal year. The Company
plans to sublease these two distribution facilities and
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will either utilize the acquired warehouse equipment, trucks and trailers in
its remaining five distribution facilities or will dispose of them through sale.
Commissary Operations instituted a number of changes during 1996.
Product markups were standardized, and incentive rebates were offered to
franchisees who order substantially all of their food and supplies through the
commissary. These initiatives align the commissary's pricing structure more
like its food service distribution competitors and are intended to increase
the number of franchise customers as well as to encourage existing customers to
utilize the commissary as their principal supplier, thereby increasing
efficiency and lowering costs to all customers.
Total revenues for Manufacturing and Commissary Operations, including
intercompany sales, were $502,893,000 for 1996 compared to $505,085,000 for
1995 and $524,407,000 for 1994. Revenues for Manufacturing and Commissary
Operations, excluding intercompany sales, were $158,813,000 for 1996 compared
to $163,687,000 in 1995 and $187,894,000 in 1994. Earnings before interest and
taxes for the Commissary and Manufacturing Operations were $10,137,000 in 1996
compared with $11,939,000 in 1995 and $13,089,000 in 1994. Since 1989, the
number of franchised restaurants that are serviced by the Company's
distribution centers has expanded from 349 to 486 restaurants.
(b) Financial information about industry segments. Note 1 of the
Notes to Consolidated Financial Statements at pages 32 to 34 of Item 8 of this
Annual Report on Form 10-K is incorporated herein by reference.
(c) Narrative description of business.
(i)-(ii) See (a) above
(iii) Essential supplies and raw materials are available
from several sources and the Company is not dependent upon any single
source of supplies or raw materials.
(iv) The Company considers the Shoney's, Captain D's,
Fifth Quarter, Pargo's and BarbWire's names and designs to be of
substantial economic benefit to its business. It accordingly deems
very significant to its business the right that it holds to operate
and license restaurant operations under these names.
(v) Minor seasonal variations are not significant to the
Company's business.
(vi) The practice of the Company and the industry with
regard to working capital items is not significant to the Company's
business.
(vii) No material part of the Company's business is
dependent upon a single customer or a few customers.
(viii) Backlog of orders is not significant to the Company's
business.
(ix) No material portion of the Company's business is
subject to renegotiation of profits or termination of contracts or
subcontracts at the election of the government.
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(x) The Company's business is highly competitive (usually
by means of price, product quality and service) and the Company
competes with a number of national and regional restaurant chains as
well as locally owned restaurants that specialize in the sale of
seafood, sandwiches, and other prepared foods. The Company is unable
to determine its relative competitive position in the industry.
(xi) No material amount has been spent in any of the last
three (3) fiscal years on Company-sponsored research and development
activities or on customer sponsored research activities relating to
the development of new products, services or techniques or the
improvement of existing products, services or techniques.
(xii) No material amounts were or will be required to be
spent to comply with environmental protection regulations.
(xiii) As of October 27, 1996, the Company employed
approximately 38,000 persons.
ITEM 2. PROPERTIES.
The following table sets forth certain information regarding the
Company's restaurant and other properties,(2) including those under
construction, as of October 27, 1996:
<TABLE>
<CAPTION>
Number of Properties(3)
Use Total Owned Leased
--- ----- ----- ------
<S> <C> <C> <C>
Office and Commissaries(4) 9 7 2
Shoney's Restaurants 544 313 231
Captain D's Restaurants 379 244 135
Pargo's Restaurants 19 10 9
Fifth Quarter Restaurants 8 4 4
BarbWire's Restaurants 7 6 1
Restaurants Under Construction 2 2 0
--- --- ---
968 586 382
=== === ===
</TABLE>
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(2) The Company's 957 restaurant properties in operation as of October 27,
1996 were located in 27 states.
(3) In addition, the Company owns or leases 89 properties that are in turn
leased to others and 70 parcels of land.
(4) The Company's principal offices and commissary at Nashville, Tennessee
comprise four buildings of approximately 171,000 square feet on twenty acres of
land owned by the Company. The Company also operates commissaries in Ripley,
West Virginia; Macon, Georgia; Atlanta, Georgia and Wichita, Kansas.
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Leases
Most of the leases of the Company's restaurant properties are for
periods of approximately 15 years, usually with renewal options ranging from 5
to 15 years. They provide for minimum rentals, totaling approximately
$10,275,000 in 1996, net of sublease rentals, plus an amount equal to a
percentage of sales, generally 3% to 6% in excess of an agreed sales volume.
The Company is also required to pay property taxes and insurance under most of
the leases. Approximately 233 of the leases (54%) expire prior to October 31,
2000; however, approximately 191 of these leases (82% of the 233 leases)
provide for renewal options. Notes 7 and 9 of the Notes to Consolidated
Financial Statements on pages 40 and 45, respectively, of Item 8 in this Annual
Report on Form 10-K are incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS.
J&J Seafood, Inc. et al. v. Shoney's, Inc. - Item 3 of Amendment
No. 1 to the Company's Annual Report on Form 10-K, filed with the Commission on
February 27, 1995, is incorporated herein by this reference. The plaintiff
filed a motion to certify the case as a class action on August 7, 1995. The
motion was argued May 9, 1996 to the Magistrate Judge. The U.S. District Court
Judge accepted the recommendation of the Magistrate Judge and on October 10,
1996 denied the motion for class certification. On December 31, 1996, J&J
Seafood, Inc. filed another lawsuit styled J&J Seafood, Inc. v. Shoney's,
Inc. et al. in the Chancery Court of Tennessee in Wilson County. See
paragraph 2 of Note 12 to the Notes to Consolidated Financial Statements at
page 48 of this Annual Report on Form 10-K, which is incorporated herein by
this reference.
Belcher, et al. v. Shoney's, Inc. - See paragraphs 4 through 8 of Note
12 to the Notes to Consolidated Financial Statements at pages 47 through 49 of
this Annual Report on Form 10-K, which are incorporated herein by this
reference.
Other Litigation - The Company is a party to other legal proceedings
incidental to its business. In the opinion of management, the ultimate
liability with respect to these actions will not materially affect the
operating results or the financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) A Special Meeting of the Shareholders of Shoney's, Inc. was held
on August 21, 1996. At that time, there were present, in person or by proxy,
30,487,620 shares of the Company's common stock.
(b) At the Special Meeting, three items were submitted to a vote of
shareholders. The matters submitted to a vote of shareholders were as follows:
1. The Plan of Tax-Free Reorganization Under Section 368(a)(1)(C) of
the Internal Revenue Code and Agreement, dated as of March 15, 1996, as amended
by and among the Company, TPI Restaurants Acquisition Corporation, a
wholly-owned subsidiary of the Company, and TPI, providing for the Company's
acquisition of substantially all of the assets of TPI in exchange for the
issuance by the Company of shares and associated rights and stock options, of
the Company's common stock and the assumption of certain liabilities, contracts
and other obligations of TPI (the "Reorganization");
10
<PAGE> 12
2. A proposed amendment to the Company's charter increasing the
authorized shares of Shoney's common stock, par value $1.00 per share, from 100
million to 200 million shares; and
3. Proposed amendments to the Shoney's, Inc. 1981 Stock Option Plan,
as described in an accompanying Joint Proxy Statement / Prospectus.
(c) The results of voting for the three proposals at the Special
Meeting, the only matters voted upon, were as follows:
<TABLE>
<CAPTION>
Broker
For Against Withheld Non-Votes
---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
1. Plan of Tax-Free Reorganization 24,946,279 919,195 112,716 4,509,430
2. Amendments to Charter 22,412,354 7,964,857 110,380 29
3. Amendments to Option Plan 23,297,676 6,445,920 744,024
</TABLE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The Company, in accordance with General Instruction G(3) to Form 10-K
and Instruction 3 to Item 401(b) of Regulation S-K, 17 C.F.R. Section 229.401,
furnishes the following information with regard to its executive officers as an
additional item in Part I of this Annual Report on Form 10-K. The following
officers are those that the Company currently deems to be "executive officers",
as defined by the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Name Office Age
---- ------ ---
<S> <C> <C>
C. Stephen Lynn Chairman of the Board, Chief Executive Officer and President 49
W. Craig Barber Senior Executive Vice President
Chief Administrative Officer and Chief Financial Officer 41
Robert M. Langford Senior Executive Vice President and
Chief Operating Officer 45
Deborah D. Hollis Executive Vice President - Human Resources 44
John W. Alderson Division President - Casual Dining 48
Ronald E. Walker Division President - Captain D's 46
James W. Arnett, Jr. Senior Vice President - Shoney's Operations 47
Gregory A. Hayes Senior Vice President and Controller 40
David A. Jordan Senior Vice President - Business Development 43
Haney A. Long, Jr. Senior Vice President - Commissary Operations 51
Betty Marshall Senior Vice President - Corporate Communications and
Community Relations 46
F.E. McDaniel, Jr. Senior Vice President, Secretary and Treasurer 41
Robert A. Speck Senior Vice President - Strategic Planning 42
</TABLE>
11
<PAGE> 13
There is no family relationship among the above or any of the
directors of the Company. Although all executive officers are employees at
will of the Company, each executive officer of the Company generally is elected
each year for a term of one year.
Mr. Lynn was elected as a member of the Board and as the Chairman of
the Board and Chief Executive Officer of the Company on April 11, 1995. In
January 1996, Mr. Lynn was also named President. Mr. Lynn previously served as
Chief Executive Officer and as a Director of Sonic Corp. from November 1983
through April 1995. He also served as Chairman of the Board of Sonic Corp.
from April 1986 to April 1995.
Mr. Barber joined the Company and was elected Assistant Treasurer in
July 1983. He was elected Treasurer in August 1988 and served in that position
until December 1992, when he was elected Vice President - Finance and Chief
Financial Officer. He was elected Senior Executive Vice President and Chief
Financial Officer in January 1995. In October 1996, Mr. Barber was given
additional responsibilities and elected Chief Administrative Officer.
Mr. Langford joined the Company in October 1995. In November 1995 the
Board elected him to the positions of Executive Vice President, General Counsel
and Secretary. In October 1996, Mr. Langford was elected Senior Executive Vice
President and Chief Operating Officer. Prior to joining the Company, Mr.
Langford had operated six franchised Shoney's Restaurants since 1985 and
previously had served as the Company's outside counsel for governmental
affairs. From 1991 to February 1996, Mr. Langford served as Chairman of the
Board and as a Director of Restaurant Management Services, Inc. and its parent
RMS Holdings, Inc. ("RMS"), a franchisee of Shoney's and Captain D's
restaurants.
Ms. Hollis joined the Company in July 1995 and in August 1995, the
Board elected her to the position of Executive Vice President - Human
Resources. Prior to joining the Company, Ms. Hollis was employed by Hardee's
Food Systems, Inc. where she most recently served as Senior Vice President -
Human Resources, a position she held since July 1995. Ms. Hollis had
previously held various management positions in Hardee's Human Resources
Department since 1987.
Mr. Alderson joined the Company in November 1995 and was elected
Division President - Casual Dining at that time. Prior to joining the Company,
Mr. Alderson was President of Metromedia Steakhouses Company, a position he
held since 1994. From 1991 to 1994, Mr. Alderson had served as the President
of Chart House, Inc., a publicly held national restaurant chain.
Mr. Walker has held various positions since joining the Company in
1980, becoming Director of Franchise Operations for the Captain D's Division in
December 1984. He was elected Vice President of Franchise Operations in
December 1986 and was named Executive Vice President - Captain D's in January
1995. In March 1996, Mr. Walker was named as President of the Company's
Captain D's division.
Mr. Arnett was named Senior Vice President - Shoney's Operations in
January 1997. Mr. Arnett had been employed by TPI Restaurants, Inc., a
franchisee of the Company, as Vice President of its Shoney's Restaurant
division from July 1995 until September 1996. From October 1990 until January
1995, Mr. Arnett had served as President and Chief Operating Officer and as a
Director of the Company.
12
<PAGE> 14
Mr. Hayes joined the Company as Director of Financial Analysis in June
1993 and was elected Vice President and Controller of the Company in August
1995. Mr. Hayes was named Senior Vice President and Controller in October
1996. Previously, Mr. Hayes was a senior manager with the accounting firm of
Ernst & Young LLP, where he had been employed in the audit and accounting
practices of the Nashville, Tennessee; New York, New York; and Cincinnati, Ohio
offices from 1978 to 1993.
Mr. Jordan joined the Company in February 1996 as Vice President of
Strategic Planning and was named Senior Vice President for Business Development
in October 1996. Mr. Jordan had served as President of Sonic Industries from
November 1994 to February 1996 and previously served as Director of National
Chain Accounts for Coca-Cola Fountain, a division of The Coca Cola Company,
from September 1989 to November 1994.
Mr. Long joined the Company as Senior Vice President of Purchasing and
Distribution in September 1996. Prior to joining the Company, Mr. Long served
as Senior Vice President of Purchasing and Distribution for TPI Restaurants,
Inc. from November 1989 until September 1996.
Ms. Marshall joined the Company in March 1990 as Director of
Purchasing. She was named Vice President of Corporate and Community Affairs in
January 1991. Ms. Marshall was elected to her present position as Senior Vice
President of Corporate Communications and Community Relations in October 1996.
Mr. McDaniel has served in various positions since joining the Company
in 1981. He was elected Assistant Secretary in December 1984 and Secretary in
August 1988. He was elected to the additional position of Treasurer in
December 1992. He was elected a Vice President of the Company in March 1994
and was named Senior Vice President, Secretary and Treasurer in October 1996.
Mr. Speck joined the Company in December 1995 and was elected Division
President - Shoney's Restaurants at that time. On January 15, 1997, Mr. Speck
was elected Senior Vice President - Strategic Planning. Prior to joining the
Company, Mr. Speck had served as Chief Operating Officer of Grandy's, Inc.
since 1989.
13
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market information. The Company's common stock is traded on
the New York Stock Exchange under the symbol "SHN." The following table sets
forth the high and low trading prices of the Company's common stock as reported
by the New York Stock Exchange during each of the fiscal quarters of the prior
two fiscal years:
<TABLE>
<CAPTION>
Stock Stock
No. of Market Market
Weeks High Low
------ ------ ------
<S> <C> <C> <C>
1996
First Quarter 16 11 5/8 7 7/8
Second Quarter 12 13 3/8 8 1/8
Third Quarter 12 13 3/8 8 3/8
Fourth Quarter 12 9 7/8 7 3/8
--
52
==
1995
First Quarter 16 15 3/8 11 1/4
Second Quarter 12 12 1/2 9 1/8
Third Quarter 12 13 1/8 10 1/8
Fourth Quarter 12 12 1/2 8 7/8
--
52
==
</TABLE>
(b) Holders. There were 8,814 shareholders of record as of
January 24, 1997.
(c) Dividends. The Company has not paid a dividend on its common
shares since the Company's 1988 recapitalization, at which time, the Company
paid a $20 per share special distribution. The Company currently intends to
retain all earnings to support the development and growth of the Company's
restaurant concepts and to retire its outstanding debt obligations. The
Company's senior debt issues (1) require satisfaction of certain financial
ratios and tests (which become more restrictive each year); (2) impose
limitations on capital expenditures; (3) limit the ability to incur
additional debt, leasehold obligations and contingent liabilities; (4) prohibit
dividends and distributions on common stock; (5) prohibit mergers,
consolidations or similar transactions; and (6) include other affirmative and
negative covenants.
14
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA.
FIVE YEAR FINANCIAL SUMMARY
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Fiscal year ended October 1996 1995 1994 1993 (a) 1992
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $1,099,742 $1,053,332 $1,072,459 $1,051,747 $ 985,201
Costs and expenses
Cost of sales 951,565 922,545 895,893 877,582 818,782
General and administrative 68,227 63,905 55,397 54,440 53,622
Interest expense 37,951 39,816 41,237 44,466 51,900
Litigation settlement (1,700) 124,500
Restructuring expense 7,991
---------- ---------- ---------- ---------- ---------
1,057,743 1,034,257 990,827 976,488 1,048,804
Income (loss) from continuing operations
before income taxes, extraordinary charge, and
cumulative effect of change in accounting principle 41,999 19,075 81,632 75,259 (63,603)
Income taxes 15,953 7,873 29,314 28,456 (26,268)
---------- ---------- ---------- ---------- ---------
Income (loss) from continuing operations before
extraordinary charge and cumulative effect of
change in accounting principle 26,046 11,202 52,318 46,803 (37,335)
Discontinued operations, net of income taxes 398 8,137 10,277 11,207 10,758
Gain on sale of discontinued operations,
net of income taxes 22,080 5,533
Extraordinary charge on early extinguishment
of debt (1,038)
Cumulative effect of change in accounting for
income taxes 4,468
---------- ---------- ---------- ---------- ---------
Net income (loss) $ 48,524 $ 24,872 $ 66,025 $ 58,010 $ (26,577)(b)
========== ========== ========== ========== =========
Weighted average shares
outstanding (fully diluted) 48,266 41,519 46,520 45,644 41,049
Per share data--fully diluted
Income (loss) from continuing operations $ .64 $ .27 $ 1.21 $ 1.11 $ (.91)
Net income (loss) $ 1.10 $ .60 $ 1.51 (c) $ 1.35 $ (.65)(b)
Dividends -- -- -- -- --
Total assets $ 747,081 $ 535,016 $ 554,978 $ 525,520 $ 467,421
Long-term debt and obligations under
capital leases $ 476,540 $ 406,032 $ 414,026 $ 389,898 $ 460,546
Shareholders' equity (deficit) $ 528 $ (108,307) $ (136,764) $ (209,988) $(290,497)
Number of restaurants at year-end (d)
Company-owned 957 698 719 708 695
Franchised 519 826 874 875 824
---------- ---------- ---------- ---------- ---------
Total restaurants 1,476 1,524 1,593 1,583 1,519
========== ========== ========== ========== =========
</TABLE>
Notes: (a) - 53 week year.
(b) - Net income before special charge for settlement of lawsuit was
$50,663 or $1.14 per share (see Note 11 to the consolidated
financial statements).
(c) - Income before extraordinary charge and cumulative effect of
change in accounting principle was $1.43 per share.
(d) - Continuing operations.
15
<PAGE> 17
ITEM 7. 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 financial statements and
notes thereto. 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 involve risks and uncertainties, including anticipated financial
performance, business prospects, anticipated capital expenditures and other
similar matters, which reflect management's best judgment based on factors
currently known. 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, including TPIR, Inc., a franchisee which
operated 176 Shoney's Restaurants and 67 Captain D's restaurants. The
acquisition was accounted for as a purchase and the 1996 financial statements
include the results of operations of the acquired business for only seven
weeks. Revenues and earnings before interest and taxes for the seven week
period ended October 27, 1996 were $34.7 million and $271,000, respectively,
for the restaurants acquired from TPI.
RESULTS OF OPERATIONS
REVENUES
The components of the change in revenues from continuing operations during 1996
and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
Amount Amount
(Millions) (Millions)
---------- ----------
<S> <C> <C>
Sales from restaurants opened or acquired $65.1 $ 22.2
Higher menu prices 16.5 3.7
Sales at prior year prices (39.2) (6.4)
Equipment and other sales (0.6) (1.8)
Manufacturing and commissary sales (5.0) (24.2)
Franchise revenues 2.7 (1.9)
Other income 6.9 (10.7)
----- ------
Total $46.4 $(19.1)
===== ======
</TABLE>
Comparable restaurant sales of all the Company's restaurant concepts increased
.2% before considering menu price increases of 2.0%, resulting in a real
decline in comparable restaurant sales for 1996 of 1.8%. Comparable restaurant
sales of all the Company's restaurant concepts declined 2.1% and increased .5%
for 1995 and 1994, respectively, resulting in a real decline in comparable
restaurant sales of 2.5% for 1995 and 1.2% for 1994 after adjusting for menu
price increases. The Company's Shoney's Restaurants have experienced declining
comparable restaurant sales since 1993, while the Company's Captain D's
restaurants have reported increases in comparable restaurant sales during that
same time period.
16
<PAGE> 18
Shoney's Restaurants accounted for 53% of 1996 revenues, while Captain D's
restaurants accounted for 23% of 1996 revenues; therefore, Shoney's
Restaurants' sales performance significantly affects overall Company trends.
Comparable restaurant sales for the Company's Shoney's Restaurants declined
0.9% during 1996, including a 2.7% menu price increase. Average sales volume
of company-owned Shoney's Restaurants was $1,498,000 in 1996 compared to
$1,525,000 and $1,548,000 in 1995 and 1994, respectively. The lower average
sales volume in 1996 reflects the decline in comparable restaurant sales and the
inclusion of Shoney's Restaurants acquired from TPI which had average sales
volumes that were approximately 20% below the company-owned Shoney's
Restaurants' average sales volume. Management believes that the declines in
comparable restaurant sales at its Shoney's Restaurants are the result of
numerous factors including increased competition, and a decline in operational
execution that affected food consistency and service standards which led to a
decline in customer traffic.
A number of programs have been implemented since 1993 to improve operational
performance, regain market share and improve comparable restaurant sales for the
Shoney's Restaurants. A remodeling program was begun in late 1993 through which
270 company-owned Shoney's Restaurants had been remodeled by the end of 1996.
During 1997, the Company plans to remodel an additional 125 company-owned
Shoney's Restaurants, including 65 remodels planned for Shoney's Restaurants
acquired from TPI during 1996. Management believes the restaurant remodeling
program is an important element in its overall concept improvement program which
is necessary to protect Shoney's Restaurants' market share and to encourage
customer retrial.
In 1995, a new advertising agency was selected for Shoney's Restaurants and a
new ad campaign was introduced in 1996 featuring Andy Griffith as Shoney's
celebrity spokesperson in TV and radio advertising. The Company plans to use
Andy Griffith as its celebrity spokesperson during 1997. In addition, the
Company will introduce a more aggressive ad campaign for Shoney's Restaurants
which will focus customers' attention on the variety, quality and service
provided by Shoney's Restaurants compared to fast food restaurants, while
contrasting the price and quality of food and service to casual dining
restaurants.
During 1996, the Company tested an "Owner/Manager" program for Shoney's
Restaurants in the Company's 48 unit middle Tennessee market. Under the test,
Owner/Managers made an "investment" in their restaurants and received a salary
plus incentive compensation based on improvement of the restaurants' cash flow.
The test program was designed to place greater operational responsibility with
the restaurant manager, and repositioned multi-unit supervisors as advisors.
The "Owner/Manager" program and the operational improvement program tested in
this 48 unit market produced comparable restaurant sales gains which were 5.4%
higher than the overall Company average for Shoney's Restaurants for the last
30 weeks of 1996; however, profitability did not improve as had been expected.
Management continues to believe that a properly designed Owner/Manager
program coupled with the recruitment and retention of more skilled restaurant
managers will produce significant performance improvements. The results of the
test program are being used to develop a new Owner/Manager program to be
implemented in a majority of company-owned Shoney's Restaurants during 1997.
It is anticipated that the new program will eliminate a layer of supervision
and will broaden supervisory spans of control to flatten the
17
<PAGE> 19
organizational structure, improve communications and lower overhead costs. The
plan will compensate Owner/Managers and regional multi-unit "Owner/Operators"
based on the cash flow performance of their restaurant(s).
The Company's Captain D's restaurants had an increase in comparable restaurant
sales of 4.0% in 1996, including a 0.9% menu price increase. Fiscal 1996
represents the fourth consecutive year of comparable restaurant sales increases
for Captain D's and reflects management's focus on operational execution, an
effective marketing program, and strategic initiatives designed to improve
drive-thru sales and increase check averages. Captain D's restaurants'
earnings before interest and taxes increased 5.7% in 1996 as compared to 1995.
In January 1995, the Company announced that it intended to sell its Pargo's and
Fifth Quarter restaurants as part of a reorganization of the Company. In July
1995, the Company announced it had decided to retain these two concepts and to
combine them with its BarbWire's restaurants to form a 32-unit Casual Dining
Group. The 1995 revenues and profitability of the Pargo's and Fifth Quarter
restaurants were adversely affected by the uncertainties and disruption of the
sales process.
During 1996, substantially all of the senior management of the Casual Dining
Group was replaced and programs were begun to update menus, food quality and
presentation, hospitality and service standards and restaurant-level incentive
compensation plans. The Casual Dining Group continued to experience declining
comparable restaurant sales and profitability during 1996 despite these
improvement efforts. Declining comparable restaurant sales are believed to be
the result of a combination of factors including greater competition, the
significantly greater marketing resources of its competitors, and the negative
effects of significant and rapid organizational change. Management will
continue to evaluate the performance of these restaurant concepts during 1997.
If the performance and future competitive outlook for these restaurant concepts
do not improve during 1997, management will consider other strategic
alternatives for these businesses, including their potential sale.
Manufacturing and commissary sales declined by approximately $5 million in 1996
as compared to 1995 and declined approximately $24 million in 1995 as compared
to 1994. The decline in manufacturing and commissary sales resulted from a
decline in the number of franchised restaurants purchasing from the commissary
and a decline in purchases by franchisees, resulting principally from declines
in comparable restaurant sales of the Company's franchised Shoney's Restaurants
of 2.3% in 1996 and 8.6% in 1995. The 1995 sales decline also included $3.7
million resulting from the loss of TPIR as a customer of the Company's meat
processing facility.
The Company acquired two leased commissary distribution facilities as part of
the acquisition of the assets of TPIR, which have been closed. The elimination
of these two distribution facilities is expected to reduce overhead by $6
million annually and the additional purchasing volume from the acquired
restaurants is expected to lower food and supplies costs. During 1996, the
Company implemented several measures to increase the competitiveness of
commissary operations and increase revenues and cost efficiency. Some of the
new initiatives were installation of an automated order entry system that
permits company-owned restaurants to place commissary orders through personal
computers at the restaurants, a new pricing structure more similar to its
competitors, and a rebate program to encourage customers to purchase a greater
percentage of their goods from the commissary.
Franchise revenues increased $2.7 million during 1996 as the result of a fourth
quarter agreement to accept payment of $5.2 million to cancel future royalty
obligations of ShoLodge, Inc. ("ShoLodge") under its franchise agreement for
"Shoney's Inns" (TM) motels. The payment represented the discounted estimated
future royalties to be received by the Company under its license agreement.
The increase in franchise revenue from ShoLodge was offset by lower franchise
revenues resulting from a 307 unit decline in franchised restaurants (including
the 243 restaurants acquired from TPI) and a decline in comparable restaurant
sales of the Company's franchised Shoney's Restaurants which effectively offset
an increase in comparable restaurant sales of franchised Captain D's
restaurants. Franchise revenues declined in 1995
18
<PAGE> 20
as compared to 1994 principally because of lower comparable restaurant sales at
franchised Shoney's Restaurants which offset comparable restaurant sales
increases at franchised Captain D's restaurants.
Other income increased in 1996 by $6.9 million due to increased asset sales
($200,000), additional interest income ($300,000), and a gain from the sale of
ShoLodge common stock and warrants ($2.5 million). In addition, the Company
had a $3.9 million unrealized loss on ShoLodge common stock and warrants in
1995 with no comparable loss in 1996. Other income declined in 1995 as a
result of the fourth quarter decline in market value of the Company's
investment in ShoLodge and a decline in asset sales of $1.5 million as compared
to 1994. In 1994, the Company had an unrealized gain of $2.4 million related
to its investment in ShoLodge. The fluctuation in market value of the
Company's investment in ShoLodge between 1995 and 1994 created a $6.3 million
decrease in other income in 1995. Fiscal 1994 included a $1.7 million gain on
the sale of the Company's minority interest in certain Shoney's Inns, with no
comparable item in 1995.
The following table summarizes the change in number of restaurants operated by
the Company and its franchisees during the most recent three fiscal years.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Company-owned restaurants opened or acquired (a) 274 25 28
Company-owned restaurants closed (15) (46) (17)
Franchised restaurants opened 7 17 52
Franchised restaurants closed or acquired (a) (314) (65) (53)
---- --- ---
Net increase (decrease) in restaurants (48) (69) 10
==== === ===
</TABLE>
(a) Includes 176 Shoney's Restaurants and 67 Captain D's restaurants acquired
from TPI on September 9, 1996.
During the fourth quarter of 1995, a restructuring plan was implemented which
included the closure of 41 under-performing restaurants, consisting of 17
Shoney's Restaurants, 22 Captain D's, and 2 Fifth Quarter restaurants. The
Company recorded a restructuring expense of $6.2 million related to these 41
units, principally to write-down assets to their net realizable value and to
accrue future lease costs in excess of estimated sublease rental income.
Approximately $1.7 million of other restructuring expenses, consisting
principally of severance costs, were recorded resulting in total restructuring
expense of $7.9 million. The 1995 revenues and loss before interest and taxes
related to the 41 units closed were $24.2 million and $2.1 million,
respectively. All of these units were either sold or leased during 1996 with
the exception of 9 units which are still being marketed and 2 units for which
leases are pending.
During the third quarter of 1996, the Company began a "market rationalization"
process to focus future restaurant development in core markets and to
selectively exit non-core markets through franchising, joint-venture
arrangements and/or sales of the restaurants. This process included
restaurants acquired from TPI in September 1996. Management has identified
approximately 55 Shoney's Restaurants (including 17 units acquired from TPI) in
markets that it intends to exit as soon as is practicable. These 55 units
had 1996 annual revenues of $50.3 million, produced negative cash flow from
operations of $3.8 million, and reported a loss before interest and taxes of
$6.6 million.
19
<PAGE> 21
COSTS AND EXPENSES
Cost of sales includes food and supplies, restaurant labor and operating
expenses. A summary of cost of sales as a percentage of total revenues for the
last three fiscal years is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Food and supplies 40.1% 40.9% 41.8%
Restaurant labor 24.6 23.8 21.8
Operating expenses 21.8 22.8 19.9
- -------------------------------------------------------------------------------------------
86.5% 87.5% 83.5%
===========================================================================================
</TABLE>
As compared to restaurant revenues, commissary and manufacturing revenues have
a higher percentage of food and supplies costs, a lower percentage of operating
expenses and have no associated restaurant labor. As a result, changes in
commissary and manufacturing revenue have an exaggerated effect on food and
supplies, labor and operating expenses as a percentage of total revenues. Food
and supplies costs as a percentage of revenues declined by 0.8% in 1996 and
0.9% in 1995, principally as a result of the decline in commissary revenue in
each year and the increase in franchise and other revenues in 1996. Food and
supplies costs as a percentage of revenues declined slightly in 1994 when
compared to 1993 as higher food costs at the restaurant-level were offset by
lower food costs associated with manufacturing and commissary revenues.
Restaurant labor increased 0.8% as a percentage of total revenues in 1996,
principally as a result of higher wages at the Company's Shoney's Restaurants.
Wage rates for Shoney's Restaurants' hourly employees increased during 1996 due
to low unemployment conditions in many markets and a competitive restaurant
labor market. These increased costs were offset somewhat by a menu price
increase at Shoney's Restaurants and by increased productivity. Captain D's
overall labor costs increased only slightly during 1996 because of an
aggressive program to manage labor costs and increased use of pre-cut fish to
reduce restaurant labor. Congress enacted an increase in the minimum wage
effective October 1, 1996; however, this increase is not expected to materially
affect the Company's labor costs since most of the Company's hourly employees
earn wages in excess of the federally required minimum wage.
Restaurant labor increased 2.0% as a percentage of revenues in 1995,
principally due to increased labor costs (hours and wage rates) resulting from
the Shoney's Restaurant improvement program and a decrease in commissary and
manufacturing revenue (which has no associated restaurant labor). Labor costs
increased as a percentage of revenues because the Company had not instituted
sufficient menu price increases during 1994 or 1995 due to competitive
pressures.
Operating expenses, as a percentage of revenues, declined 1.0% during 1996 due
to a small net increase in operating expenses offset by increased revenues from
restaurants acquired from TPI. Expenses for retirement of fixed assets and
insurance were lower in 1996 as compared to 1995 but were offset by increased
operating expenses associated with the restaurants acquired from TPI.
Advertising expenses were higher in 1996 due to a fourth quarter Shoney's
Restaurant ad campaign which coincided with the Presidential election season
when TV ad rates were at a premium. The Company anticipates continued pressure
on restaurant operating margins in 1997 until improvements in comparable
restaurant sales and
20
<PAGE> 22
the results of other margin enhancement strategies are realized. Management
intends to aggressively monitor and manage these costs to the maximum extent
practical.
Operating expenses, as a percentage of revenues, increased 2.9% during 1995 as
a result of a $19.1 million decline in total revenues, increased costs for
restructuring and Shoney's operational improvement program. Repairs,
maintenance, and replacement costs increased $3.6 million; $1.3 million of
fixed assets were written off; $400,000 of expenses were incurred for
performance improvement teams; $400,000 of relocation costs were incurred; and
$3.2 million of asset write-downs for surplus property and equipment were
recorded. Additional depreciation expense of $2.8 million was incurred
resulting from new restaurants and property additions from remodeling.
Advertising expenses were $2.8 million higher during 1995 as Shoney's
Restaurants abandoned an unsuccessful ad campaign and changed advertising
agencies. An adjustment to accrued property taxes increased operating expenses
$3.0 million as did a $3.8 million increase in worker's compensation reserves.
In 1994, operating expenses had been favorably affected by a $2.0 million
litigation settlement with a former worker's compensation insurance carrier
resulting in a $5.8 million increase in worker's compensation expenses in 1995
as compared to 1994.
Operating expenses, as a percentage of revenues, increased in 1994 due to
higher depreciation and other costs associated with the Company's remodeling
program of its Shoney's Restaurants, which were partially offset by the
settlement of a lawsuit for $2.0 million against a former worker's compensation
insurance carrier which reduced insurance expense.
A summary of general and administrative expenses and interest expense as a
percentage of revenues for the last three fiscal years is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
General and administrative 6.2% 6.1% 5.2%
Interest expense 3.5% 3.8% 3.8%
</TABLE>
General and administrative expenses as a percentage of revenues increased 0.1%
during 1996 due to a $4.3 million increase in expenses offset by an increase in
revenues from the acquisition of restaurants from TPI. The increase stemmed
principally from significant management changes in 1996 as part of the
restructuring of management begun in 1995, resulting in increased salaries and
employee benefit costs ($3.1 million including $1.2 million in severance pay)
and employee relocation expenses ($400,000). Additionally, the Company had
increased expenses of $1.0 million for travel, office supplies, postage and
professional fees which were due, in part, to expenses associated with the
additional TPIR restaurants. Goodwill amortization increased $600,000 in 1996
as a result of the acquisition of restaurants from TPI and from the
acquisition of other franchised restaurants during 1995 and 1996. These
increased costs were offset by a $2.4 million decrease in consulting fees
incurred in the prior year restructuring with no comparable cost in 1996.
General and administrative expenses as a percentage of revenues increased 0.9%
during 1995, principally due to the initiation of a restructuring of the
Company's management, which resulted in higher salary and severance costs.
Salary and bonus costs increased $4.0 million, relocation costs increased
$400,000, executive search fees increased $600,000 and consulting fees
associated with the Shoney's Restaurant improvement program during 1995 were
$2.4 million.
Interest expense declined by approximately $1.8 million during 1996,
principally due to lower outstanding debt balances during the first three
quarters of 1996. Additional debt was incurred in connection with the
21
<PAGE> 23
acquisition of the assets of TPI; therefore, interest costs are expected to
increase in 1997. Interest expense as a percentage of revenues was unchanged
in 1995 and 1994.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has met its liquidity requirements with cash provided
by operating activities supplemented by external borrowing. Operating cash flow
totaled $90.3 million in 1996, a decrease of $10.1 million compared to 1995.
The Company's cash flow from operations declined in 1996, principally due to a
decline in the profitability of the Company's Shoney's Restaurants. The disposal
of Mike Rose Foods and the sale of property, plant and equipment during 1996
provided a source of cash of $51.3 million and $12.4 million, respectively.
Management believes that the performance and operational improvement programs
implemented during 1995 and 1996 will produce improved performance in the
Shoney's Restaurants during 1997 and will provide additional cash flow. In the
event such operational improvements are not achieved, the Company could be
required to curtail its capital spending plans, explore further asset sales,
obtain modifications to same or all of its credit agreements, or to refinance
indebtedness. While management believes that it can obtain such modifications
or arrange to refinance some or all of its indebtedness, there is no guarantee
that such modifications could be obtained, that financing can be arranged, or
that credit will be available on terms that are favorable to the Company.
During 1996, the Company borrowed $100 million under a senior secured bridge
loan to provide working capital and a source of financing for the acquisition
of the assets of TPI. Approximately $43 million of the bridge loan proceeds
were used to retire indebtedness of TPI and the remainder was used to reduce
amounts outstanding under the Company's revolving credit facility, reduce
short-term debt and to provide working capital. The bridge loan bears interest
at 2.5% over LIBOR with 0.5% increases in the interest rate effective 9, 12,
and 18 months from September 9, 1996. The bridge loan converts to a term loan
if not repaid by May 3, 1998 and such term loan has a bullet maturity in
October 1999. If converted, the Company will be required to pay a fee equal to
3% of the outstanding balance of the bridge loan. Management plans to retire
the bridge loan prior to its conversion to a term facility and anticipates that
it will obtain the funds for retirement either from a debt offering and/or the
sale of assets.
The Company acquired 176 Shoney's Restaurants and 67 Captain D's restaurants in
September 1996 through its acquisition of TPIR. Forty-six (46) of the acquired
Shoney's Restaurants were identified as "under-performing" and the Company has
closed 22 units and plans to close the additional 24 units during 1997. The
remaining units will be remodeled and retained by the Company. The acquired
TPIR restaurants are not expected to materially affect the Company's liquidity
or financial position.
As more fully discussed in Note 12 to the consolidated financial statements,
the Company is a defendant in two class action lawsuits which allege the
Company violated provisions of the Fair Labor Standards Act. In both lawsuits,
the plaintiffs claim to be entitled to recover unpaid wages, liquidated
damages, and 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 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 no provision for any
potential liability has been accrued in the financial statements. In the event
of an unfavorable outcome in these cases that results in a material award for
the plaintiffs, the Company's financial position, results of operations and
liquidity could be adversely affected.
22
<PAGE> 24
The Company's cash flow from continuing operations was $100.4 million in 1995,
a decrease of $22.2 million compared to 1994. The decrease in operating cash
flow in 1995 was principally a result of a $25 million decline in the operating
earnings of the Company's Shoney's Restaurants as the Company implemented a
restructuring and performance improvement program.
Cash used by investing activities in 1995 was $37.7 million, a decrease of
$52.4 million as compared to 1994. This decrease was primarily a result of a
$32 million decrease in 1995 over 1994 capital expenditures for new restaurant
construction and restaurant remodeling. This decrease was offset by a $4.5
million increase in capital expenditures for the acquisition of franchised
restaurants. Capital expenditures related to commissary operations declined
approximately $7 million in 1995 as compared to 1994 due to the construction of
a new Wichita, Kansas commissary facility during 1994. The Company generated
an additional $19.4 million of cash from investing activities in 1995 stemming
from the divestiture of its Lee's Famous Recipe division substantially all of
which was utilized to reduce debt. During 1995, the Company retired $60
million of its senior fixed rate debt and reduced the amount outstanding under
its reducing revolving credit facility by approximately $17 million as of
October 29, 1995 utilizing cash provided by the sale of Lee's and $28 million
from the issuance of senior variable rate debt.
Cash provided by continuing operations was $122.7 million in 1994, an increase
of $28.2 million as compared with the prior year. This increase was primarily
attributable to a decrease in food inventory (principally fish), and an
increase in cash flow from accounts receivable and deferred income taxes, which
were partially offset by a decrease in accrued expenses.
Cash used in investing activities increased in 1994 over 1993, principally due
to an $11.9 million increase in capital expenditures for restaurant remodeling
and construction of a new commissary facility. During 1994, the Company's $125
million reducing revolving credit facility was amended to allow redemption of
the Company's outstanding 12% subordinated debentures. The credit facility was
increased to a maximum of $270 million, and its term was extended to 1999. In
July 1994, the Company's $145.7 million of 12% debentures were redeemed at par.
During 1994, the Company made scheduled payments of $100 million on its senior
debt fixed rate loan, principally from increased borrowing under the reducing
revolving credit facility and from operating cash flows.
The Company utilizes its net cash flow principally for capital expenditures for
the construction, acquisition, and remodeling of its restaurants and commissary
operations, the reduction of debt and for the payment of its litigation
settlement (See Note 11). The Company's capital expenditures in 1996 were
approximately $74.0 million representing $31.0 million for new restaurants or
franchise acquisitions (excluding TPIR), $6.5 million for capitalizable
maintenance expenditures, $5.5 million to replace existing restaurants with new
units, $15.0 million for remodeling and $16.0 million for other assets
(computers, automobiles, point-of-sale systems, etc.). The Company plans
capital expenditures of approximately $65.0 million in 1997 including $13.7
million for new restaurants, $11.6 million for capitalizable maintenance
expenditures, $6.6 million to replace existing restaurants with new units,
$22.1 million for remodeling and $11.0 million for other assets (principally
restaurant point-of-sale systems). The 1997 capital budget includes
approximately $10.0 million for remodeling 65 of the Shoney's Restaurants
acquired from TPI during 1996. Litigation settlement payments of $23.2
million, $23.4 million and $24.9 million were made during 1996, 1995, and 1994,
respectively, as required by the consent decree approved in January 1993.
The Company balances its capital spending plan throughout the year based on
operating results and will decrease capital spending, if needed, to balance
cash from operations, capital expenditures and debt service requirements. The
Company believes that it can meet its needs for debt service, capital
expenditures, the
23
<PAGE> 25
litigation settlement and other general corporate purposes for the next twelve
months through cash generated by the Company's operations, the sale of assets,
the Company's reducing revolving credit facility, and its other available lines
of credit.
The Company is highly leveraged and therefore seeks to minimize its interest
costs by constantly evaluating alternative financing arrangements. The Company
has $135 million outstanding under a reducing revolving credit facility which
bears interest at 2% over LIBOR. The facility currently provides for borrowing
up to a maximum of $189.6 million and expires in 1999. The amount available
under the revolver will reduce by $30 million in April 1997 and by an
additional $30 million in October 1997. The Company's lending agreements
contain covenants that impose limitations on capital expenditures, require
satisfaction of certain financial ratios and tests (which generally become more
restrictive each year) and prohibit the Company from paying dividends or from
incurring additional indebtedness, except under two existing unsecured lines of
credit totaling $30 million.
During the most recent three fiscal years, the Company maintained an interest
rate risk management program to limit its exposure to rising short-term
interest rates on its variable rate debt. The program includes the management
of the mix of fixed and variable rate debt and the use of interest rate cap
agreements. At October 29, 1995 the Company held 7% LIBOR interest rate cap
agreements expiring in 1996 for $50 million (notional amount). These
agreements limited the Company's maximum LIBOR interest rate to 7% on $50
million of its variable rate debt through October 1996. The Company has not
entered into any additional agreements to hedge interest rate changes. The
Company therefore has a risk that it could incur additional interest expense on
its variable rate debt in the event that overall market interest rates
increase. Management is evaluating the replacement of a portion of the
Company's floating rate debt with fixed rate intermediate term debt as part of
an overall plan to reduce exposure to interest rate risks and to more closely
match its assets and liabilities.
IMPACT OF ACCOUNTING CHANGES
The Company is required to adopt FASB Statement No. 121 "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" in
the first quarter of fiscal 1997. Statement 121 requires assets to be written
down to their estimated fair value whenever the estimated undiscounted future
cash flows to be derived from the asset are less than the asset carrying value.
During the first quarter of fiscal 1997, the Company will complete a review of
its restaurants which have experienced operating losses or negative cash flow
from operations during the past two years.
The estimation of future cash flows for these restaurants is highly subjective
and is based upon management's judgment about the future sales trends, economic
conditions in the geographic area surrounding the restaurant, the competitive
restaurant environment and the Company's ability to achieve improvements in
profitability and a variety of other factors. The Company has not finalized
its analysis of the impact of the adoption of Statement 121; however, based
upon the work completed to date, management expects adoption of the Statement
to result in a non-cash charge to operations to reduce the carrying value of
certain restaurant properties to their estimated fair value. Management
believes that this asset impairment, which will be recorded in the first
quarter of 1997, will range from $17 to $22 million.
24
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the registrant and its
subsidiaries, together with all notes thereto, are set forth immediately
following this page as pages 26 through 50 of this Annual Report on Form 10-K.
REPORT OF ERNST & YOUNG LLP
Independent Auditors
Shareholders and Board of Directors
Shoney's, Inc.
Nashville, Tennessee
We have audited the accompanying consolidated balance sheets of
Shoney's, Inc. and subsidiaries as of October 27, 1996 and October 29, 1995,
and the related consolidated statements of income, shareholders' equity
(deficit) and cash flows for each of the three fiscal years in the period ended
October 27, 1996. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Shoney's, Inc. and subsidiaries at October 27, 1996 and October 29,
1995, and the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended October 27, 1996 in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note 6 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in the year ended
October 30, 1994.
Nashville, Tennessee
January 24, 1997 /S/ ERNST & YOUNG LLP
25
<PAGE> 27
CONSOLIDATED BALANCE SHEET
Shoney's, Inc. and Subsidiaries
<TABLE>
<CAPTION>
October 27 October 29
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 13,968,882 $ 7,513,588
Notes and accounts receivable, less allowance for doubtful
accounts of $1,504,000 in 1996 and $1,645,000 in 1995 13,012,160 13,013,821
Inventories 44,248,060 33,483,964
Deferred income taxes 31,452,866 24,549,337
Prepaid expenses and other current assets 7,043,292 6,167,548
Net current assets of discontinued operations 14,495,812
------------ ------------
Total current assets 109,725,260 99,224,070
Property, plant and equipment, at cost
Land 161,605,417 117,104,203
Buildings 279,594,718 227,124,559
Buildings under capital leases 31,823,471 18,122,394
Restaurant and other equipment 301,834,865 256,936,595
Leasehold improvements 82,185,859 57,330,822
Rental properties 24,970,507 24,136,182
Construction in progress (estimated cost to complete:
$1,706,000 in 1996 and $6,382,000 in 1995) 3,299,090 9,789,522
------------ ------------
885,313,927 710,544,277
Less accumulated depreciation and amortization (320,801,387) (291,057,795)
------------ ------------
Net property, plant and equipment 564,512,540 419,486,482
Other assets
Goodwill (net of accumulated amortization of $622,000 in 1996
and $32,000 in 1995) 57,021,411 529,885
Deferred charges and other intangible assets 7,289,488 6,555,899
Other 8,532,742 9,219,658
------------ ------------
Total other assets 72,843,641 16,305,442
------------ ------------
$747,081,441 $535,015,994
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
26
<PAGE> 28
CONSOLIDATED BALANCE SHEET
Shoney's, Inc. and Subsidiaries
<TABLE>
<CAPTION>
October 27 October 29
1996 1995
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 44,746,056 $ 33,099,813
Federal and state income taxes 3,614,019 7,486,210
Taxes other than income taxes 13,219,277 9,565,333
Employee compensation and related items 58,898,844 45,425,547
Accrued interest expense 4,282,462 2,186,731
Other accrued liabilities 33,893,526 17,135,041
Reserve for litigation settlement due within one year 22,887,523 23,372,889
Debt and capital lease obligations due within one year 33,823,795 34,448,154
------------ ------------
Total current liabilities 215,365,502 172,719,718
Long-term debt 450,846,359 393,517,286
Obligations under capital leases 25,693,916 12,515,160
Reserve for litigation settlement 16,000,000 38,727,434
Deferred credits
Income taxes 17,923,295 19,223,797
Income and other liabilities 20,724,789 6,619,234
------------ ------------
Total deferred credits 38,648,084 25,843,031
Commitments and contingencies
Shareholders' equity (deficit)
Common stock, $1 par value: authorized 200,000,000 shares in 1996
and 100,000,000 shares in 1995; issued and outstanding 48,458,231
in 1996 and 41,510,659 in 1995 48,458,231 41,510,659
Additional paid-in capital 113,889,253 60,770,176
Accumulated deficit (162,063,385) (210,587,470)
Unrealized gain on securities available for sale 243,481
------------ ------------
Total shareholders' equity (deficit) 527,580 (108,306,635)
------------ ------------
$747,081,441 $535,015,994
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
27
<PAGE> 29
CONSOLIDATED STATEMENT OF INCOME
Shoney's, Inc. and Subsidiaries
<TABLE>
<Capton>
Years Ended
---------------------------------------------------------
October 27 October 29 October 30
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues
Net sales $1,066,049,153 $1,029,314,432 $1,035,832,226
Franchise fees 26,615,679 23,886,704 25,793,886
Other income 7,076,957 131,284 10,833,006
-------------- -------------- --------------
Total revenues 1,099,741,789 1,053,332,420 1,072,459,118
Costs and expenses
Cost of sales
Food and supplies 440,500,493 430,990,408 447,959,750
Restaurant labor 270,138,654 251,196,828 234,547,471
Operating expenses 240,926,289 240,357,620 213,385,949
-------------- -------------- --------------
951,565,436 922,544,856 895,893,170
General and administrative expenses 68,226,580 63,904,769 55,397,496
Interest expense 37,950,879 39,815,887 41,236,895
Litigation settlement (1,700,000)
Restructuring expense 7,991,539
-------------- -------------- --------------
Total costs and expenses 1,057,742,895 1,034,257,051 990,827,561
-------------- -------------- --------------
Income from continuing operations before income
taxes, extraordinary charge and cumulative
effect of change in accounting principle 41,998,894 19,075,369 81,631,557
Provision for income taxes
Current 7,315,000 9,087,000 19,940,000
Deferred 8,638,000 (1,214,000) 9,374,000
-------------- -------------- --------------
Total income taxes 15,953,000 7,873,000 29,314,000
Income from continuing operations before
extraordinary charge and cumulative effect
of change in accounting principle 26,045,894 11,202,369 52,317,557
Discontinued operations, net of income taxes 397,816 8,136,588 10,276,649
Gain on sale of discontinued operations, net of
income taxes 22,080,375 5,532,748
Extraordinary charge on early extinguishment
of debt, net of income tax benefit (1,037,808)
Cumulative effect of change in accounting for
income taxes 4,468,386
-------------- -------------- --------------
Net income $ 48,524,085 $ 24,871,705 $ 66,024,784
============== ============== ==============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
28
<PAGE> 30
CONSOLIDATED STATEMENT OF INCOME
Shoney's, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------
October 27 October 29 October 30
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Earnings per common share
Primary:
Income from continuing operations before extra-
ordinary charge and cumulative effect of change in
accounting principle $ 0.61 $ 0.27 $ 1.27
Discontinued operations, net of income taxes 0.01 0.20 0.25
Gain on sale of discontinued operations, net of income taxes 0.52 0.13
Extraordinary charge on early extinguishment of debt (0.03)
Cumulative effect of change in accounting for income taxes 0.11
---------- ---------- ----------
Net income $ 1.14 $ 0.60 $ 1.60
========== ========== ==========
Fully diluted:
Income from continuing operations before extra-
ordinary charge and cumulative effect of change in
accounting principle $ 0.64 $ 0.27 $ 1.21
Discontinued operations, net of income taxes 0.01 0.20 0.22
Gain on sale of discontinued operations, net of income taxes 0.45 0.13
Extraordinary charge on early extinguishment of debt (0.02)
Cumulative effect of change in accounting for income taxes 0.10
---------- ---------- ----------
Net income $ 1.10 $ 0.60 $ 1.51
========== ========== ==========
Weighted average shares outstanding
Primary 42,678,497 41,519,116 41,299,061
Fully diluted 48,265,829 41,519,116 46,519,998
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
29
<PAGE> 31
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Shoney's, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Total
Additional Retained Shareholders'
Common Paid-in Earnings Equity
Stock Capital Other (Deficit) (Deficit)
----------- ------------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balances at November 1, 1993 $40,724,536 $ 50,771,605 $ 0 $(301,483,959) $(209,987,818)
Net income 66,024,784 66,024,784
Tax benefits related to
compensation plans 1,602,987 1,602,987
Distributions pursuant to
employee stock option and
stock benefit plans 447,708 4,881,018 5,328,726
Conversions of subordinated
convertible debentures 13,046 254,034 267,080
----------- ------------ -------- ------------- -------------
Balances at October 30, 1994 41,185,290 57,509,644 0 (235,459,175) (136,764,241)
Net income 24,871,705 24,871,705
Tax benefits related to
compensation plans 271,293 271,293
Distributions pursuant to
employee stock option and
stock benefit plans 325,369 2,796,773 3,122,142
Compensation related to grant
of restricted shares
of common stock 192,466 192,466
----------- ------------ -------- ------------- -------------
Balances at October 29, 1995 41,510,659 60,770,176 0 (210,587,470) (108,306,635)
Net income 48,524,085 48,524,085
Tax benefits related to
compensation plans 66,334 66,334
Distributions pursuant to
employee stock option and
stock benefit plans 162,458 1,296,980 1,459,438
Common shares issued to acquire
TPI assets 6,785,114 51,755,763 58,540,877
Compensation related to grant
of restricted shares
of common stock
Unrealized gain on securities
available for sale 243,481 243,481
----------- ------------ -------- ------------- -------------
Balances at October 27, 1996 $48,458,231 $113,889,253 $243,481 $(162,063,385) $ 527,580
=========== ============ ======== ============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30
<PAGE> 32
CONSOLIDATED STATEMENT OF CASH FLOWS
Shoney's, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years Ended
-------------------------------------------------------
October 27 October 29 October 30
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities
Net income $ 48,524,085 $ 24,871,705 $ 66,024,784
Adjustments to reconcile net income to net cash
provided by operating activities:
Income from discontinued operations, net of taxes (397,816) (8,136,588) (10,276,649)
Gain on sale of discontinued operations, net of taxes (22,080,375) (5,532,748)
Depreciation and amortization 46,351,634 42,798,547 39,647,337
Interest expense on subordinated zero coupon
convertible debt and other non-cash charges 11,017,161 13,133,931 12,155,814
Deferred income taxes 8,691,000 (2,981,000) 9,276,000
Equity in earnings of affiliates (31,240) (73,020) (255,185)
Loss on disposal of property, plant and equipment 93,000 2,111,756 74,605
Litigation settlement (1,700,000)
Realized and unrealized (gains) losses on
marketable equity securities and other assets 3,886,905 (4,117,512)
Restructuring expense, non-cash portion 7,120,236
Cumulative effect of change in accounting
for income taxes (4,468,386)
Changes in operating assets and liabilities:
Notes and accounts receivable 2,557,721 3,857,523 4,976,221
Inventories (3,441,744) 4,303,725 11,111,728
Prepaid expenses 13,843 20,535 (385,570)
Accounts payable 13,265,352 (1,998,856) 4,623,664
Accrued expenses 5,421,151 12,730,523 (6,248,379)
Federal and state income taxes (17,904,149) 3,993,174 3,063,784
Deferred income and other liabilities (1,736,308) 314,778 (837,392)
------------ ------------ ------------
Net cash provided by continuing operating activities 90,343,315 100,421,126 122,664,864
Net cash (used) provided by discontinued operating activities (655,622) 13,373,104 15,403,309
------------ ------------ ------------
Net cash provided by operating activities 89,687,693 113,794,230 138,068,173
Investing activities
Purchases of property, plant and equipment (69,658,547) (58,254,507) (90,394,632)
Purchases of assets held for sale (2,403,362) (4,581,577)
Purchase of TPI assets, net of cash acquired (42,842,647)
Proceeds from disposal of discontinued operations 12,375,718 19,424,015
Proceeds from disposal of property, plant
and equipment 51,279,601 4,327,995 4,766,842
(Increase) decrease in other assets (6,716,860) (763,647) 116,148
------------ ------------ ------------
Net cash used in investing activities (55,562,735) (37,669,506) (90,093,219)
Financing activities
Proceeds from long-term debt 127,335,626 78,000,000 245,681,800
Payments on long-term debt and capital lease obligations (122,077,514) (132,259,604) (269,772,824)
Proceeds from line of credit and short-term debt 224,914,000 162,338,000 114,011,000
Payments on line of credit and short-term debt (231,824,508) (157,129,000) (118,171,000)
Exercise of employee stock options 578,002 1,797,973 3,403,776
Payments on litigation settlement (23,212,800) (23,377,347) (24,949,091)
Payments for debt issue costs (3,382,470) (2,210,942) (1,790,257)
------------ ------------ ------------
Net cash used by financing activities (27,669,664) (72,840,920) (51,586,596)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents 6,455,294 3,283,804 (3,611,642)
Cash and cash equivalents at beginning of year 7,513,588 4,229,784 7,841,426
------------ ------------ ------------
Cash and cash equivalents at end of year $ 13,968,882 $ 7,513,588 $ 4,229,784
============ ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
31
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shoney's, Inc. and Subsidiaries
October 27, 1996, October 29, 1995 and October 30, 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Certain
reclassifications have been made in the consolidated financial statements to
conform to the 1996 basis of presentation.
PROPERTY, PLANT AND EQUIPMENT -- Depreciation and amortization are provided
principally on the straight-line method over the following estimated useful
lives: restaurant buildings--20 years; certain office buildings and
warehouses--20 to 40 years; real property leased to others--over the term of
the lease, generally 15 to 20 years; restaurant and other equipment--3 to 10
years; and capital leases and leasehold improvements--lesser of life of assets
or the term of the lease.
CASH EQUIVALENTS -- The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
FRANCHISE FEES -- Initial franchise fees and market development fees are
recorded as income when the restaurants begin operations and the cash payment
has been received. Franchise fees based on sales of franchisees are accrued as
earned.
GOODWILL -- The excess of cost over the fair market value of net identifiable
assets of acquired companies and acquired restaurant operations are amortized
on a straight-line basis over various periods ranging from 10 to 20 years. The
Company evaluates goodwill for impairment at least annually. In completing
this evaluation, the Company compares its best estimate of future cash flows,
excluding interest costs, with the carrying value of goodwill.
INVENTORIES -- Inventories, consisting of food items, beverages and supplies,
are stated at the lower of weighted average cost (which approximates first-in,
first-out) or market.
PRE-OPENING COSTS -- Pre-opening costs include only direct incremental costs
relating to opening new restaurants, such as training costs for new employees
and related travel expenses incurred before a new restaurant opens. These
costs are capitalized and then amortized from the opening date over a period
not to exceed one year.
ADVERTISING COSTS -- The Company charges the costs of production and
distribution of advertising to expense at the time the costs are incurred.
Advertising expense was $31.9 million, $30.3 million and $27.3 million in
fiscal years 1996, 1995 and 1994, respectively.
FISCAL YEAR -- The Company's fiscal year ends on the last Sunday in October.
Fiscal years 1996, 1995 and 1994 were comprised of 52 weeks.
32
<PAGE> 34
BUSINESS SEGMENTS -- The Company's restaurant operations constitute a dominant
segment in accordance with FASB Statement No. 14, "Financial Reporting for
Segments of a Business Enterprise."
STOCK BASED COMPENSATION -- The Company generally grants stock options for a
fixed number of shares to employees with an exercise price equal to the fair
value of the shares at the date of grant. In addition, the Company has granted
some options to key executives that feature a fixed number of shares with an
exercise price equal to or greater than fair market value at the grant date but
which feature time accelerated vesting based upon the Company's stock price
performance. The Company accounts for stock option grants in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees", and,
accordingly, recognizes no compensation expense for the stock option grants
(See Note 8).
EARNINGS PER SHARE -- Primary net income per share for 1996, 1995 and 1994 has
been computed using the weighted average number of shares of common stock and
common stock equivalents outstanding during each period presented. Common
stock equivalents include all dilutive outstanding stock options. The Company
has zero coupon subordinated convertible debentures and 8.25% subordinated
convertible debentures which are not considered common stock equivalents.
Fully diluted net income per share for 1994 and 1996 includes the assumed
conversion of these debentures and the adjustment of earnings for interest that
would not be paid if the debentures were converted. The 1995 fully diluted
earnings per share computations exclude the effect of the assumed conversion of
the debentures because it had an antidilutive effect.
FAIR VALUES OF FINANCIAL INSTRUMENTS -- The following methods and assumptions
were used by the Company in estimating its fair value disclosures for financial
instruments:
Cash and cash equivalents: The carrying amount reported in the balance sheet
for cash and cash equivalents approximates fair value.
Long-term debt: The carrying amounts of the Company's borrowings under its
senior debt-reducing revolving credit facility, senior debt-taxable variable
rate notes, bridge loan, and other senior debt with variable interest rates
approximate their fair value. The fair values of the Company's subordinated
zero coupon convertible debentures and 8.25% subordinated convertible
debentures were determined based on quoted market prices. The fair value of
other long-term debt, industrial revenue bonds and notes payable were
estimated using discounted cash flow analyses utilizing the Company's
incremental borrowing rates for similar types of borrowing arrangements.
Interest rate cap agreements: The fair values for the Company's interest rate
cap agreements were based on estimates of the contracts' values obtained from
commercial banks that are counter parties to those agreements.
Reserve for litigation settlement: The fair value of the reserve for litigation
settlement was estimated using discounted cash flow analyses utilizing an
interest rate appropriate for an unsecured loan of a similar term.
ADOPTION OF NEW ACCOUNTING RULES -- In March 1995, the FASB issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the future undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement 121 also addresses
the accounting for long-lived assets that are
33
<PAGE> 35
expected to be disposed of. The Company will adopt Statement 121 in the first
quarter of fiscal 1997 and is currently in the process of evaluating the impact
of adoption. The estimates of future cash flows is highly subjective and is
based upon management's judgment about the future sales trends, economic
conditions, competitive environment and the Company's ability to achieve
improvements in profitability. During the first quarter of 1997, the Company
will complete a review of its restaurants which it believes may be impaired.
Based on preliminary estimates, the Company believes that it will likely record
a non-cash charge to reduce the carrying value of such assets of between $17 and
$22 million.
RISKS AND UNCERTAINTIES -- The Company operates and franchises a chain of 1,476
restaurants in 34 states, which consists of three restaurant divisions:
Shoney's, Captain D's, and a Casual Dining Group (which includes three distinct
restaurant concepts). The Company also operates a commissary and manufacturing
business that supplies food and supplies to Company and franchised restaurants.
The Company's principal concepts are Shoney's Restaurants, which are family
dining restaurants offering full table service and a broad menu, and Captain
D's restaurants, which are quick-service restaurants specializing in seafood.
The Company extends credit to franchisee customers for franchise fees and the
sale of food and supplies on customary credit terms. Additionally, the Company
believes there is no concentration of risk with any single customer, supplier,
or small group of customers or suppliers whose failure or non-performance would
materially affect the Company's results of operations.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to use judgment and make estimates
that affect the amounts reported in the consolidated financial statements.
Management believes that such estimates have been based on reasonable and
supportable assumptions and that the resulting estimates are reasonable for use
in the preparation of the consolidated financial statements. Changes in such
estimates will be made as appropriate as additional information becomes
available and may affect amounts reported in future periods.
NOTE 2 - ACQUISITIONS
As of September 9, 1996, the Company completed the acquisition of substantially
all the assets of TPI Enterprises, Inc. ("TPI") which, as the largest
franchisee of the Company, operated 176 Shoney's Restaurants and 67 Captain D's
restaurants. 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 and transaction costs of $3.0 million net of cash acquired of $3.7
million. The Company borrowed $100 million under a bridge loan to finance the
acquisition and to provide additional 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 have been included in the 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.
34
<PAGE> 36
The following unaudited proforma information presents a summary of consolidated
results of operations of the acquired operations of TPI and the Company as if
the acquisition had occurred as of the beginning of 1995, with proforma
adjustments to give effect to amortization of goodwill, interest expense,
acquisition-related debt, and certain other adjustments, together with the
related tax effects.
<TABLE>
<CAPTION>
Amounts in thousands, except per share amounts
October 27 October 29
1996 1995
---------- ----------
<S> <C> <C>
Net revenues $1,337,430 $1,332,026
Income (loss) from continuing operations $ 14,713 $ 9,073
Net income (loss) $ 37,191 $ 22,743
Earnings per common share (fully diluted)
Continuing operations $ .30 $ .19
Net income $ .76 $ .47
</TABLE>
The Company has closed 22 Shoney's Restaurants acquired, two commissary and
distribution facilities that had provided TPIR's restaurants with food and
supplies, and the corporate office headquarters in West Palm Beach, Florida.
In addition, the Company plans to close an additional 24 of the acquired
Shoney's Restaurants during 1997. 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 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 of the
property. 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.
In addition to restaurants acquired from TPI, the Company acquired 18
franchised restaurants in 1996 with an aggregate purchase price of $18.1
million, each of which was accounted for as a purchase. The consolidated
financial statements reflect the results of operations of each restaurant
acquired since the date of acquisition. Proforma results of operations have not
been presented because the effect of these acquisitions was not material.
NOTE 3 - DISCONTINUED OPERATIONS AND RESTRUCTURING
On January 16, 1995, the Company's Board of Directors announced a
reorganization designed to improve the performance and growth of the Shoney's
Restaurant concept. The reorganization included the divestiture of certain
non-core lines of business including Lee's Famous Recipe, Pargo's and Fifth
Quarter restaurants, as well as Mike Rose Foods, Inc. ("MRF"), a private label
manufacturer of food products. In July 1995, the Company announced a change in
its divestiture plans whereby the Company would retain its Fifth Quarter and
Pargo's restaurants. These two restaurant concepts have been combined with the
Company's BarbWire's Steakhouses to form a thirty-four unit Casual Dining Group
with shared management and administrative support services intended to improve
operating efficiencies.
35
<PAGE> 37
The Company sold its Lee's Famous Recipe division to RTM Restaurant Group for
$24.5 million cash and a $4 million promissory note in October 1995 resulting
in a gain of $5.5 million, net of tax. The promissory note is due in monthly
installments over five years and bears interest at the prime rate. The
promissory note 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 sale of MRF was completed in
November 1995 for $55 million cash and resulted in a gain of approximately
$22.1 million, net of tax.
The results of operations of the lines of business divested have been treated
as discontinued operations in the accompanying financial statements and are
presented net of any related income tax expense. Prior years financial
statements have been reclassified to conform to this method of presentation.
These discontinued lines of business had net property, plant and equipment of
$10.6 million at October 29, 1995, revenues of $86.7 million and $93.7 million
for 1995 and 1994, respectively, and earnings before interest and taxes of
$13.1 million and $16.5 million for 1995 and 1994, respectively. Certain
one-time charges associated with the reorganization and divestitures were
accrued as they were incurred.
During the fourth quarter of 1995, the Company implemented a plan to close 41
under-performing restaurants (17 Shoney's Restaurants, 22 Captain D's and 2
Fifth Quarters). The Company accrued approximately $6.2 million of
restructuring expenses related to those planned closures, principally
consisting of the write-down of assets to their net realizable value and the
accrual of leases and other costs associated with closure in excess of
anticipated sublease income. In addition, during 1995, the Company had accrued
severance costs of certain executives and restaurant personnel displaced by the
restructuring of approximately $1.7 million. All of these units were either
sold or leased during 1996 with the exception of 9 units which are still being
marketed and 2 units for which leases are pending. A gain of approximately
$0.5 million on units disposed of to date has been deferred pending the
disposal of the remaining units.
NOTE 4 - SALE OF SHONEY'S LODGING, INC. AND INVESTMENTS IN SHOLODGE
During fiscal 1991, the Company sold its lodging division (operating under the
name Shoney's Inns) to ShoLodge, Inc. ("ShoLodge"). Under the terms of the
sale, the Company was entitled to receive a portion of royalties generated by
both existing and future Shoney's Inns licensed by ShoLodge for specified
periods. During 1992, ShoLodge completed an initial public offering of stock
in which the Company purchased $555,555 of common stock in ShoLodge pursuant to
its obligation under the stock purchase agreement for the sale of the lodging
division. In addition, as part of the purchase agreement, the Company received
warrants to purchase up to 5% of the outstanding common stock of ShoLodge.
During July 1993, the Company sold its ShoLodge shares for $1,147,067. Until
the end of 1996, two executive officers of the Company served on the Board of
Directors of ShoLodge pursuant to the terms of the stock purchase agreement.
In February 1994, the Company sold its minority ownership interest in four
Shoney's Inns to ShoLodge in exchange for 121,212 shares of common stock of
ShoLodge. The shares received were recorded at their fair value of
approximately $2.4 million resulting in a gain of $1.7 million. The ShoLodge
common stock was initially classified as a trading security under FASB
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" and changes in fair value of the ShoLodge stock in 1994 and 1995
were reflected in the results of operations.
36
<PAGE> 38
In connection with the sale of the Company's minority motel interest, the
Company was granted future registration rights for the ShoLodge shares that
could be acquired upon exercise of the ShoLodge common stock warrants owned by
the Company. During 1994 and 1995, the Company had classified warrants for
which it has stock registration rights exercisable within one year as trading
securities, which were recorded at their fair value (the difference in the
warrant exercise price and the market price of ShoLodge common stock) at the
time they are classified as trading securities and the resulting gain was
included in the results of operations. Once classified as a trading security,
such warrants were carried at fair value with changes in fair value also
reflected in the results of operations.
At October 29, 1995, the Company held 121,212 shares of ShoLodge which had a
fair value and a carrying value of $954,545. In addition, the Company held
warrants, for which it had future registration rights, to purchase 324,000
shares of ShoLodge common stock at $8.40 to $13.35 per share, which had a fair
value and a carrying value of $0. The Company recorded gains from such ShoLodge
warrants of $1.25 million in 1995 at the time the warrants were classified as
trading securities. The Company recorded an unrealized loss of $3.6 million in
1995 due to the change in fair value of such warrants.
Under the terms of supplemental implementation guidance on FASB Statement No.
115 issued in November 1995, the Company re-classified its investment in
ShoLodge common stock and warrants, for which it has registration rights within
one year, as "held for sale". During 1996, changes in the fair market value of
ShoLodge common stock and warrants were reflected as an unrealized gain or loss
and included as a component of shareholders' equity. During 1996, the Company
recorded an unrealized gain on ShoLodge common stock and warrants of $243,000,
which was included as a component of shareholders' equity. During the fourth
quarter of 1996, the Company agreed to sell its ShoLodge common stock warrants
to ShoLodge for $2.0 million, which represented the unrealized gain on such
warrants based on the difference in the fair market value of ShoLodge common
stock and the exercise price of the warrants. In addition, the Company sold
approximately 85,000 shares of ShoLodge common stock in the market. The sale
of the ShoLodge common stock and warrants resulted in a gain of approximately
$2.5 million, which was included in other income. The Company uses the average
cost method for purposes of determining realized gains and losses on the sale
of investment securities. At October 27, 1996, the Company held 36,782 shares
of ShoLodge common stock with a fair value and carrying value of $506,000.
Concurrent with the agreement for the sale of ShoLodge common stock warrants,
the Company agreed to accept payment of $5.2 million from ShoLodge to terminate
future royalty license fees due to the Company related to the operation and
franchising of Shoney's Inns motels by ShoLodge. The payment represented the
present value of the estimated future license fees to have been received by the
Company through October 2001 pursuant to the terms of its licensing agreement
for Shoney's Inns. The payment was recorded as franchise revenue in 1996 since
the Company has no future performance obligations under the agreement.
NOTE 5 - DEBT ISSUE COSTS
Debt issue costs are capitalized and amortized using the effective interest
method over the term of the related debt issues. Issue costs of $3,505,000,
$2,211,000, and $1,790,000 relating to various financings during 1996, 1995 and
1994, respectively, have been paid and deferred. Amortization of debt issue
costs during 1996, 1995 and 1994 was $2,956,000, $2,215,000, and $2,576,000,
respectively.
37
<PAGE> 39
During 1994, the Company called $145.7 million par value of 12% subordinated
debentures. Unamortized debt issue costs associated with these debentures of
$1.7 million ($1.0 million, net of tax) were charged to expense as an
extraordinary charge.
NOTE 6 - INCOME TAXES
The Company adopted FASB Statement 109 "Accounting for Income Taxes" effective
November 1, 1993. Statement 109 utilizes the liability method of accounting
for income taxes which requires the recognition of deferred income tax assets
and liabilities for the expected future tax consequences of temporary
differences between the tax bases and financial reporting bases of assets and
liabilities. The cumulative effect of adopting Statement 109 was an increase
to net income of $4,468,000 or $0.10 per share (fully diluted) for the year
ended October 30, 1994.
The components of the Company's deferred tax assets and liabilities as of
October 27, 1996 and October 29, 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Reserve for lawsuit settlement $14,874,478 $23,753,374
Reserve for self insurance 20,142,213 13,221,079
Reserve for restructuring 6,022,886 574,350
Amortization of intangibles 5,296,270 78,726
Net operating loss, contribution
and tax credit carryforwards 14,791,571
Other - net 8,176,412 4,968,016
----------- -----------
Deferred tax assets 69,303,830 42,595,545
Less valuation allowance for deferred tax assets (4,748,634) 0
----------- -----------
Net deferred tax asset 64,555,196 42,595,545
----------- -----------
Deferred tax liabilities:
Tax over book depreciation 26,753,667 14,715,011
Capital contribution 22,501,840 22,501,840
Other - net 1,770,118 53,154
----------- -----------
Deferred tax liabilities 51,025,625 37,270,005
----------- -----------
Total net deferred tax asset $13,529,571 $ 5,325,540
=========== ===========
</TABLE>
At September 9, 1996, the Company recorded a net deferred tax asset of
$16,894,522 (net of $4,901,634 valuation allowance) related to the transaction
with TPI Enterprises, Inc. (See Note 2).
At October 27, 1996, the Company had net operating loss (NOL) and contribution
carryforwards of approximately $22,463,000 and $1,813,000, respectively, which
expire during the years 1997 through 2011. The Company also had targeted jobs
and tip credit carryforwards of approximately $4,633,000 which expire during
the years 2003 through 2010 and alternative minimum tax credit carryforwards of
$873,000 which have no expiration. These carryforward items were acquired in
the transaction with
38
<PAGE> 40
TPI Enterprises, Inc. The utilization of these carryforwards is subject to
limitations imposed by the Internal Revenue Code.
A valuation allowance has been established primarily for tax credit
carryforwards which 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 future 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.
The balance sheet classification of the net deferred tax asset is as follows:
<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
Current deferred tax asset $ 31,452,866 $ 24,549,337
Noncurrent deferred tax liability (17,923,295) (19,223,797)
------------ -------------
Net deferred tax asset $ 13,529,571 $ 5,325,540
============ =============
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- ------------
<S> <C> <C> <C>
Currently payable
Federal $ 18,441,000 $ 16,972,900 $ 22,315,300
------------- ------------- ------------
State 3,166,000 2,315,100 3,374,700
------------- ------------- ------------
21,607,000 19,288,000 25,690,000
Deferred
Federal 7,623,000 (2,767,100) 8,174,700
State 1,068,000 (213,900) 1,101,300
------------- ------------- ------------
8,691,000 (2,981,000) 9,276,000
------------- ------------- ------------
Total income tax expense $ 30,298,000 $ 16,307,000 $ 34,966,000
============= ============= ============
</TABLE>
The income statement classification of the provision for income taxes is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Income tax expense attributable to
continuing operations $ 15,953,000 $ 7,873,000 $ 29,314,000
Discontinued operations 244,000 4,993,000 6,275,000
Gain on sale of discontinued operations 14,101,000 3,441,000
Extraordinary item (623,000)
------------ ------------ ------------
Total income tax expense $ 30,298,000 $ 16,307,000 $ 34,966,000
============ ============ ============
</TABLE>
39
<PAGE> 41
A reconciliation of the difference between total income tax expense and the
amount computed using the statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Statutory federal income tax rate 35% 35% 35%
Federal income taxes based on the
statutory tax rate $ 27,587,730 $ 14,412,547 $ 33,782,839
State and local income taxes, net
of federal tax benefit 2,752,100 1,365,780 2,909,400
Targeted jobs and tip credits (941,378) (1,427,424) (1,574,412)
Other 899,548 1,956,097 (151,827)
------------ ------------ ------------
Total income tax expense $ 30,298,000 $ 16,307,000 $ 34,966,000
============ ============ ============
</TABLE>
The Company made income tax payments of approximately $25,906,000, $15,238,000,
and $22,483,000 during fiscal years 1996, 1995 and 1994, respectively.
NOTE 7 - DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
Debt and obligations under capital leases at October 27, 1996 and October 29,
1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Senior debt-reducing revolving credit facility, due in
installments to October 1999 $135,000,000 $223,000,000
Senior secured bridge loan due October 1999 100,000,000
Senior debt-taxable variable rate notes, due in
varying installments to September 1998 28,650,000 29,550,000
Senior debt-due in installments to April 1998 6,437,913 7,104,580
Senior debt-due in November 1997 18,917,000 20,800,000
Senior debt-due in installments to October 1999 26,133,240 28,000,000
Subordinated zero coupon convertible debentures,
due April 2004 95,357,650 87,780,529
Subordinated convertible debentures, 8.25%,
due July 2002, (net of discount of $4,560,608) 47,002,392
Industrial Revenue Bonds, due in varying annual
installments to May 2006 collateralized by land,
buildings, equipment and restricted cash 13,876,667 13,947,500
Notes payable to others, 6.0% to 10.25%, maturing
at varying dates to 2009 ($8,277,696 of these
notes are secured by land, buildings and equipment) 10,730,605 16,717,784
------------ ------------
482,105,467 426,900,393
Obligations under capital leases 28,258,603 13,580,207
------------ ------------
510,364,070 440,480,600
Less amount due within one year 33,823,795 34,448,154
------------ ------------
Amount due after one year $476,540,275 $406,032,446
============ ============
</TABLE>
40
<PAGE> 42
SENIOR DEBT
The Company has a reducing revolving credit facility ("Revolver") with a
syndicate of financial institutions which has a maturity date of October 1999
and provides for reductions in the aggregate Revolver. At October 27, 1996,
the maximum amount available under the Revolver was $189.6 million with
scheduled reductions of $30 million each in April and October of 1997. The
interest rate for the facility was at floating rates (the London Interbank
Offered Rate ("LIBOR") plus 2% or the announced Alternate Base Rate of the
agent bank plus 1%). At October 27, 1996, the Company had $135 million
outstanding under this facility and the interest rate was 7.6%. In addition,
at October 27, 1996, the Company had outstanding letters of credit in the
amount of $11.5 million which were supported by the Revolver.
Under the terms of the Revolver, the Company agreed to effect an interest rate
risk management program to limit the Company's exposure to rising short-term
interest rates through November 1996. As of October 27, 1996, the Company had
interest rate cap agreements for $50 million (notional amount), which have a 7%
LIBOR interest rate cap. Under the terms of the cap agreements, the Company's
maximum LIBOR interest rate on $50 million of its outstanding variable rate
debt was effectively capped at 7% during fiscal 1996.
During the second quarter of 1996, the Company obtained a senior secured bridge
loan for up to $100 million from a bank. The purpose of the bridge loan was to
provide working capital and a source of financing for the Company's acquisition
of substantially all of the assets of TPI. The bridge loan bears interest at
LIBOR plus 2.5% (or the announced Alternative Base Rate of the bank plus 1.5%)
with 0.5% increases in the interest rate effective 9, 12, and 18 months after
September 9, 1996. The bridge loan is secured by assets acquired from TPI and
by a pledge of certain other assets of the Company. 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 loan.
The senior debt-taxable variable rate notes are sold to investors through an
investment banking corporation. The notes are secured by standby letters of
credit of $31.5 million which includes the face amount of the notes plus
interest for 145 days. The letters of credit are secured by a reimbursement
agreement and standby note which are collateralized by a fully perfected first
lien on certain land and buildings. Letters of credit securing $18.4 million
of this indebtedness will expire on October 1, 1997; however, the Company
intends to extend the letters of credit for a period of at least one year. The
effective interest rate at October 27, 1996 was 7.8%.
The Company's other senior debt issues totaling $51.4 million generally bear
interest at 1.25% to 1.5% over LIBOR and at October 27, 1996, the effective
interest rates ranged from 6.75% to 7%.
The Company's indebtedness is secured by substantially all the Company's
assets. The Company's debt agreements (1) require satisfaction of certain
financial ratios and tests (which become more restrictive each year); (2)
impose limitations on capital expenditures; (3) limit the ability to incur
additional debt, leasehold obligations and contingent liabilities; (4) prohibit
dividends and distributions on common stock; (5) prohibit mergers,
consolidations or similar transactions; and (6) include other affirmative and
negative covenants.
41
<PAGE> 43
SUBORDINATED ZERO COUPON CONVERTIBLE DEBENTURES, DUE APRIL 2004
The subordinated zero coupon convertible debentures were issued at $286.89 per
$1,000 note (aggregate amount of $57.7 million). There are no periodic
payments of interest. The issue price represents a yield to maturity of 8.5%
based on a semiannual bond equivalent basis. Each note is convertible into
29.349 shares of the Company's common stock at the option of the holder. The
Company has reserved 5,205,632 shares for future issuance pursuant to these
debentures.
SUBORDINATED CONVERTIBLE DEBENTURES, 8.25%, DUE JULY 2002
In connection with the acquisition of substantially all of the assets of TPI
in September 1996, the Company assumed, through a supplemental indenture, $51.6
million (principal amount) of 8.25% subordinated convertible debentures due
July 15, 2002. The bonds are convertible at the holders' option, subject to
compliance with the provisions of the supplemental indenture, into 50.508
shares of the Company's stock for each $1,000 debenture. In addition, upon
conversion, debenture holders are entitled to a cash distribution per share
equal to the cash distributions (if any) made by TPI to its common shareholders
in connection with the liquidation and dissolution of TPI. Interest on the
bonds is due semi-annually in January and July.
OTHER DEBT INFORMATION
On July 2, 1994, the Company retired $145.7 million of subordinated debentures
that were callable at par. As a result of the redemption, the unamortized
portion of the original issue discount and debt issue costs of $1,661,000 were
charged to expense during the third quarter of fiscal 1994 and was reflected in
the consolidated statement of income as an extraordinary charge of $1,038,000,
net of income tax benefits of $623,000.
The Company has an unsecured line of credit for $20,000,000 with interest
payable monthly at the lending bank's index rate (8.25% at October 27, 1996).
There were borrowings of $152,000 under the line at October 27, 1996. The line
is available through October 31, 1997 with a three month extension each quarter
at the option of the bank. The Company also has an unsecured revolving credit
facility for $10,000,000 with interest payable quarterly at rates based on the
prime lending rate (8.25% at October 27, 1996). Borrowings under this
facility, which expires June 25, 1998, if not terminated earlier, are due on
thirty days notice. As of October 27, 1996, the balance outstanding under this
facility was $1,980,000. The weighted average interest rates for these two
unsecured credit facilities were 7.8%, 8.0% and 6.2% for 1996, 1995 and 1994,
respectively.
The industrial revenue bonds include $11,917,000 at fixed interest rates
ranging from 8.5% to 11.5% and $1,960,000 at a floating interest rate subject
to a floor of 7.5% and a ceiling of 15%.
Debt and obligations under capital leases maturing in each of the next five
fiscal years are as follows:
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
$33,824,000 $105,469,000 $163,384,000 $4,105,000 $4,277,000
</TABLE>
42
<PAGE> 44
Net interest costs of approximately $416,000, $813,000, and $866,000 were
capitalized as a part of building costs during 1996, 1995 and 1994,
respectively. Interest paid during 1996, 1995 and 1994 was approximately
$26,499,000, $31,276,000, and $38,202,000, respectively.
In addition to the letters of credit supporting the taxable variable rate notes
previously described, the Company has standby letters of credit of $24.1
million outstanding at October 27, 1996, $11.5 million of which are supported
by the Company's revolver that are utilized to support the Company's insurance
programs.
The carrying value and estimated fair value of the Company's long-term debt and
other financial instruments are summarized in the following table:
<TABLE>
<CAPTION>
October 27, 1996
------------------------------
Estimated
Carrying Value Fair Value
-------------- -------------
<S> <C> <C>
Senior debt-reducing revolving credit facility $ 135,000,000 $ 135,000,000
Senior secured bridge loan 100,000,000 100,000,000
Senior debt - various 80,138,153 80,138,000
Subordinated zero coupon convertible debentures 95,357,650 77,156,000
Subordinated convertible debentures 47,002,392 46,922,000
Industrial revenue bonds 13,876,667 14,426,000
Notes payable 8,598,605 8,563,000
Lines of credit 2,132,000 2,132,000
------------- -------------
Total Debt $ 482,105,467 $ 464,337,000
============= =============
Reserve for litigation settlement $ 38,887,523 $ 36,437,976
</TABLE>
See Note 1 - Summary of Significant Accounting Policies for a further
discussion of the basis for management's estimates of the fair value of
financial instruments.
NOTE 8 - STOCK OPTIONS AND STOCK BENEFIT PLANS
The stock option plan adopted by the Company in 1969, and as subsequently
amended, covered 97,008 and 123,346 of the common stock of the Company as of
October 27, 1996 and October 29, 1995, respectively. A second stock option
plan adopted by the Company in 1981 (the 1981 Plan), and as subsequently
amended, covered 7,505,931 and 7,531,425 shares of the common stock of the
Company as of October 27, 1996 and October 29, 1995, respectively. On
September 9, 1996, options to purchase 615,146 shares of the Company's common
stock were issued in exchange for the outstanding TPI Enterprises, Inc. options
in connection with the Company's acquisition of the assets of TPI (the 1996
Plan).
Option prices may not be less than the market price on the date of grant. The
plans provide for the issuance of options having terms of up to 10 years and
which become exercisable generally at a rate of 20% per year or as determined
by the Company's compensation committee of the Board of Directors, but not to
exceed 33 1/3% per year. During 1996, shareholders approved an amendment to
the 1981
43
<PAGE> 45
Plan to permit the Company's compensation committee of the Board of Directors
to grant options which become exercisable upon attainment of specified market
price appreciation of the Company's common shares of not less than 15%
annually, or at six years after the date of grant.
The Company has a stock option plan for directors under which options to
purchase 200,000 shares of common stock may be granted to non-employee
directors. Each non-employee director receives an option to purchase 5,000
shares upon their initial election to the Board and every five years thereafter
receives an option to purchase 5,000 shares. The option price is the market
price of the Company's common stock on the date that the option is granted.
Each option has a term not to exceed ten years and is exercisable at the rate
of 20% per year and in full in the event of death or disability.
Options available for future grant under the 1981 Plan, the 1996 Plan, and the
director's plan at the end of 1996 and 1995 totaled 2,344,040 and 5,033,666
shares, respectively. A summary of activity under the plans is as follows:
<TABLE>
<CAPTION>
Range of
Options Options Option Prices
- ------------------------------- --------- ----------------------
<S> <C> <C> <C>
Outstanding at October 30, 1994 2,292,554 $ 5.04 $ 25.75
Issued 1,453,000 9.63 12.00
Exercised (271,460) 5.04 13.25
Expired or canceled (657,989) 7.26 25.75
--------- ------ -------
Outstanding at October 29, 1995 2,816,105 6.14 25.75
Issued 3,912,146 7.61 33.13
Exercised (51,832) 6.14 10.63
Expired or canceled (602,520) 8.43 25.75
--------- ------ -------
Outstanding at October 27, 1996 6,073,899 $ 6.14 $ 33.13
========= ====== =======
</TABLE>
During 1994, options were exercised for 346,184 shares at prices ranging from
$5.04 to $19.13. At October 27, 1996 and October 29, 1995, options for
1,216,502 and 677,324 shares, respectively, were exercisable.
The Company also has an Employee Stock Purchase Plan under which 1,814,055
shares of the Company's common stock may be issued at October 27, 1996. Under
the terms of this plan, employees may purchase the Company's common stock
through payroll deductions. The purchase price is 85% of the lower of (i) the
average of the closing market prices on the first trading day of each calendar
month or (ii) the closing market price on the last trading day of each calendar
year. The exercise date under this plan is the last trading day of each
calendar year and distributions to employees of 76,506, 122,184 and 100,124
were made in 1996, 1995 and 1994, respectively. There have been no charges to
income in connection with the plan other than incidental expenses in the
administration of the plan.
The Company has an Employee Stock Bonus Plan under which 607,333 shares of the
Company's common stock may be issued at October 27, 1996. The awards under
this plan consist of both a stock and a cash bonus. The stock bonuses vest 10%
per year after one year and in full after five years and are distributed upon
vesting. On each vesting date, a cash bonus also will be distributed that is
equal to 25% of the market value of the shares being distributed. A maximum of
1,000 shares may be awarded to any employee each year. As of October 27, 1996,
grants of bonuses under this plan of 24,800 shares were outstanding.
44
<PAGE> 46
The shares distributed and cash bonuses paid pursuant to this plan during the
past three fiscal years were as follows:
<TABLE>
<CAPTION>
Shares Cash Bonuses
------ ------------
<S> <C> <C>
1994 1,400 $ 8,094
1995 4,675 $ 14,065
1996 4,040 $ 10,353
</TABLE>
NOTE 9 - LEASES
The Company has noncancellable lease agreements for certain restaurant land and
buildings. Substantially all lease agreements may be renewed for periods
ranging from five to fifteen years, and provide for contingent rentals based on
percentages of net sales (generally 3% to 6%) against which minimum rentals are
applied.
Buildings under capital leases of $29,677,000 at October 27, 1996 and
$18,122,000 at October 29, 1995 and accumulated amortization of $8,810,000 and
$7,517,000 at October 27, 1996 and October 29, 1995, respectively, relate to
the building portion of capital leases involving land and buildings.
Amortization of buildings under capital leases is included in depreciation
expense.
At October 27, 1996, minimum rental commitments under capital leases and
operating leases having an initial or remaining noncancellable term of one year
or more are shown in the following table:
<TABLE>
<CAPTION>
Capital Operating Sublease
Leases Leases Amounts Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 $ 5,250,428 $ 16,143,424 $(1,199,664) $ 20,194,188
1998 4,986,743 14,961,709 (1,112,921) 18,835,531
1999 4,673,349 13,133,578 (1,039,148) 16,767,779
2000 4,307,985 11,596,378 (852,858) 15,051,505
2001 4,085,874 9,829,074 (673,375) 13,241,573
Thereafter 22,445,882 48,136,302 (3,346,707) 67,235,477
- ---------------------------------------------------------------------------------------------------------------------
Total minimum rentals 45,750,261 $ 113,800,465 $(8,224,673) $151,326,053
============= =========== ============
Amount representing interest (17,491,659)
------------
Present value of net minimum rentals $ 28,258,602
============
</TABLE>
Contingent rental expense relating to the land and building portion of capital
leases was $1,250,000, $1,273,000 and $1,449,000 in 1996, 1995 and 1994,
respectively.
45
<PAGE> 47
Total rental expense for all operating leases not capitalized is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Minimum rentals $7,640,511 $7,605,845 $7,088,510
Contingent rentals 577,386 559,513 434,524
---------- ---------- ----------
Subtotal 8,217,897 8,165,358 7,523,034
Sublease rentals (674,087) (560,433) (683,964)
---------- ---------- ----------
Total $7,543,810 $7,604,925 $6,839,070
========== ========== ==========
</TABLE>
In addition to the restaurants acquired in 1996 from TPI, the Company acquired
16 Shoney's Restaurants and two Pargo's restaurants from franchisees in 1996
for $18.1 million and acquired 11 Shoney's Restaurants from franchisees in 1995
for $6.0 million. In connection with these acquisitions, the Company also
acquired leasehold interest in land and buildings in exchange for the
assumption of capital lease obligations of approximately $1.6 million and $2.3
million in 1996 and 1995, respectively.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS - In connection with the sale of MRF, the Company has
committed to certain minimum purchase obligations with respect to food products
supplied by MRF (See Note 3). Under the terms of the sales agreement, the
Company entered into a five year supply agreement under which MRF will continue
to be the supplier, for all company-owned restaurants, of salad dressings,
mayonnaise, sauces, condiments, breadings, and a variety of food products.
The supply agreement contains minimum purchase commitments generally equal to
the actual quantities of various products the Company purchased from MRF during
1994 for company-owned restaurants, which was approximately $14.5 million. The
contract includes certain price adjustments for escalation in commodity prices
which will cause the actual amount of annual purchases to change over time.
Actual purchases from MRF by the Company during 1996 were approximately
$24.7 million. The Company's purchases are expected to exceed the minimum
purchase volume required under the supply agreement for the foreseeable future.
SEVERANCE AGREEMENTS - The Company has employment agreements with certain
executive officers that provide severance pay if the executives are terminated
without cause or if there is a change in control of the Company. Under the
terms of the agreements, a change in control is deemed to have occurred if any
person becomes the beneficial owner of 50% or more of the voting common stock
of the Company; substantially all the assets of the Company are sold; the
shareholders approve a plan of liquidation or dissolution; or if a majority of
the current Board of Directors cease to serve in that capacity, unless each new
director was approved by a two-thirds majority of the Board who were in office
at the time such employment agreements were executed. The contracts expire at
dates between 1998 and 1999 and provide for an automatic two year extension of
their term in the event of a change in control. The agreements also provide
for certain medical and other employee benefits over the terms of the
agreements. The maximum contingent liability under these employment agreements
ranges from $3.7 million to $6.8 million. In addition to these agreements, the
Company's policy is to provide severance benefits of up to six months salary
for officers of the Company in the event they are terminated without cause.
GUARANTEES OF INDEBTEDNESS OF OTHERS - The Company guarantees certain
twenty-year leases of franchisees for a quarterly fee of approximately $25,000
and is required to offer to purchase the
46
<PAGE> 48
properties for an amount equal to the investor's unpaid mortgage ($212,500) at
its maturity in 1999. The Company has also guaranteed certain loans made to
ShoLodge, Inc. totaling approximately $4.7 million.
NOTE 11- SETTLEMENT OF DISCRIMINATION LAWSUIT
In January 1993, Court approval to a consent decree was granted settling
litigation against the Company and its 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 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 an estimated $4 million in payroll taxes and administrative costs. During
1992, the Company entered into a capital contribution agreement with the
Company's former chairman, whereby, in conjunction with Court approval of the
discrimination lawsuit, he contributed approximately 2.7 million shares of
Shoney's common stock to the Company and such shares were retired. During
1994, the Company obtained an IRS private letter ruling which clarified that
certain portions of the settlement payments were not subject to federal payroll
taxes that had been previously accrued by the Company. The reserve for
litigation settlement was reduced by $1.7 million to adjust for this change in
estimate for accrued payroll taxes due on the settlement.
Under the terms of the consent decree, payments are made on a quarterly basis,
without interest, on March 1, June 1, September 1 and December 1. Expected
payment obligations (net of insurance recoveries) under the consent decree for
the next five fiscal years are as follows:
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
$22,888,000 $15,705,000 $68,000 $68,000 $68,000
</TABLE>
NOTE 12- LITIGATION
The Company is 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 seeks damages for an alleged class of similarly situated
plaintiffs in an amount not to exceed $500 million and treble damages. On May
5, 1994, the same plaintiff had also filed a state Court 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 16, 1994, counsel for the plaintiff advised
the Company that the federal Court case described above would be filed unless
the Company settled the pending state Court case by purchasing the plaintiff's
franchised Captain D's restaurant for $1.65 million, plus assumption of certain
equipment leases. The Company rejected the
47
<PAGE> 49
demand and the federal Court lawsuit was filed. On January 23, 1995, the
Company filed a motion to dismiss or stay this federal Court case pending the
resolution of the state case. Thereafter, the plaintiffs filed an amended
complaint adding a second plaintiff, a former franchisee, Sunbelt Restaurant
Management, Inc. The motion to dismiss was denied on May 31, 1995. The
plaintiff filed a motion to certify the case as a class action on August 7,
1995. The motion was argued on May 9, 1996 to the Magistrate Judge. The U.S.
District Court Judge accepted the recommendation of the Magistrate Judge and on
October 10, 1996 denied the motion for class certification.
On December 31, 1996 J&J Seafood, Inc. 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 seeks class
certification for two unspecified classes of allegedly similarly situated
plaintiffs. Some allegations in the lawsuit are similar to claims made in the
Plaintiff's previous two lawsuits against the Company. In addition, this
complaint alleges interference with prospective business advantage, wrongful
appropriation, forgery, fraud, breach of the covenant of good faith and fair
dealing, RICO violations and that the Company improperly collects and retains
sales taxes that are not owed. The complaint seeks damages in excess of $10
million on each of the seven counts, plus punitive damages. The complaint also
seeks damages of $70 million, trebled, on the RICO claim.
Management believes it has substantial defenses to the claims made and intends
to vigorously defend these cases. In the opinion of management, the ultimate
liability with respect to these cases will not materially affect the operating
results or the financial position of the Company.
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 cut-off date set by the Court. By virtue of the provisional
class status, the Court could subsequently amend its decision and either reduce
or increase the scope of those individuals who are similarly situated or
determine that certification as a class is altogether unwarranted.
On January 2, 1996, 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 cut-off
date set by the Court. By virtue of the provisional class status, the Court
could subsequently amend its decision and either reduce or increase the scope
of those individuals who are similarly situated or determine that certification
as a class is altogether unwarranted.
48
<PAGE> 50
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, the ultimate liability with respect to these actions
will not materially affect the operating results or the financial position of
the Company.
NOTE 13 - RETIREMENT PLAN
The Company established the Shoney's, Inc. 401(k) Retirement Savings Plan (the
"Plan") effective January 1, 1996. Employees must be 21 years of age and have
completed one year of continuous service in which they completed 1,000 hours of
service to be eligible to participate in the Plan. The Company matches
employee contributions at 25%, up to a maximum of 4% of the participants' base
pay. The Company made no cash contributions to the Plan during 1996.
NOTE 14 - RELATED PARTY TRANSACTIONS
During 1995, the Company employed a person who operated six franchised
Shoney's Restaurants to serve as an executive officer of the Company. In
connection with this officer's employment arrangement, the Company agreed to
purchase five of the officer's franchised Shoney's Restaurants for
approximately $3 million. In addition, the Company agreed to assume certain
operating leases and other obligations with respect to these restaurants. At
October 29, 1995, the restaurants owned by this officer were indebted to the
Company in the amount of $332,000 arising from the purchase of food and
supplies from the Company's commissary. This receivable was satisfied in
December 1995 upon closing by the Company on the purchase of these restaurants.
49
<PAGE> 51
NOTE 15 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(in thousands except per share data)
<TABLE>
<CAPTION>
Per Share
--------------------------
Income From Income from
Continuing Continuing
Operations Operations
Before Extra- Before Extra-
ordinary Items ordinary Items
No. and Cumulative and Cumulative
of Gross Effect of Net Net Effect of Stock Market
Weeks Revenues Profit Accounting Change Income Income Accounting Change High Low
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996
First Quarter 16 $ 300,177 $ 33,709 $ 2,752 $24,107 $ .54 $ .06 $ 11.63 $ 7.88
Second Quarter 12 257,712 35,498 10,970 6,426 .15 .15 13.38 8.13
Third Quarter 12 257,043 34,519 10,427 6,621 .16 .16 13.38 8.38
Fourth Quarter 12 284,810 44,450 17,850 11,370 (c) .24 .24 9.88 7.38
-- ---------- -------- ------- ------- ----- -----
52 $1,099,742 $148,176 $41,999 $48,524 $1.10 (b) $ .61 (b)
== ========== ======== ======= ======= ===== =====
1995
First Quarter 16 $ 310,385 $ 43,839 $12,923 $10,663 $ .26 $ .19 $ 15.38 $ 11.25
Second Quarter 12 253,195 35,537 10,003 8,494 .20 .15 12.50 9.13
Third Quarter 12 253,897 36,733 13,169 10,200 .25 .20 13.13 10.13
Fourth Quarter (a) 12 235,855 14,679 (17,020) (4,485) (.11) (.27) 12.50 8.88
-- ---------- -------- ------- ------- ----- -----
52 $1,053,332 $130,788 $19,075 $24,872 $ .60 $ .27
== ========== ======== ======= ======= ===== =====
</TABLE>
(a) During the fourth quarter of fiscal 1995, the Company recorded several
material adjustments, principally related to its reorganization and
restructuring. These adjustments totaling approximately $13.6 million had a
material affect on fourth quarter earnings. The significant fourth quarter
adjustments included the following: (1) a $6.6 million restructuring expense
was recorded related to the planned closure of 41 under-performing restaurants
(See Note 3), (2) a $3.2 million write-down of surplus property and certain
restaurant assets was recorded to reduce these assets to their net realizable
values, and (3) the Company's worker's compensation self-insurance reserves
were increased by $3.8 million to recognize adverse development trends related
to prior year's incurred losses.
(b) Quarterly earnings per share amounts for 1996 do not sum to the earnings
per share for 1996.
(c) The fourth quarter of 1996 includes approximately $2.5 million arising from
non-recurring transactions involving the sale of the Company's investment in
common stock and common stock warrants of ShoLodge, Inc. and $5.2 million in
franchise revenues received from ShoLodge to terminate future royalty
obligations by ShoLodge to the Company (See Note 4).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There are no Company disclosures required by Item 304 of Regulation
S-K, 17 C.F.R. Section 229.304.
50
<PAGE> 52
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
"Election of Directors" and "Reports of Beneficial Ownership"
contained in the 1997 Proxy Statement is incorporated herein by reference. See
also Item 4A, "Executive Officers of the Registrant" in Part I of this Annual
Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
"Executive Compensation" contained in the 1997 Proxy Statement is
incorporated herein by reference. The matters labeled "Compensation Committee
Report" and "Shareholder Return Performance Graph" contained in the 1997 Proxy
Statement shall not be deemed incorporated by reference into this Annual Report
on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
"Security Ownership of Certain Beneficial Owners and Management"
contained in the 1997 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
"Certain Transactions" contained in the 1997 Proxy Statement is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Annual
Report on Form 10-K:
(1) Financial Statements:
Consolidated Balance Sheet - October 27, 1996 and
October 29, 1995.
Consolidated Statement of Income - Years ended
October 27, 1996, October 29, 1995 and October 30,
1994.
Consolidated Statement of Shareholders' Equity
(Deficit) - Years ended October 27, 1996, October 29,
1995 and October 30, 1994.
Consolidated Statement of Cash Flows - Years ended
October 27, 1996, October 29, 1995 and October 30,
1994.
Notes to Consolidated Financial Statements - Years
ended October 27, 1996, October 29, 1995 and October
30, 1994.
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<PAGE> 53
(2) Schedule II-Valuation and qualifying accounts and
reserves, included as Exhibit 99.1.
All other schedules for which provision is made in the
applicable accounting regulation of the Commission are not required
under the related instructions or are inapplicable, and therefore have
been omitted.
(3) Those exhibits required to be filed as Exhibits to
this Annual Report on Form 10-K pursuant to Item 601 of Regulation
S-K, 17 C.F.R. Section 229.601, as follows:
2 Plan of Tax-Free Reorganization Under Section 368(a)(1)(C) of
the Internal Revenue Code and Agreement, dated March 15, 1996,
filed as Exhibit 2 to the Company's current report on Form 8-K
filed with the Commission on March 20, 1996, and incorporated
herein by this reference, as amended by Amendment No. 1, dated
June 14, 1996, filed as Exhibit 2.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended May 12, 1996, and
incorporated herein by this reference, and Amendment No. 2,
dated July 18, 1996, and Amendment No. 3, dated August 21,
1996, filed as Exhibit 2.3 to the Company's Current Report on
Form 8-K filed with the Commission on September 11, 1996, and
incorporated herein by this reference.
3(i), 4.1 Charter of Shoney's, Inc., as amended, filed as Exhibit 4.1 to
the Company's Registration Statement on Form S-8 (File No.
333-11715) filed with the Commission effective September 11,
1996, and incorporated herein by this reference.
3(ii), 4.2 Amended and Restated Bylaws of Shoney's, Inc., filed as
Exhibits 3(ii) and 4.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended February 18, 1996 and
incorporated herein by this reference.
4.3 Amended and Restated Rights Agreement, dated as of May 25,
1994, between Shoney's, Inc. (the "Company") and Harris Trust
and Savings Bank, as Rights Agent, filed as Exhibit 4 to the
Company's Current Report on Form 8-K filed with the Commission
on June 9, 1994 and incorporated herein by this reference.
4.4 Amendment No. 1 dated as of April 18, 1995 to Amended and
Restated Rights Agreement, dated as of May 25, 1994, between
Shoney's, Inc. (the "Company") and Harris Trust and Savings
Bank, as Rights Agent, filed as Exhibit 4 to the Company's
Current Report on Form 8-K filed with the Commission on May 4,
1995 and incorporated herein by this reference.
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<PAGE> 54
4.5 Amendment No. 2 dated as of June 14, 1996 to Amended and
Restated Rights Agreement, dated as of May 25, 1994, between
Shoney's, Inc. (the "Company") and Harris Trust and Savings
Bank, as Rights Agent, filed as Exhibit 4.5 to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 12,
1996, filed with the Commission on June 25, 1996, and
incorporated herein by this reference.
4.6 Indenture dated as of April 1, 1989 between the Company and
Sovran Bank/Central South, as Trustee relating to $201,250,000
in principal amount of liquid yield option notes due 2004,
filed as Exhibit 4.8 to Amendment No. 1 to the Company's
Registration Statement on Form S-3 filed with the Commission
on April 3, 1989 (No. 33-27571), and incorporated herein by
this reference.
4.7 Revolving Credit Agreement dated as of July 13, 1988 between
the Company and First American National Bank, filed as Exhibit
4.1 and 19.1 to the Company's Current Report on Form 8-K filed
with the Commission on December 3, 1991, and incorporated
herein by this reference.
4.8 Modification Agreement No. 1 dated as of March 5, 1991 to
Revolving Credit Agreement, dated as of July 13, 1988 between
the Company and First American National Bank, filed as Exhibit
4.2 and 19.2 to the Company's Current Report on Form 8-K filed
with the Commission on December 3, 1991, and incorporated
herein by this reference.
4.9 Alternative Rate Agreement dated as of June 4, 1992
supplementing that certain Revolving Credit Agreement dated as
of July 13, 1988 between the Company and First American
National Bank, filed as Exhibit 4.36 and 10.29 to Post
Effective Amendment No. 5 to the Company's Registration
Statement on Form S-8 (File No. 2-64257) filed with the
Commission on January 25, 1993, and incorporated herein by
this reference.
4.10 Note Issuance Agreement, dated as of October 1, 1989, among
the Company, Sovran Bank, N.A., as Note Agent and Placement
Agent and Sovran Bank / Central South, as Escrow Agent, filed
as Exhibit 19.5 and 28.3 to the Company's Current Report on
Form 8-K filed with the Commission on December 3, 1991, and
incorporated herein by this reference.
4.11 Reimbursement Agreement, dated as of October 1, 1989, together
with the Standby Note relating thereto, among the Company,
Sovran Bank / Central South, Long Term Credit Bank of Japan,
Limited, New York Branch, Kredeitbank, N.V., New York Branch
53
<PAGE> 55
and Sovran Bank / Central South, as Agent, filed as Exhibit
19.6 and 28.4 to the Company's Current Report on Form 8-K
filed with the Commission on December 3, 1991, and
incorporated herein by this reference.
4.12 Modification Agreement No. 1 dated as of July 21, 1993 to
Reimbursement Agreement, dated as of October 1, 1989, together
with the Standby Note relating thereto, among the Company,
Sovran Bank / Central South, Long Term Credit Bank of Japan,
Limited, New York Branch, Kredeitbank, N.V., New York Branch
and Sovran Bank / Central South, as Agent, filed as Exhibit
4.4 to the Company's Quarterly Report on Form 10-Q for the
quarter ended August 1, 1993 filed with the Commission on
September 15, 1993, and incorporated herein by this reference.
4.13 Modification Agreement No. 2 dated as of June 8, 1994 to
Reimbursement Agreement, dated as of October 1, 1989, together
with the Standby Note relating thereto, among the Company,
NationsBank of Tennessee, N.A. (formerly Sovran Bank / Central
South), Long Term Credit Bank of Japan, Limited, New York
Branch, Kredeitbank, N.V., New York Branch and NationsBank of
Tennessee, N.A., as Agent, filed as Exhibit 4.30 to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 30, 1994 filed with the Commission on January 30,
1995, and incorporated herein by this reference.
4.14 Modification Agreement No. 3 dated as of August 21, 1996 to
Reimbursement Agreement dated as of October 1, 1989, together
with the Standby Note relating thereto, among the Company,
NationsBank of Tennessee, N.A. (formerly Sovran Bank / Central
South), Long Term Credit Bank of Japan, Limited, New York
Branch, Kredeitbank, N.V., New York Branch and NationsBank of
Tennessee, N.A., as Agent, filed as Exhibit 4.14 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
August 4, 1996 filed with the Commission on September 17,
1996, and incorporated herein by this reference.
4.15 Note Issuance Agreement, dated as of October 1, 1990, among
the Company, Sovran Bank, N.A., as Note Agent and Placement
Agent and Sovran Bank / Central South, as Escrow Agent, filed
as Exhibit 19.7 and 28.5 to the Company's Current Report on
Form 8-K filed with the Commission on December 3, 1991, and
incorporated herein by this reference.
4.16 Reimbursement Agreement, dated as of October 1, 1990, together
with the Standby Note relating thereto, between the Company
and Sovran Bank / Central South, filed as Exhibit 19.8 and
28.6 to the
54
<PAGE> 56
Company's Current Report on Form 8-K filed with the Commission
on December 3, 1991, and incorporated herein by this
reference.
4.17 Modification Agreement No. 1 dated as of July 21, 1993 to
Reimbursement Agreement, dated as of October 1, 1990, together
with the Standby Note relating thereto, between the Company
and Sovran Bank / Central South, filed as Exhibit 4.5 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
August 1, 1993 filed with the Commission on September 15,
1993, and incorporated herein by this reference.
4.18 Modification Agreement No. 2 dated as of April 1, 1994 to
Reimbursement Agreement, dated as of October 1, 1990, together
with the Standby Note relating thereto, between the Company
and NationsBank of Tennessee, N.A. (formerly Sovran Bank /
Central South), filed as Exhibit 4.34 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 30, 1994
filed with the Commission on January 30, 1995, and
incorporated herein by this reference.
4.19 Amended and Restated Note Issuance Agreement, dated as of
November 1, 1993, among the Company, NationsBank of Virginia,
N.A., as Note Agent and Placement Agent and NationsBank of
Tennessee, as Escrow Agent, filed as Exhibit 4.36 to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1993 filed with the Commission on January 31,
1994, and incorporated herein by this reference.
4.20 Reimbursement Agreement, dated as of October 1, 1991, together
with the Standby Note relating thereto, between the Company
and National Bank of Canada, New York Branch, filed as Exhibit
28.10 to the Company's Current Report on Form 8-K filed with
the Commission on December 3, 1991, and incorporated herein by
this reference.
4.21 Assignment, Assumption and Modification Agreement dated as of
November 4, 1993 relating to Reimbursement Agreement, dated as
of October 1, 1991, among the Company, NationsBank of Georgia,
N.A. and National Bank of Canada, New York Branch, filed as
Exhibit 4.38 to the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1993 filed with the
Commission on January 31, 1994, and incorporated herein by
this reference.
4.22 Loan Agreement dated as of September 24, 1992 between the
Company and CIBC Inc., filed as Exhibit 4.43 and 10.36 to Post
Effective Amendment No. 5 to the Company's Registration
Statement on Form S-8 (File No. 2-64257) filed with the
55
<PAGE> 57
Commission on January 25, 1993, and incorporated herein by
this reference.
4.23 Modification Agreement No. 1 dated as of October 25, 1992 to
Loan Agreement dated as of September 24, 1992 between the
Company and CIBC Inc., filed as Exhibit 4.44 and 10.37 to Post
Effective Amendment No. 5 to the Company's Registration
Statement on Form S-8 (File No. 2-64257) filed with the
Commission on January 25, 1993, and incorporated herein by
this reference.
4.24 Modification Agreement No. 2 dated as of July 21, 1993 to Loan
Agreement dated as of September 24, 1992 between the Company
and CIBC Inc., filed as Exhibit 4.6 to the Company's Quarterly
Report on Form 10-Q for the quarter ended August 1, 1993 filed
with the Commission on September 15, 1993, and incorporated
herein by this reference.
4.25 Modification Agreement No. 3 dated as of January 23, 1997 to
Loan Agreement dated as of September 24, 1992 between the
Company and CIBC Inc.
4.26 Loan Agreement dated as of April 21, 1993 between the Company
and NationsBank of Tennessee, N.A., filed as Exhibit 4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
May 9, 1993 filed with the Commission on June 23, 1993, and
incorporated herein by this reference.
4.27 Modification Agreement No. 1 dated as of July 21, 1993 to Loan
Agreement dated as of April 21, 1993 between the Company and
NationsBank of Tennessee, N.A., filed as Exhibit 4.7 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
August 1, 1993 filed with the Commission on September 15,
1993, and incorporated herein by this reference.
4.28 Loan Agreement dated as of December 1, 1994 between the
Company and NationsBank of Tennessee, N.A., filed as Exhibit
4.43 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 30, 1994 filed with the Commission
on January 30, 1995, and incorporated herein by this
reference.
4.29 U.S. $270,000,000 Amended and Restated Reducing Revolving
Credit Agreement, dated as of July 21, 1993, as amended and
restated as of May 3, 1996, among Shoney's, Inc., as the
Borrower, CIBC Inc., acting through its Atlanta Office and
various other financial institutions now or hereafter parties
hereto, as the Lenders, and Canadian Imperial Bank of Commerce
acting through its New York Agency, as the Agent for the
Lenders, filed as
56
<PAGE> 58
Exhibit 4.2 to the Company's Current Report on Form 8-K filed
with the Commission on May 15, 1996, and incorporated herein
by this reference.
4.30 Modification Agreement No. 1 dated as of October 24,1996 to
U.S. $270,000,000 Amended and Restated Reducing Revolving
Credit Agreement, dated as of July 21, 1993, as amended and
restated as of May 3, 1996, among Shoney's, Inc., as the
Borrower, CIBC Inc., acting through its Atlanta Office and
various other financial institutions now or hereafter parties
hereto, as the Lenders, and Canadian Imperial Bank of Commerce
acting through its New York Agency, as the Agent for the
Lenders.
4.31 Modification Agreement No. 2 dated as of January 9, 1997 to
U.S. $270,000,000 Amended and Restated Reducing Revolving
Credit Agreement, dated as of July 21, 1993, as amended and
restated as of May 3, 1996, among Shoney's, Inc., as the
Borrower, CIBC Inc., acting through its Atlanta Office and
various other financial institutions now or hereafter parties
hereto, as the Lenders, and Canadian Imperial Bank of Commerce
acting through its New York Agency, as the Agent for the
Lenders.
4.32 U.S. $100,000,000 Bridge Loan Credit Agreement, dated as of
May 3, 1996, among Shoney's, Inc., as the Borrower, Canadian
Imperial Bank of Commerce, and various other financial
institutions now or hereafter parties hereto, as the Lenders,
and Canadian Imperial Bank of Commerce acting through its New
York Agency, as the Agent for the Lenders, filed as Exhibit
4.1 to the Company's Current Report on Form 8-K filed with the
Commission on May 15, 1996, and incorporated herein by this
reference.
4.33 Modification Agreement No. 1 dated as of October 24, 1996 to
U.S. $100,000,000 Bridge Loan Credit Agreement, dated as of
May 3, 1996, among Shoney's, Inc., as the Borrower, Canadian
Imperial Bank of Commerce, and various other financial
institutions now or hereafter parties hereto, as the Lenders,
and Canadian Imperial Bank of Commerce acting through its New
York Agency, as the Agent for the Lenders.
4.34 Modification Agreement No. 2 dated as of January 9, 1997 to
U.S. $100,000,000 Bridge Loan Credit Agreement, dated as of
May 3, 1996, among Shoney's, Inc., as the Borrower, Canadian
Imperial Bank of Commerce, and various other financial
institutions now or hereafter parties hereto, as the Lenders,
and Canadian Imperial Bank of Commerce acting through its New
York Agency, as the Agent for the Lenders.
57
<PAGE> 59
4.35 Indenture, dated as of July 15, 1992, among TPI Enterprises,
Inc., TPI Restaurants, Inc., as Guarantor, and NationsBank of
Tennessee (now The Bank of New York, as successor trustee), as
trustee, relating to 8.25% Convertible Subordinated Debentures
due 2002, filed as Exhibit 10 (a) of the Current Report on
Form 8-K of TPI Restaurants, Inc. dated July 29, 1992
(Commission File No. 0-12312) and incorporated herein by this
reference.
4.36 First Supplemental Indenture, dated as of September 9, 1996,
among TPI Enterprises, Inc., TPI Restaurants, Inc., as
Guarantor, The Bank of New York, as trustee, and Shoney's,
Inc., relating to 8.25% Convertible Subordinated Debentures
due 2002, filed as Exhibit 4.2 to the Company's Current Report
on Form 8-K filed with the Commission on September 11, 1996,
and incorporated herein by this reference.
10.1 License Agreement, dated as of October 25, 1991, between
Shoney's Investments, Inc. and Shoney's Lodging, Inc., filed
as Exhibit 28.7 to the Company's Current Report on Form 8-K
filed with the Commission on December 3, 1991, and
incorporated herein by this reference.
10.2 Amendment No. 1 dated as of September 16, 1992 to License
Agreement, dated as of October 25, 1991, between Shoney's
Investments, Inc. and ShoLodge Franchise Systems, Inc.
(formerly Shoney's Lodging, Inc.), filed as Exhibit 10.2 to
the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1993 filed with the Commission on January
31, 1994, and incorporated herein by this reference.
10.3 Amendment No. 2 dated as of March 18, 1994 to License
Agreement, dated as of October 25, 1991, between Shoney's
Investments, Inc. and ShoLodge Franchise Systems, Inc., filed
as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
for the quarter ended May 14, 1995 filed with the Commission
on June 28, 1995, and incorporated herein by this reference.
10.4 Amendment No. 3 dated as of March 13, 1995 to License
Agreement, dated as of October 25, 1991, between Shoney's
Investments, Inc. and ShoLodge Franchise Systems, Inc., filed
as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q
for the quarter ended May 14, 1995 filed with the Commission
on June 28, 1995, and incorporated herein by this reference.
10.5 Amendment No. 4 dated as of June 26, 1996 to License
Agreement, dated as of October 25, 1991, between Shoney's
Investments, Inc. and ShoLodge Franchise Systems, Inc., filed
as
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<PAGE> 60
Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q
for the quarter ended August 4, 1996 filed with the Commission
on September 17, 1996, and incorporated herein by this
reference.
10.6 Amendment No. 5 dated as of October 25, 1996 to License
Agreement, dated as of October 25, 1991, between Shoney's
Investments, Inc. and ShoLodge Franchise Systems, Inc.
10.7 Stock Purchase and Warrant Agreement, dated as of October 25,
1991, between Shoney's Investments, Inc. and Gulf Coast
Development, Inc., filed as Exhibit 28.8 to the Company's
Current Report on Form 8-K filed with the Commission on
December 3, 1991, and incorporated herein by this reference.
10.8 Warrant Purchase Agreement dated as of October 25, 1996
between Shoney's Investments, Inc. and ShoLodge, Inc.
10.9 Agreement dated as of September 15, 1992 between the Company
and Raymond L. Danner, filed as Exhibit 10.41 to Post
Effective Amendment No. 5 to the Company's Registration
Statement on Form S-8 (File No. 2-64257) filed with the
Commission on January 25, 1993, and incorporated herein by
this reference.
10.10 Consent Decree entered by the United States District Court for
the Northern District of Florida on January 25, 1993 in
Haynes, et al. v. Shoney's, Inc., et al., filed as Exhibit 28
to the Company's Current Report on Form 8-K filed with the
Commission on February 3, 1993, and incorporated herein by
this reference.
10.11 Shoney's, Inc. 1981 Stock Option Plan, as amended through
October 28, 1996.
10.12 Shoney's, Inc. Stock Option Plan, filed as Exhibit 4.7 to Post
Effective Amendment No. 4 to the Company's Registration
Statement on Form S-8 (File No. 2-64257) filed with the
Commission on April 11, 1990, and incorporated herein by this
reference.
10.13 Shoney's, Inc. 1996 Stock Option Plan.
10.14 Shoney's, Inc. Employee Stock Purchase Plan, filed as Exhibit
4.7 to Post Effective Amendment No. 4 to the Company's
Registration Statement on Form S-8 (File No. 33-605) filed
with the Commission on October 26, 1989, and incorporated
herein by this reference.
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<PAGE> 61
10.15 Shoney's, Inc. Employee Stock Purchase Plan, as amended
through December 17, 1996.
10.16 Shoney's, Inc. Employee Stock Bonus Plan, filed as Exhibit
10.9 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1993 filed with the Commission
on January 31, 1994, and incorporated herein by this
reference.
10.17 Shoney's, Inc. Directors' Stock Option Plan, filed as Exhibit
4.38 to the Company's Registration Statement on Form S-8 (File
No. 33-45076) filed with the Commission on January 14, 1992,
and incorporated herein by this reference.
10.18 Shoney's Ownership Plan 1977, filed as Exhibit 10.47 to Post
Effective Amendment No. 5 to the Company's Registration
Statement on Form S-8 (File No. 2-64257) filed with the
Commission on January 25, 1993, and incorporated herein by
this reference.
10.19 Captain D's Ownership Plan 1976, filed as Exhibit 10.48 to
Post Effective Amendment No. 5 to the Company's Registration
Statement on Form S-8 (File No. 2-64257) filed with the
Commission on January 25, 1993, and incorporated herein by
this reference.
10.20 Captain D's Ownership Plan 1978-1979, filed as Exhibit 10.49
to Post Effective Amendment No. 5 to the Company's
Registration Statement on Form S-8 (File No. 2-64257) filed
with the Commission on January 25, 1993, and incorporated
herein by this reference.
10.21 Shoney's, Inc. Supplemental Executive Retirement Plan, filed
as Exhibit 10.16 to the Company's Annual Report on Form 10-K
for the fiscal year ended October 29, 1995 filed with the
Commission on January 28, 1996, and incorporated herein by
this reference, as amended by Amendment No. 1 to the Shoney's,
Inc. Supplemental Executive Retirement Plan, filed as Exhibit
10.17 to the Company's Quarterly Report on Form 10-Q for the
quarter ended February 18, 1996 and incorporated herein by
this reference.
10.22 Employment Agreement dated as of January 13, 1995 between the
Company and Taylor H. Henry, filed as Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 30, 1994 filed with the Commission on January 30,
1995, and incorporated herein by this reference.
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<PAGE> 62
10.23 Amended and Restated Agreement dated as of May 1, 1996 between
the Company and Charles E. Porter.
10.24 Employment Agreement dated as of November 1, 1996 between the
Company and W. Craig Barber.
10.25 Employment Agreement dated as of April 11, 1995, between the
Company and C. Stephen Lynn, filed as Exhibit 10.20 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
May 14, 1995 filed with the Commission on June 28, 1995, and
incorporated herein by this reference, as amended by Amendment
No. 1, filed as Exhibit 10.21 to the Company's Annual Report
on Form 10-K for the fiscal year ended October 29, 1995, filed
with the Commission on January 28, 1996, and incorporated
herein by this reference.
10.26 Asset Sale and Purchase Agreement dated as of July 7, 1995, by
and among Shoney's, Inc., as Seller and RTM, Inc., as Buyer,
relating to the sale of the assets comprising the Company's
"Lee's Famous Recipe" division, filed as Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 29, 1995, filed with the Commission on January 29,
1996, and incorporated herein by this reference.
10.27 Stock Purchase Agreement dated as of August 3, 1995, by and
between Shoney's, Inc., as Seller, and Levmark Capital
Corporation, as Buyer, relating to the purchase of all of the
issued and outstanding stock of Mike Rose Foods, Inc., filed
as Exhibit 10.23 to the Company's Annual Report on Form 10-K
for the fiscal year ended October 29, 1995, filed with the
Commission on January 29, 1996, and incorporated herein by
this reference.
10.28 Amendment No. 1 dated as of November 10, 1995 to Stock
Purchase Agreement dated as of August 3, 1995, by and between
Shoney's, Inc., as Seller, and Levmark Capital Corporation, as
Buyer, relating to the purchase of all of the issued and
outstanding stock of Mike Rose Foods, Inc., filed as Exhibit
10.24 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 29, 1995, filed with the Commission
on January 29, 1996, and incorporated herein by this
reference.
10.29 Supply Agreement dated as of November 17, 1995 between the
Company and Mike Rose Foods, Inc., filed as Exhibit 10.25 to
the Company's Annual Report on Form 10-K for the fiscal year
ended
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<PAGE> 63
October 29, 1995, filed with the Commission on January 29,
1996, and incorporated herein by this reference.
11 Statement regarding computation of per share earnings.
21 Subsidiaries of Shoney's, Inc.
23 Consent of Ernst & Young LLP, independent auditors.
27 Financial Data Schedule.
99.1 Schedule II - Valuation and qualifying accounts and reserves.
(b) On May 15, 1996, the Company filed a report on Form 8-K to report
under Item 5 that the Company had obtained a senior secured bridge loan in the
aggregate principal amount of up to $100 million to provide working capital and
a source of financing for the pending transaction with TPI, and, concurrently
therewith, had amended the reducing revolving credit facility of the Company.
On September 11, 1996, the Company filed a report on Form 8-K to
report under Item 2, that effective September 9, 1996, the Company had acquired
substantially all of the assets of TPI Enterprises, Inc. pursuant to that
certain Plan of Tax-Free Reorganization Under Section 368(a)(1)(C) of the
Internal Revenue Code and Agreement, dated as of March 15, 1996, as amended by
Amendments No. 1, 2, and 3 by and among the Company, TPI Restaurants
Acquisition Corporation, a wholly owned subsidiary of the Company, and TPI and
under Item 7 of that form, that financial statements of TPI and pro forma
financial information had been previously filed.
(c) Exhibits -- the response to this portion of Item 14 is submitted
as a separate section of this Report. See Item 14(a).
(d) Financial Statement Schedules -- the response to this portion of
Item 14 is submitted as a separate section of this Report. See Item 14(a).
62
<PAGE> 64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on this 27th day
of January, 1997.
SHONEY'S, INC.
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)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities indicated on this 27th day of January, 1997.
Signature Title
/s/ C. Stephen Lynn Chairman of the Board, Chief
- ------------------------------- Executive Officer, President and Director
(C. Stephen Lynn)
/s/ Robert M. Langford Senior Executive Vice President and
- ------------------------------- Chief Operating Officer
(Robert M. Langford)
/s/ W. Craig Barber Senior Executive Vice President,
- ------------------------------- Chief Administrative Officer and
(W. Craig Barber) Chief Financial Officer
/s/ F.E. McDaniel, Jr. Senior Vice President, Secretary and Treasurer
- -------------------------------
(F.E. McDaniel, Jr.)
/s/ Gregory A. Hayes Senior Vice President and Controller
- -------------------------------
(Gregory A. Hayes)
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<PAGE> 65
/s/ Dennis C. Bottorff Director
- ------------------------------
(Dennis C. Bottorff)
/s/ Carole F. Hoover Director
- ------------------------------
(Carole F. Hoover)
/s/ Victoria B. Jackson Director
- ------------------------------
(Victoria B. Jackson)
/s/ Jeffry Schoenbaum Director
- ------------------------------
(Jeffry Schoenbaum)
/s/ B. Franklin Skinner Director
- ------------------------------
(B. Franklin Skinner)
/s/ Cal Turner, Jr. Director
- ------------------------------
(Cal Turner, Jr.)
64
<PAGE> 1
Exhibit 4.25
MODIFICATION AGREEMENT NO. 3 TO LOAN AGREEMENT
THIS Modification Agreement No. 3 to Loan Agreement (this "Modification
Agreement No. 3") is dated as of the 23rd day of January, 1997 by and between
Shoney's, Inc., a Tennessee corporation (the "Borrower") and CIBC, Inc., a
Delaware corporation (the "Lender").
W I T N E S E T H:
WHEREAS, the Borrower and the Lender executed and delivered that certain
Loan Agreement dated as of September 24, 1992, as amended by Modification No. 1
to Loan Agreement dated as of October 25, 1992 and by Modification No. 2 to Loan
Agreement dated as of July 21, 1993 (as so amended, the "Loan Agreement")
WHEREAS, the Borrower has requested and the Lender has agreed to certain
amendments to the Loan Agreement, subject to the terms and conditions hereof;
NOW, THEREFORE, for and in consideration of the above premises and other
good and valuable consideration, the receipt and sufficiency of which hereby is
acknowledged by the parties hereto, the Borrower and the Lender hereby covenant
and agree as follows:
1. Definitions. Unless otherwise specifically defined herein, each term
used herein which is defined in the Loan Agreement shall have the meaning
assigned to such term in the Loan Agreement. Each reference to "hereof",
"hereunder", "herein" and "hereby" and each other similar reference and each
reference to "this Agreement" and each other similar reference
<PAGE> 2
contained in the Loan Agreement shall from and after the date hereof refer to
the Loan Agreement as amended hereby.
2. Amendment to Section 1.1. Section 1.1 of the Loan Agreement hereby is
amended by deleting the definition of "Termination Date" and substituting
therefor the following:
"Termination Date" means November 1, 1997.
3. Restatement of Representations and Warranties. The representations and
warranties of the Borrower set forth in the Loan Agreement and the other Loan
Documents, as modified in accordance herewith, are true and correct in all
respects with the same effect as if made on the date hereof (unless stated to
relate solely to an earlier date, in which case such representations and
warranties were true and correct as of such earlier date).
4. Effect of Amendment. Except as set forth expressly hereinabove, all
terms of the Loan Agreement and the other Loan Documents shall be and remain in
full force and effect, and shall constitute the legal, valid, binding and
enforceable obligations of the Borrower. The amendments contained herein shall
be deemed to have prospective application only, unless otherwise specifically
stated herein.
5. Ratification. The Borrower hereby restates, ratifies and reaffirms each
and every term, covenant and condition set forth in the Loan Agreement and the
other Loan Documents effective as of the date hereof.
6. Counterparts. This Modification Agreement No. 3 may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts, taken together, shall constitute but one and the
same instrument.
7. Section References. Section titles and references used in this
Modification Agreement No. 3 shall be without substantive meaning or content of
any kind whatsoever and are not a part of the agreements among the parties
hereto evidenced hereby.
2
<PAGE> 3
8. No Default. To induce the Lender to enter into this Modification
Agreement No. 3, the Borrower hereby acknowledges and agrees that, as of the
date hereof, and after giving effect to the terms hereof, there exists (i) no
Default Condition or Event of Default and (ii) no right of offset, defense,
counterclaim, claim or objection in favor of the Borrower arising out of or with
respect to any of the Loans or other obligations of the Borrower owed to the
Lender under the Loan Agreement.
9. Further Assurances. The Borrower agrees to take such further actions as
the Lender shall reasonably request in connection herewith to evidence the
amendments herein contained to the Borrower.
10. Governing Law. This Modification Agreement No. 3 shall be governed by
and construed and interpreted in accordance with, the laws of the State of
Georgia.
11. Conditions Precedent. This Modification Agreement No. 3 shall become
effective only upon execution and delivery of this Modification Agreement No. 3
by each of the parties hereto.
3
<PAGE> 4
IN WITNESS WHEREOF, the Borrower the Lender have caused this Modification
Agreement No. 3 to be duly executed, under seal, by its duly authorized officer
as of the day and year first above written.
SHONEYS, INC.
__________________________________,
as Borrower (SEAL)
By: _____________________________
Title:
CIBC, INC.
________________________________,
as Lender (SEAL)
By: __________________________
Title:
4
<PAGE> 1
Exhibit 4.30
[EXECUTION COPY]
MODIFICATION AGREEMENT NO. 1
TO
AMENDED AND RESTATED REDUCING REVOLVING
CREDIT AGREEMENT
THIS MODIFICATION AGREEMENT NO. 1 (the "Modification Agreement No.
1"), dated as of October 24, 1996, to the Reducing Revolving Credit Agreement,
dated as of July 21, 1993, as amended and restated as of May 3, 1996 (as
further amended, supplemented, amended and restated or otherwise modified from
time to time, the "Existing Credit Agreement"), among SHONEY'S, INC., a
Tennessee corporation (the "Borrower"), CIBC INC., acting through its Atlanta
Office and various other financial institutions, which are now, or in
accordance with Section 10.10 of the Existing Credit Agreement hereafter
become, parties thereto (collectively, the "Lenders" and, individually, a
"Lender"), and CANADIAN IMPERIAL BANK OF COMMERCE, a Canadian chartered bank
acting through its New York Agency, as Agent and Collateral Agent (the "Agent")
for the Lenders;
W I T N E S S E T H:
WHEREAS, the Borrower has requested that certain provisions of the
Existing Credit Agreement be amended in certain respects as set forth herein;
and
WHEREAS, the Lenders are willing to amend such provisions of the
Existing Credit Agreement and to take or permit the taking of certain actions
as set forth herein, but only on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the agreements herein contained,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Definitions. Unless otherwise defined
herein or the context otherwise requires, capitalized terms used in
this Modification Agreement No. 1, including its preamble and
recitals, have the following meanings (such meanings to be equally
applicable to the singular and plural forms thereof):
<PAGE> 2
"Agent" has the meaning assigned to such term in the preamble.
"Borrower" has the meaning assigned to such term in the preamble.
"Existing Credit Agreement" has the meaning assigned to such term in
the preamble.
"Lenders" and "Lender" have the respective meanings assigned to such
terms in the preamble.
"Modification Agreement No. 1" has the meaning assigned to such term
in the preamble.
"Modification Effective Date" has the meaning assigned to such term in
Section 3.1.
SECTION 1.2. Other Definitions. Unless otherwise defined
herein or the context otherwise requires, capitalized terms used in
this Modification Agreement No. 1, including its preamble and
recitals, have the meanings provided in the Existing Credit Agreement.
ARTICLE II
AMENDMENT OF EXISTING CREDIT AGREEMENT
AS OF THE MODIFICATION EFFECTIVE DATE
Effective on (and subject to the occurrence of) the Modification
Effective Date, the provisions of the Existing Credit Agreement referred to
below are hereby amended in accordance with this Article II. Except as
expressly so amended, the Existing Credit Agreement shall continue in full
force and effect in accordance with its terms.
SECTION 2.1. Modification of Article I (Definitions).
Article I of the Existing Credit Agreement is hereby modified as
follows:
SECTION 2.1.1. The definition of "Affiliate" is amended by
adding the following sentence after the last sentence thereof:
-2-
<PAGE> 3
"In connection with the sale of capital stock or warrants
exercisable for capital stock of ShoLodge by the Borrower,
ShoLodge shall not be considered an Affiliate of the Borrower
or any of its Affiliates."
SECTION 2.2. Modification of Article VII (Covenants).
Article VII of the Existing Credit Agreement is hereby modified as
follows:
SECTION 2.2.1. Section 7.2.17 of the Existing Credit
Agreement is hereby amended by deleting the proviso at the end thereof
and substituting the following in its place:
"provided, however, that the Borrower may (i) terminate the
relevant franchise agreements in connection with Franchise
Acquisitions and (ii) terminate or modify any franchise
agreement with ShoLodge in connection with the sale of capital
stock or warrants exercisable for capital stock of ShoLodge
(including, without limitation, acceleration of royalty
payments)."
ARTICLE III
CONDITIONS TO EFFECTIVENESS
SECTION 3.1. Modification Effective Date. This
Modification Agreement No. 1 shall become effective as of the date
first above written, when all of the conditions set forth in Sections
3.1.1 through 3.1.3 shall have been satisfied (the "Modification
Effective Date").
SECTION 3.1.1. Resolutions, etc. The Agent shall have
received from the Borrower, a certificate, dated the Modification
Effective Date, of its Secretary or any Assistant Secretary as to:
(a) resolutions of its Board of Directors then in
full force and effect authorizing the execution, delivery, and
performance of this Modification Agreement No. 1 and each
other Loan Document to be executed by it;
(b) the incumbency and signatures of the officers
of the Borrower authorized to act with respect to this
Modification Agreement No. 1 and each other Loan Document to
be executed by it (upon which certificate the Agent and each
Lender may conclusively rely until the Agent shall have
received a further certificate of the Secretary of the
Borrower canceling or amending such prior certificate, which
further certificate shall be reasonably satisfactory to the
Agent).
-3-
<PAGE> 4
SECTION 3.1.2. Execution of Counterparts. The Agent shall
have received counterparts of this Modification Agreement No. 1 duly
executed by the Borrower, the Agent, and the Required Lenders.
SECTION 3.1.3. Compliance with Warranties; No Default etc.
The Agent shall have received from an Authorized Officer of the
Borrower a certificate, dated the date first above written, stating
that
(a) the representations and warranties set forth in
Article VI of the Existing Credit Agreement (excluding,
however, those contained in Section 6.7 thereof) and the
representations and warranties set forth in each of the other
Loan Documents, in each case as modified in accordance
herewith, are true and correct in all material respects with
the same effect as if then made (unless stated to relate
solely to an earlier date, in which case such representations
and warranties were true and correct as of such earlier date);
(b) except as disclosed by the Borrower to the
Agent and the Lenders pursuant to Section 6.7 of the Existing
Credit Agreement:
(i) no labor controversy, litigation,
arbitration or governmental investigation or
proceeding is pending or, to the knowledge of the
Borrower, threatened against the Borrower or any of
its Subsidiaries which might have a Materially
Adverse Effect; and
(ii) no development has occurred in any
labor controversy, litigation, arbitration or
governmental investigation or proceeding disclosed
pursuant to Section 6.7 of the Existing Credit
Agreement which might have a Materially Adverse
Effect; and
(c) no Default has occurred and is continuing, and
neither the Borrower nor any of its Subsidiaries is in
material violation of any law or government regulation or
court order or decree.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1. Cross References. References in this
Modification Agreement No. 1 to any article or section are, unless
otherwise specified, to such article or section of this Modification
Agreement No. 1.
SECTION 4.2. Instrument Pursuant to Existing Credit
Agreement; Limited Waiver. This Modification Agreement No. 1 is a
Loan Document executed
-4-
<PAGE> 5
pursuant to the Existing Credit Agreement and shall (unless otherwise
expressly indicated therein) be construed, administered, and applied
in accordance with all of the terms and provisions of the Existing
Credit Agreement. Any term or provision of and any modification
effected by this Modification Agreement No. 1 may be modified in any
manner by an instrument in writing executed by the Borrower and the
Required Lenders (or the Agent on behalf of and with the consent of
the Required Lenders). Except as expressly amended hereby, all of the
representations, warranties, terms, covenants and conditions of the
Existing Credit Agreement shall remain unmodified and unwaived. The
modifications set forth herein shall be limited precisely as provided
for herein to the provisions expressly modified herein and shall not
be deemed to be a waiver of, amendment of, consent to or modification
of any other term or provision of any other Loan Document or of any
transaction or further or future action on the part of the Borrower
which could require the consent of any of the Lenders under the
Existing Credit Agreement.
SECTION 4.3. Successors and Assigns. This Modification
Agreement No. 1 shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
SECTION 4.4. Counterparts. This Modification Agreement No.
1 may be executed by the parties hereto in several counterparts which
shall be executed by the Borrower, each of the Required Lenders and
the Agent, as the case may be, all of which shall be deemed to be an
original and which shall constitute together but one and the same
agreement.
SECTION 4.5. Event of Default. It is understood and agreed
that any breach of any representation or warranty or covenant
contained herein shall constitute an Event of Default.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Modification
Agreement No. 1 to be executed by the respective officers hereunder duly
authorized as of the day and year first above written.
SHONEY'S, INC.
By:
-------------------------------------
Title: Treasurer
CANADIAN IMPERIAL BANK OF
COMMERCE, acting through
its NEW YORK AGENCY, as
Agent
By:
-------------------------------------
Title: Authorized Signatory
CIBC INC., acting through
its Atlanta Office
By:
-------------------------------------
Title: Authorized Signatory
NATIONSBANK OF TENNESSEE, N.A.
By:
-------------------------------------
Title:
----------------------------------
THE BANK OF NEW YORK
By:
-------------------------------------
Title:
----------------------------------
-6-
<PAGE> 7
LTCB TRUST COMPANY
By:
-------------------------------------
Title:
----------------------------------
THE BANK OF NOVA SCOTIA
By:
-------------------------------------
Title:
----------------------------------
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By:
-------------------------------------
Title:
----------------------------------
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By:
-------------------------------------
Title:
----------------------------------
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By:
-------------------------------------
Title:
----------------------------------
THE BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By:
-------------------------------------
Title:
----------------------------------
-7-
<PAGE> 8
THE FUJI BANK, LIMITED
By:
-------------------------------------
Title:
----------------------------------
KREDIETBANK N.V.
By:
-------------------------------------
Title:
----------------------------------
ALLIED IRISH BANK
By:
-------------------------------------
Title:
----------------------------------
MERCANTILE BANK OF ST. LOUIS,
NATIONAL ASSOCIATION
By:
-------------------------------------
Title:
----------------------------------
PNC BANK, KENTUCKY, INC.
By:
-------------------------------------
Title:
----------------------------------
THE ROYAL BANK OF SCOTLAND
By:
-------------------------------------
Title:
----------------------------------
-8-
<PAGE> 9
GIROCREDIT BANK
By:
-------------------------------------
Title:
----------------------------------
FIRST AMERICAN NATIONAL BANK
By:
-------------------------------------
Title:
----------------------------------
THE SUMITOMO BANK, LIMITED
By:
-------------------------------------
Title:
----------------------------------
-9-
<PAGE> 1
Exhibit 4.31
[EXECUTION FORM]
MODIFICATION AGREEMENT NO. 2
TO
AMENDED AND RESTATED REDUCING REVOLVING
CREDIT AGREEMENT
THIS MODIFICATION AGREEMENT NO. 2 (the "Modification Agreement No. 2"),
dated as of January 9, 1997, to the Reducing Revolving Credit Agreement, dated
as of July 21, 1993, as amended and restated as of May 3, 1996 and as modified
by Modification Agreement No. 1, dated as of October 24, 1996 (as further
amended, supplemented, amended and restated or otherwise modified from time to
time, the "Existing Credit Agreement"), among SHONEY'S, INC., a Tennessee
corporation (the "Borrower"), CIBC INC., acting through its Atlanta Office and
various other financial institutions, which are now, or in accordance with
Section 10.10 of the Existing Credit Agreement hereafter become, parties thereto
(collectively, the "Lenders" and, individually, a "Lender"), and CANADIAN
IMPERIAL BANK OF COMMERCE, a Canadian chartered bank acting through its New York
Agency, as Agent and Collateral Agent (the "Agent") for the Lenders;
W I T N E S S E T H:
WHEREAS, the Borrower has requested that certain provisions of the Existing
Credit Agreement be amended in certain respects as set forth herein; and
WHEREAS, the Lenders are willing to amend such provisions of the Existing
Credit Agreement and to take or permit the taking of certain actions as set
forth herein, but only on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the agreements herein contained, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Definitions. Unless otherwise defined herein or
the context otherwise requires, capitalized terms used in this Modification
Agreement No. 2, including its preamble and recitals, have the following
meanings (such meanings to be equally applicable to the singular and plural
forms thereof):
<PAGE> 2
"Agent has the meaning assigned to such term in the preamble.
"Borrower" has the meaning assigned to such term in the preamble.
"Existing Credit Agreement" has the meaning assigned to such term in the
preamble.
"Lenders" and "Lender" have the respective meanings assigned to such terms
in the preamble.
"Modification Agreement No. 2" has the meaning assigned to such term in the
preamble.
"Modification Effective Date" has the meaning assigned to such term in
Section 3.1.
SECTION 1.2. Other Definitions. Unless otherwise defined herein or the
context otherwise requires, capitalized terms used in this Modification
Agreement No. 2, including its preamble and recitals, have the meanings
provided in the Existing Credit Agreement.
ARTICLE II
AMENDMENT OF EXISTING CREDIT AGREEMENT
AS OF THE MODIFICATION EFFECTIVE DATE
Effective on (and subject to the occurrence of) the Modification Effective
Date, the provisions of the Existing Credit Agreement referred to below are
hereby amended in accordance with this Article II. Except as expressly so
amended, the Existing Credit Agreement shall continue in full force and effect
in accordance with its terms.
SECTION 2.1. Modification of Article I (Definitions). Article I of the
Existing Credit Agreement is hereby modified as follows:
SECTION 2.1.1. Section 1.4 of the Existing Credit Agreement is amended
by adding the following sentence after the last sentence thereof:
"In addition, for purposes of Section 7.2.4, the effects of (i) the
application of Statement No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" of the
Financial Accounting Standards Board in an amount not to exceed
$25,000,000 in the aggregate and (ii) any aggregate net gain on the
disposition of assets attributable to the write-down in the value of
such assets due to the application of the preceding clause (i), shall
be excluded from the calculation of the compliance by the Borrower and
its Subsidiaries with the
-2-
<PAGE> 3
covenants contained in such Section."
SECTION 2.2. Modification of Article VII (Covenants). Article VII of
the Existing Credit Agreement is hereby modified as follows:
SECTION 2.2.1. Section 7.2.8 of the Existing Credit Agreement is
hereby amended by (i) deleting the word "and" after clause (g) thereof,
(ii) changing the "." at the end of clause (h) thereto to "; and ", and
(iii) adding new clauses (i) and (j) thereof to read as follows:
"(i) in the case of the Borrower, (x) a Guaranty of certain
equipment lease obligations of TPIR existing as of the Acquisition
Date not to exceed $900,000 in the aggregate and (y) guaranties
replacing such guaranties so long as such replacement guaranty does
not increase the amount of obligations guarantied thereby and the
other terms and conditions of such replacement guaranty are no more
onerous to the Borrower than those of the guaranty so replaced; and
(j) in the case of the Borrower, the Guaranty of the obligations
of TPIR with respect to self-insurance obligations of TPIR relating to
workmen's compensation claims in the states of South Carolina and
Alabama."
ARTICLE III
CONDITIONS TO EFFECTIVENESS
SECTION 3.1. Modification Effective Date. This Modification Agreement
No. 2 shall become effective as of the date first above written, when all
of the conditions set forth in Sections 3.1.1 through 3.1.3 shall have been
satisfied (the "Modification Effective Date").
SECTION 3.1.1. Resolutions, etc. The Agent shall have received from
the Borrower, a certificate, dated the Modification Effective Date, of its
Secretary or any Assistant Secretary as to:
(a) resolutions of its Board of Directors then in full force and
effect authorizing the execution, delivery, and performance of this
Modification Agreement No. 2 and each other Loan Document to be
executed by it;
(b) the incumbency and signatures of the officers of the Borrower
authorized to act with respect to this Modification Agreement No. 2
and each other Loan Document to be executed by it (upon which
certificate the Agent and each Lender may conclusively rely until the
-3-
<PAGE> 4
Agent shall have received a further certificate of the Secretary of
the Borrower canceling or amending such prior certificate, which
further certificate shall be reasonably satisfactory to the Agent).
SECTION 3.1.2. Execution of Counterparts. The Agent shall have
received counterparts of this Modification Agreement No. 2 duly executed by
the Borrower, the Agent, and the Required Lenders.
SECTION 3.1.3. Compliance with Warranties; No Default etc. The Agent
shall have received from an Authorized Officer of the Borrower a
certificate, dated the date first above written, stating that
(a) the representations and warranties set forth in Article VI of
the Existing Credit Agreement (excluding, however, those contained in
Section 6.7 thereof) and the representations and warranties set forth
in each of the other Loan Documents, in each case as modified in
accordance herewith, are true and correct in all material respects
with the same effect as if then made (unless stated to relate solely
to an earlier date, in which case such representations and warranties
were true and correct as of such earlier date);
(b) except as disclosed by the Borrower to the Agent and the
Lenders pursuant to Section 6.7 of the Existing Credit Agreement:
(i) no labor controversy, litigation, arbitration or
governmental investigation or proceeding is pending or, to the
knowledge of the Borrower, threatened against the Borrower or any
of its Subsidiaries which might have a Materially Adverse Effect;
and
(ii) no development has occurred in any labor controversy,
litigation, arbitration or governmental investigation or
proceeding disclosed pursuant to Section 6.7 of the Existing
Credit Agreement which might have a Materially Adverse Effect;
and
(c) no Default has occurred and is continuing, and neither the
Borrower nor any of its Subsidiaries is in material violation of any
law or government regulation or court order or decree.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1. Cross References. References in this Modification
Agreement No. 2 to any article or section are, unless otherwise specified,
to such article or section of this Modification Agreement No. 2.
-4-
<PAGE> 5
SECTION 4.2. Instrument Pursuant to Existing Credit Agreement; Limited
Waiver. This Modification Agreement No. 2 is a Loan Document executed
pursuant to the Existing Credit Agreement and shall (unless otherwise
expressly indicated therein) be construed, administered, and applied in
accordance with all of the terms and provisions of the Existing Credit
Agreement. Any term or provision of and any modification effected by this
Modification Agreement No. 2 may be modified in any manner by an instrument
in writing executed by the Borrower and the Required Lenders (or the Agent
on behalf of and with the consent of the Required Lenders). Except as
expressly amended hereby, all of the representations, warranties, terms,
covenants and conditions of the Existing Credit Agreement shall remain
unmodified and unwaived. The modifications set forth herein shall be
limited precisely as provided for herein to the provisions expressly
modified herein and shall not be deemed to be a waiver of, amendment of,
consent to or modification of any other term or provision of any other Loan
Document or of any transaction or further or future action on the part of
the Borrower which could require the consent of any of the Lenders under
the Existing Credit Agreement.
SECTION 4.3. Successors and Assigns. This Modification Agreement No. 2
shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns.
SECTION 4.4. Counterparts. This Modification Agreement No. 2 may be
executed by the parties hereto in several counterparts which shall be
executed by the Borrower, each of the Required Lenders and the Agent, as
the case may be, all of which shall be deemed to be an original and which
shall constitute together but one and the same agreement.
SECTION 4.5. Event of Default. It is understood and agreed that any
breach of any representation or warranty or covenant contained herein shall
constitute an Event of Default.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Modification
Agreement No. 2 to be executed by the respective officers hereunder duly
authorized as of the day and year first above written.
SHONEY'S, INC.
By:___________________________
Title: Treasurer
CANADIAN IMPERIAL BANK OF
COMMERCE, acting through
its NEW YORK AGENCY, as
Agent
By:___________________________
Title: Authorized Signatory
CIBC INC., acting through
its Atlanta Office
By:___________________________
Title: Authorized Signatory
NATIONSBANK OF TENNESSEE, N.A.
By:___________________________
Title:________________________
THE BANK OF NEW YORK
By:___________________________
Title:________________________
LTCB TRUST COMPANY
By:___________________________
Title:________________________
-6-
<PAGE> 7
THE BANK OF NOVA SCOTIA
By:___________________________
Title:________________________
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By:___________________________
Title:________________________
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By:___________________________
Title:________________________
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By:___________________________
Title:________________________
THE BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By:___________________________
Title:________________________
THE FUJI BANK, LIMITED
By:___________________________
Title:________________________
KREDIETBANK N.V.
By:___________________________
Title:________________________
-7-
<PAGE> 8
ALLIED IRISH BANK
By:___________________________
Title:________________________
MERCANTILE BANK OF ST. LOUIS,
NATIONAL ASSOCIATION
By:___________________________
Title:________________________
PNC BANK, KENTUCKY, INC.
By:___________________________
Title:________________________
THE ROYAL BANK OF SCOTLAND
By:___________________________
Title:________________________
GIROCREDIT BANK
By:___________________________
Title:________________________
FIRST AMERICAN NATIONAL BANK
By:___________________________
Title:________________________
THE SUMITOMO BANK, LIMITED
By:___________________________
Title:________________________
-8-
<PAGE> 1
Exhibit 4.33
[EXECUTION COPY]
MODIFICATION AGREEMENT NO. 1
TO
BRIDGE LOAN CREDIT AGREEMENT
THIS MODIFICATION AGREEMENT NO. 1 (the "Modification Agreement No.
1"), dated as of October 24, 1996, to the Bridge Loan Credit Agreement, dated
as of May 3, 1996 (as amended, supplemented, amended and restated or otherwise
modified from time to time, the "Credit Agreement"), among SHONEY'S, INC., a
Tennessee corporation (the "Borrower"), the various financial institutions,
which are now, or in accordance with Section 10.10 of the Credit Agreement
hereafter become, parties thereto (collectively, the "Lenders" and,
individually, a "Lender"), and CANADIAN IMPERIAL BANK OF COMMERCE, a Canadian
chartered bank acting through its New York Agency, as Agent (the "Agent") for
the Lenders;
W I T N E S S E T H:
WHEREAS, the Borrower has requested that certain provisions of the
Credit Agreement be amended in certain respects as set forth herein; and
WHEREAS, the Lenders are willing to amend such provisions of the
Credit Agreement and to take or permit the taking of certain actions as set
forth herein, but only on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the agreements herein contained,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Definitions. Unless otherwise defined
herein or the context otherwise requires, capitalized terms used in
this Modification Agreement No. 1, including its preamble and
recitals, have the following meanings (such meanings to be equally
applicable to the singular and plural forms thereof):
<PAGE> 2
"Agent" has the meaning assigned to such term in the preamble.
"Borrower" has the meaning assigned to such term in the preamble.
"Credit Agreement" has the meaning assigned to such term in the
preamble.
"Lenders" and "Lender" have the respective meanings assigned to such
terms in the preamble.
"Modification Agreement No. 1" has the meaning assigned to such term
in the preamble.
"Modification Effective Date" has the meaning assigned to such term in
Section 3.1.
SECTION 1.2. Other Definitions. Unless otherwise defined
herein or the context otherwise requires, capitalized terms used in
this Modification Agreement No. 1, including its preamble and
recitals, have the meanings provided in the Credit Agreement.
ARTICLE II
AMENDMENT OF CREDIT AGREEMENT
AS OF THE MODIFICATION EFFECTIVE DATE
Effective on (and subject to the occurrence of) the Modification
Effective Date, the provisions of the Credit Agreement referred to below are
hereby amended in accordance with this Article II. Except as expressly so
amended, the Credit Agreement shall continue in full force and effect in
accordance with its terms.
SECTION 2.1. Modification of Article I (Definitions).
Article I of the Credit Agreement is hereby modified as follows:
SECTION 2.1.1. The definition of "Affiliate" is amended by
adding the following sentence after the last sentence thereof:
"In connection with the sale of capital stock or warrants
exercisable for capital stock of ShoLodge by the Borrower,
ShoLodge shall not be considered an Affiliate of the Borrower
or any of its Affiliates."
SECTION 2.2. Modification of Article VII (Covenants).
Article VII of the Credit Agreement is hereby modified as follows:
-2-
<PAGE> 3
SECTION 2.2.1. Clause (e) of Section 7.2.11 of the Credit
Agreement is hereby amended by deleting the reference therein to
"clause (c)" of Section 3.1.2 of the Credit Agreement and substituting
the "clause (b)" in its place.
SECTION 2.2.2. Section 7.2.17 of the Credit Agreement is
hereby amended by deleting the proviso at the end thereof and
substituting the following in its place:
"provided, however, that the Borrower may (i) terminate the
relevant franchise agreements in connection with Franchise
Acquisitions and (ii) terminate or modify any franchise
agreement with ShoLodge in connection with the sale of capital
stock or warrants exercisable for capital stock of ShoLodge
(including, without limitation, acceleration of royalty
payments)."
ARTICLE III
CONDITIONS TO EFFECTIVENESS
SECTION 3.1. Modification Effective Date. This
Modification Agreement No. 1 shall become effective as of the date
first above written, when all of the conditions set forth in Sections
3.1.1 through 3.1.3 shall have been satisfied (the "Modification
Effective Date").
SECTION 3.1.1. Resolutions, etc. The Agent shall have
received from the Borrower, a certificate, dated the Modification
Effective Date, of its Secretary or any Assistant Secretary as to:
(a) resolutions of its Board of Directors then in
full force and effect authorizing the execution, delivery, and
performance of this Modification Agreement No. 1 and each
other Loan Document to be executed by it;
(b) the incumbency and signatures of the officers
of the Borrower authorized to act with respect to this
Modification Agreement No. 1 and each other Loan Document to
be executed by it (upon which certificate the Agent and each
Lender may conclusively rely until the Agent shall have
received a further certificate of the Secretary of the
Borrower canceling or amending such prior certificate, which
further certificate shall be reasonably satisfactory to the
Agent).
SECTION 3.1.2. Execution of Counterparts. The Agent shall
have received counterparts of this Modification Agreement No. 1 duly
executed by the Borrower, the Agent, and the Required Lenders.
-3-
<PAGE> 4
SECTION 3.1.3. Compliance with Warranties; No Default etc.
The Agent shall have received from an Authorized Officer of the
Borrower a certificate, dated the date first above written, stating
that
(a) the representations and warranties set forth in
Article VI of the Credit Agreement (excluding, however, those
contained in Section 6.7 thereof) and the representations and
warranties set forth in each of the other Loan Documents, in
each case as modified in accordance herewith, are true and
correct in all material respects with the same effect as if
then made (unless stated to relate solely to an earlier date,
in which case such representations and warranties were true
and correct as of such earlier date);
(b) except as disclosed by the Borrower to the
Agent and the Lenders pursuant to Section 6.7 of the Credit
Agreement:
(i) no labor controversy, litigation,
arbitration or governmental investigation or
proceeding is pending or, to the knowledge of the
Borrower, threatened against the Borrower or any of
its Subsidiaries which might have a Materially
Adverse Effect; and
(ii) no development has occurred in any
labor controversy, litigation, arbitration or
governmental investigation or proceeding disclosed
pursuant to Section 6.7 of the Credit Agreement which
might have a Materially Adverse Effect; and
(c) no Default has occurred and is continuing, and
neither the Borrower nor any of its Subsidiaries is in
material violation of any law or government regulation or
court order or decree.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1. Cross References. References in this
Modification Agreement No. 1 to any article or section are, unless
otherwise specified, to such article or section of this Modification
Agreement No. 1.
SECTION 4.2. Instrument Pursuant to Credit Agreement;
Limited Waiver. This Modification Agreement No. 1 is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise
expressly indicated therein) be construed, administered, and applied
in accordance with all of the terms and provisions of the Credit
Agreement. Any term or provision of and any modification effected by
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<PAGE> 5
this Modification Agreement No. 1 may be modified in any manner by an
instrument in writing executed by the Borrower and the Required
Lenders (or the Agent on behalf of and with the consent of the
Required Lenders). Except as expressly amended hereby, all of the
representations, warranties, terms, covenants and conditions of the
Credit Agreement shall remain unmodified and unwaived. The
modifications set forth herein shall be limited precisely as provided
for herein to the provisions expressly modified herein and shall not
be deemed to be a waiver of, amendment of, consent to or modification
of any other term or provision of any other Loan Document or of any
transaction or further or future action on the part of the Borrower
which could require the consent of any of the Lenders under the Credit
Agreement.
SECTION 4.3. Successors and Assigns. This Modification
Agreement No. 1 shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
SECTION 4.4. Counterparts. This Modification Agreement No.
1 may be executed by the parties hereto in several counterparts which
shall be executed by the Borrower, each of the Required Lenders and
the Agent, as the case may be, all of which shall be deemed to be an
original and which shall constitute together but one and the same
agreement.
SECTION 4.5. Event of Default. It is understood and agreed
that any breach of any representation or warranty or covenant
contained herein shall constitute an Event of Default.
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Modification
Agreement No. 1 to be executed by the respective officers hereunder duly
authorized as of the day and year first above written.
SHONEY'S, INC.
By:
-------------------------------------
Title: Treasurer
CANADIAN IMPERIAL BANK OF
COMMERCE, acting through
its NEW YORK AGENCY, as
Agent
By:
-------------------------------------
Title: Authorized Signatory
CANADIAN IMPERIAL BANK OF
COMMERCE
By:
-------------------------------------
Title: Authorized Signatory
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<PAGE> 1
Exhibit 4.34
[EXECUTION FORM]
MODIFICATION AGREEMENT NO. 2
TO
BRIDGE LOAN CREDIT AGREEMENT
THIS MODIFICATION AGREEMENT NO. 2 (the "Modification Agreement No. 2"),
dated as of January 9, 1997, to the Bridge Loan Credit Agreement, dated as of
May 3, 1996, as amended by Modification Agreement No. 1, dated as of October 24,
1996 (as amended, supplemented, amended and restated or otherwise modified from
time to time, the "Credit Agreement"), among SHONEY'S, INC., a Tennessee
corporation (the "Borrower"), the various financial institutions, which are now,
or in accordance with Section 10.10 of the Credit Agreement hereafter become,
parties thereto (collectively, the "Lenders" and, individually, a "Lender"), and
CANADIAN IMPERIAL BANK OF COMMERCE, a Canadian chartered bank acting through its
New York Agency, as Agent (the "Agent") for the Lenders;
W I T N E S S E T H:
WHEREAS, the Borrower has requested that certain provisions of the Credit
Agreement be amended in certain respects as set forth herein; and
WHEREAS, the Lenders are willing to amend such provisions of the Credit
Agreement and to take or permit the taking of certain actions as set forth
herein, but only on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the agreements herein contained, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Definitions. Unless otherwise defined herein or
the context otherwise requires, capitalized terms used in this Modification
Agreement No. 2, including its preamble and recitals, have the following
meanings (such meanings to be equally applicable to the singular and plural
forms thereof):
"Agent has the meaning assigned to such term in the preamble.
<PAGE> 2
"Borrower" has the meaning assigned to such term in the preamble.
"Credit Agreement" has the meaning assigned to such term in the preamble.
"Lenders" and "Lender" have the respective meanings assigned to such terms
in the preamble.
"Modification Agreement No. 2" has the meaning assigned to such term in the
preamble.
"Modification Effective Date" has the meaning assigned to such term in
Section 3.1.
SECTION 1.2. Other Definitions. Unless otherwise defined herein or the
context otherwise requires, capitalized terms used in this Modification
Agreement No. 2, including its preamble and recitals, have the meanings
provided in the Credit Agreement.
ARTICLE II
AMENDMENT OF CREDIT AGREEMENT
AS OF THE MODIFICATION EFFECTIVE DATE
Effective on (and subject to the occurrence of) the Modification Effective
Date, the provisions of the Credit Agreement referred to below are hereby
amended in accordance with this Article II. Except as expressly so amended, the
Credit Agreement shall continue in full force and effect in accordance with its
terms.
SECTION 2.1. Modification of Article I (Definitions). Article I of the
Credit Agreement is hereby modified as follows:
SECTION 2.1.1. Section 1.4 of the Existing Credit Agreement is amended
by adding the following sentence after the last sentence thereof:
"In addition, for purposes of Section 7.2.4, the effects of (i) the
application of Statement No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" of the
Financial Accounting Standards Board in an amount not to exceed
$25,000,000 in the aggregate and (ii) any aggregate net gain on the
disposition of assets attributable to the write-down in the value of
such assets due to the application of the preceding clause (i), shall
be excluded from the calculation of the compliance by the Borrower and
its Subsidiaries with the covenants contained in such Section."
SECTION 2.2. Modification of Article VII (Covenants). Article VII of
the Credit Agreement is hereby modified as follows:
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<PAGE> 3
SECTION 2.2.1. Section 7.2.8 of the Credit Agreement is hereby amended
by (i) deleting the word "and" after clause (g) thereof, (ii) changing the
"." at the end of clause (h) thereto to "; and", and (iii) adding new
clauses (i) and (j) thereof to read as follows:
"(i) in the case of the Borrower, (x) a Guaranty of certain
equipment lease obligations of TPIR existing as of the Acquisition
Date not to exceed $900,000 in the aggregate and (y) guaranties
replacing such guaranties so long as such replacement guaranty does
not increase the amount of obligations guarantied thereby and the
other terms and conditions of such replacement guaranty are no more
onerous to the Borrower than those of the guaranty so replaced; and
(j) in the case of the Borrower, the Guaranty of the obligations
of TPIR with respect to self-insurance obligations of TPIR relating to
workmen's compensation claims in the states of South Carolina and
Alabama."
ARTICLE III
CONDITIONS TO EFFECTIVENESS
SECTION 3.1. Modification Effective Date. This Modification Agreement
No. 2 shall become effective as of the date first above written, when all
of the conditions set forth in Sections 3.1.1 through 3.1.3 shall have been
satisfied (the "Modification Effective Date").
SECTION 3.1.1. Resolutions, etc. The Agent shall have received from
the Borrower, a certificate, dated the Modification Effective Date, of its
Secretary or any Assistant Secretary as to:
(a) resolutions of its Board of Directors then in full force and
effect authorizing the execution, delivery, and performance of this
Modification Agreement No. 2 and each other Loan Document to be
executed by it;
(b) the incumbency and signatures of the officers of the Borrower
authorized to act with respect to this Modification Agreement No. 2
and each other Loan Document to be executed by it (upon which
certificate the Agent and each Lender may conclusively rely until the
Agent shall have received a further certificate of the Secretary of
the Borrower canceling or amending such prior certificate, which
further certificate shall be reasonably satisfactory to the Agent).
SECTION 3.1.2. Execution of Counterparts. The Agent shall have
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<PAGE> 4
received counterparts of this Modification Agreement No. 2 duly executed by
the Borrower, the Agent, and the Required Lenders.
SECTION 3.1.3. Compliance with Warranties; No Default etc. The Agent
shall have received from an Authorized Officer of the Borrower a
certificate, dated the date first above written, stating that
(a) the representations and warranties set forth in Article VI of
the Credit Agreement (excluding, however, those contained in Section
6.7 thereof) and the representations and warranties set forth in each
of the other Loan Documents, in each case as modified in accordance
herewith, are true and correct in all material respects with the same
effect as if then made (unless stated to relate solely to an earlier
date, in which case such representations and warranties were true and
correct as of such earlier date);
(b) except as disclosed by the Borrower to the Agent and the
Lenders pursuant to Section 6.7 of the Credit Agreement:
(i) no labor controversy, litigation, arbitration or
governmental investigation or proceeding is pending or, to the
knowledge of the Borrower, threatened against the Borrower or any
of its Subsidiaries which might have a Materially Adverse Effect;
and
(ii) no development has occurred in any labor controversy,
litigation, arbitration or governmental investigation or
proceeding disclosed pursuant to Section 6.7 of the Credit
Agreement which might have a Materially Adverse Effect; and
(c) no Default has occurred and is continuing, and neither the
Borrower nor any of its Subsidiaries is in material violation of any
law or government regulation or court order or decree.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1. Cross References. References in this Modification
Agreement No. 2 to any article or section are, unless otherwise specified,
to such article or section of this Modification Agreement No. 2.
SECTION 4.2. Instrument Pursuant to Credit Agreement; Limited Waiver.
This Modification Agreement No. 2 is a Loan Document executed pursuant to
the Credit Agreement and shall (unless otherwise expressly indicated
therein) be construed, administered, and applied in accordance with all of
the terms and provisions of the Credit Agreement. Any term or provision of
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<PAGE> 5
and any modification effected by this Modification Agreement No. 2 may be
modified in any manner by an instrument in writing executed by the Borrower
and the Required Lenders (or the Agent on behalf of and with the consent of
the Required Lenders). Except as expressly amended hereby, all of the
representations, warranties, terms, covenants and conditions of the Credit
Agreement shall remain unmodified and unwaived. The modifications set forth
herein shall be limited precisely as provided for herein to the provisions
expressly modified herein and shall not be deemed to be a waiver of,
amendment of, consent to or modification of any other term or provision of
any other Loan Document or of any transaction or further or future action
on the part of the Borrower which could require the consent of any of the
Lenders under the Credit Agreement.
SECTION 4.3. Successors and Assigns. This Modification Agreement No. 2
shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns.
SECTION 4.4. Counterparts. This Modification Agreement No. 2 may be
executed by the parties hereto in several counterparts which shall be
executed by the Borrower, each of the Required Lenders and the Agent, as
the case may be, all of which shall be deemed to be an original and which
shall constitute together but one and the same agreement.
SECTION 4.5. Event of Default. It is understood and agreed that any
breach of any representation or warranty or covenant contained herein shall
constitute an Event of Default.
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Modification
Agreement No. 2 to be executed by the respective officers hereunder duly
authorized as of the day and year first above written.
SHONEY'S, INC.
By:___________________________
Title: Treasurer
CANADIAN IMPERIAL BANK OF
COMMERCE, acting through
its NEW YORK AGENCY, as
Agent
By:___________________________
Title: Authorized Signatory
CANADIAN IMPERIAL BANK OF
COMMERCE
By:___________________________
Title: Authorized Signatory
-6-
<PAGE> 1
Exhibit 10.6
AMENDMENT NO. 5
TO
LICENSE AGREEMENT
THIS AMENDMENT NO. 5 TO LICENSE AGREEMENT (the "Amendment") is entered
into this 25th day of October, 1996, by and between SHONEY'S INVESTMENTS, INC.,
a Nevada corporation with offices at Suite 1400, 300 South Fourth Street, Las
Vegas, Nevada 89101 ("Licensor"), and SHOLODGE FRANCHISE SYSTEMS, INC.
(formerly known as Shoney's Lodging, Inc.), a Tennessee corporation with
offices at 217 West Main Street, Gallatin, Tennessee 37066 ("Licensee").
SHOLODGE, INC. (formerly known as Gulf Coast Development, Inc.), a Tennessee
corporation with offices at 217 West Main Street, Gallatin, Tennessee 37066
and the parent corporation of Licensee ("ShoLodge"), is executing this
Amendment for the purposes set forth in the Existing License Agreement (as
hereinafter defined) as amended hereby.
W I T N E S S E T H:
WHEREAS, Licensor and Licensee entered into that certain License
Agreement on October 25, 1991 (the "Original License Agreement") pursuant to
which Licensor granted to Licensee a license to use the service mark SHONEY'S
INN (and design) which was registered on February 16, 1982 with the United
States Patent and Trademark Office (the "USPTO") at Registration No. 1,190,289;
and
WHEREAS, Licensor and Licensee entered into that certain Amendment No.
1 to License Agreement on September 16, 1992 (the "First Amendment") pursuant
to which Licensor added the service mark SHONEY'S INN (block letters) which was
registered by Licensor on August 4, 1992 with the USPTO at Registration No.
1,705,676 to be licensed to Licensee pursuant to the terms and conditions of
the Original License Agreement; and
WHEREAS, Licensor and Licensee entered into that certain Amendment No.
2 to License Agreement on March 18, 1994 (the "Second Amendment") pursuant to
which certain Tennessee counties were added to the "Territory" covered by the
Original License Agreement; and
WHEREAS, Licensor and Licensee entered into that certain Amendment No.
3 to License Agreement on March 31, 1995 (the "Third Amendment") pursuant to
which Licensor added the service mark SHONEY'S SUITES (block letters) for which
an intent-to-use application was filed with the USPTO on January 23, 1995 and
the service mark SHONEY'S INN & SUITES (block letters) for which an
intent-to-use application was filed with the USPTO on February 6, 1995 to be
licensed to Licensee pursuant to the terms and conditions of the Original
License Agreement; and
WHEREAS, Licensor and Licensee entered into that certain Amendment No.
4 to License Agreement on June 26, 1996 (the "Fourth
<PAGE> 2
Amendment") (the Original License Agreement as amended by the First Amendment,
the Second Amendment, the Third Amendment and the Fourth Amendment is
hereinafter referred to as the "Existing License Agreement") pursuant to which,
among other things, the parties revised certain provisions of Section 4.5(d) of
the Original License Agreement regarding the provision of food items to guests
at Motels operated or licensed by Licensee;
WHEREAS, the parties hereto desire to modify and amend the Existing
License Agreement in certain other respects as set forth herein;
NOW, THEREFORE, in consideration of the premises and covenants
contained herein and in the Existing License Agreement, the payment by Licensee
to Licensor of the sum of Five Million Two Hundred Fifty Thousand and No/100
Dollars ($5,250,000) on even date herewith, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Licensor and Licensee agree as follows:
1. The Existing License Agreement is hereby amended by:
(a) deleting the existing Section 1.5 in its entirety.
(b) deleting the existing Section 4.1 in its entirety.
(c) deleting the existing Section 4.2 in its entirety.
(d) deleting the text of existing Section 4.4(a) in its
entirety and inserting in lieu thereof the following:
(a) Licensee shall display and shall
require that its franchisees display the
Licensed Mark only in the styles, shapes,
colors and forms set forth in Schedule 1,
attached hereto and incorporated herein by
reference, in all signs, literature,
packages, labels, artwork, advertising or
promotional materials prepared by or for
Licensee or its franchisees. Any alteration
or deviation from the displays set forth in
Schedule 1 must be approved in advance by
Licensor. Licensor shall have thirty (30)
days to approve or disapprove such
alterations or deviations. If Licensor fails
to notify Licensee in writing of its
objection to such alterations or deviations
within such thirty (30) day period, such
alterations or deviations shall be deemed to
have been approved. Licensee shall require
that each of its franchisees
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<PAGE> 3
agree to allow Licensor or its authorized
representative at any time to enter upon the
premises of any Motel and remove any signs or
advertising materials that display the mark
in a manner that has not been approved.
Licensee agrees to refrain, and to require
its franchisees to refrain, from using the
Licensed Mark in any fashion which would cast
disfavor upon the Licensor. Licensee will
permit, and require its franchisees to
permit, Licensor or its authorized
representatives to inspect the premises of
all Motels during business hours for the
purpose of ascertaining or determining
compliance with the terms of the Agreement.
(e) deleting the existing Section 4.4(b) in its entirety.
(f) deleting the existing Section 4.4(c) in its entirety.
(g) deleting the phrase "subject to the limitations set
forth below" as it appears in the second sentence of
Section 4.4(d).
(h) deleting the fourth sentence of Section 4.4(d) in its
entirety and inserting the following in lieu thereof:
Licensor shall not object to a form of
agreement, offering circular or other
promotional items because of the fees,
royalties, advertising fees or similar
financial obligations proposed to be charged
thereunder.
(i) inserting the words "Upon Licensor's request" at the
beginning of the first sentence in Section 4.5(a).
(j) deleting the words "their execution" as they appear
in the first sentence of Section 4.5(a) and inserting
in lieu thereof the words "such request."
(k) deleting the second, third, fourth and fifth
sentences of Section 4.5(a).
(l) deleting the words "no more than three (3) breakfast
`breads' such as donuts, bagels, muffins, sweet
rolls, danish and similar items and one bowl
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<PAGE> 4
containing one type of fresh whole fruit, and (iii)
so long as Licensee or its franchisee (as applicable)
shall have first offered the catering work to the
adjacent `Shoney's Restaurant' operator, if any," as
they appear in the second sentence of Section 4.5(d)
and inserting the following language in lieu thereof:
"hot or cold continental breakfast foods
consisting of breads, fruits, cereals,
waffles, pancakes, poptarts and other items
popularly known as `continental breakfast'
foods; provided, however, that, except as
provided above, in no event shall the term
`continental breakfast foods' be deemed to
include any other hot breakfast foods
including, without limitation: (a) any meat
or meat products (including pork and pork
products); and (b) eggs, and (iii)"
(m) deleting the third sentence in Section 4.5(d) in its
entirety and inserting in lieu thereof the following:
No food products showing brand names (such as
Dunkin' Donuts) shall be allowed, although
brand name products may be used as long as
the brand name itself is not displayed.
(n) deleting the fifth sentence in Section 4.5(d) in its
entirety and inserting in lieu thereof the following:
Licensee agrees, and shall require its
franchisees to agree, to place menus for the
adjacent "Shoney's Restaurant," if any,
(which must be approved by Licensor and any
expense borne by the adjacent restaurant
operator) in each guest room of all Motels
and shall not allow any other restaurant or
food service organization to place
promotional material in the guest rooms of
any Motels adjacent to a "Shoney's
Restaurant" without the prior written consent
of Licensor. For purposes of this Section
4.5(d) the term "adjacent to" shall mean
within a one mile radius."
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<PAGE> 5
(o) deleting the text of existing Section 4.10 in its
entirety and inserting in lieu thereof the following:
Section 4.10. Assignment.
(a) Licensee shall not sublicense
(except to a franchisee as permitted herein),
sell, assign, transfer, convey or encumber
its rights and obligations hereunder or
suffer or permit any such assignment,
transfer or encumbrance to occur by operation
of law without the prior express written
consent of Licensor. In the event Licensee
is a corporation, limited partnership,
business trust, partnership or similar
association, the shareholders, limited
partners, beneficiaries, partners or
investors, as the case may be, may not sell,
assign or otherwise transfer their shares or
interests in such corporation, limited
partnership, business trust, partnership or
similar association, without the prior
written consent of Licensor. In the event
Licensee is a corporation, all stock
certificates shall have conspicuously
endorsed upon them a legend in substantially
the following form:
"A transfer of this stock is subject to
the terms and conditions of a
License Agreement between Shoney's
Investments, Inc. and ShoLodge
Franchise Systems, Inc. (then known
as Shoney's Lodging, Inc.) dated the
25th day of October, 1991, as
amended.
Licensor agrees that it will not unreasonably
withhold its consent to a sale, assignment,
transfer or conveyance contemplated by this
paragraph to a person or entity who has
experience in the operation of motels and who
is, in the sole judgment of Licensor, of good
character and reputation and capable,
financially and otherwise, of performing the
duties and obligations of Licensee hereunder.
Any approval by Licensor of such transfer or
assignment shall be
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<PAGE> 6
subject to the assignee's agreement in
writing to assume and perform all of the
transferor's duties and obligations
hereunder.
(b) In the event of the death of
the Licensee or if the Licensee is a
corporation or similar entity, then in the
event of the death of any stockholder,
investor or similar person of Licensee,
Licensor shall not unreasonably withhold its
consent to a transfer or assignment of
Licensee's interest herein, or if Licensee is
a corporation, the transfer of the deceased
stockholder's stock in such corporation to a
descendant, heir or legatee of the decedent,
who shall in the sole judgment of Licensor be
capable of performing the duties and
obligations of Licensee hereunder, or to a
responsible bona fide purchaser acceptable to
Licensor. Any approval by Licensor of such
transfer or assignment shall be subject to
the assignee's agreement in writing to assume
and perform all of the transferor's duties
and obligations hereunder.
(c) In the event that a sale,
assignment, transfer or conveyance of the
stock of Licensee by the shareholder of
Licensee is approved in accordance with
Section 4.10(a) above, Licensor will (i)
amend this Agreement to delete (A) the
provisions of Section 7.2 hereof pertaining
to defaults caused by Gulf (now known as
ShoLodge, Inc.) and (B) all other references
to Gulf, including, without limitation, those
in Sections 6.1, 6.2, 6.4, 6.6, and 7.3
hereof, and to make conforming amendments in
connection with such deletions, and (ii)
terminate and cancel the Guaranty Agreement
except for obligations guaranteed by Gulf
thereunder relating to events occurring prior
to the effective date of such sale,
assignment, transfer or conveyance.
(p) deleting the phrase "that consent may be given by any
of Licensor's representatives to the board of
directors of Gulf or Licensee" as it appears in
Section 4.11(b) and inserting in lieu thereof the
words "a request for consent shall be made by
Licensee in writing addressed to the Secretary of
Licensor's parent corporation Shoney's, Inc. and
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<PAGE> 7
written approval may be given by the Secretary,
Treasurer or Chief Financial Officer of Licensor's
parent corporation Shoney's, Inc."
(q) deleting the existing Section 5.1 in its entirety.
(r) deleting the date "October 27, 1991" as it appears in
Section 5.2 and inserting in lieu thereof the date
"October 25, 1996."
(s) inserting the words ", as amended" immediately
following the words "attached hereto" as they appear
in the second line of Section 5.3.
(t) deleting the existing Section 5.4 in its entirety.
(u) deleting the existing Section 5.5 in its entirety.
(v) inserting the words "subject to the provisions of
Section 4.10" immediately before the words "Gulf will
continue" as they appear in the third line of Section
6.1 and deleting the parenthetical "(except any
security interests granted to Licensor herein)" as it
appears in the sixth and seventh lines of Section 6.1.
(w) deleting the second and third sentences of Section
6.3.
(x) deleting Section 6.5 in its entirety.
(aa) deleting the words ", as modified by Section 5.1
hereof" as they appear in the last line of Section
6.6.
(bb) deleting the words "(except for the payment of any
royalty fees) or any other agreement between Licensor
and Licensee (including, without limitation, the
Security Agreement) executed contemporaneously with
the execution of this Agreement" as they appear in
Section 7.1(a).
(cc) deleting the existing Section 7.1(f) in its entirety.
(dd) deleting the existing Section 7.1(g) in its entirety.
(ee) deleting the word "report" as it appears in Section
7.1(h) and inserting in lieu thereof the word
"document."
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<PAGE> 8
(ff) deleting the term "ten (10)" as it appears in Section
7.1(j) and inserting the term "thirty (30)" in lieu
thereof.
(gg) deleting the words "and the Stock Pledge Agreement"
as they appear in the parenthetical in the fourth
line of Section 7.2(a).
(hh) deleting the existing Section 7.2(f) in its entirety.
(ii) deleting the existing Section 7.2(g) in its entirety.
(jj) deleting the term "ten (10)" as it appears in Section
7.2(i) and inserting the term "thirty (30)" in lieu
thereof.
(kk) deleting the parenthetical "(with the exception of
those set forth in Section 7.4(f) hereof)" as it
appears in the third and fourth lines of Section
7.4(a).
(ll) deleting the words "assignment of all agreements then
existing between Licensee and any franchisee,
assignment of any leases for Motels in existence on
the date hereof and" as they appear in the
parenthetical in the last sentence of Section 7.4(a).
(mm) deleting the existing Section 7.4(c) in its entirety.
(nn) deleting the existing Section 7.4(d) in its entirety.
(oo) deleting the existing Section 7.4(f) in its entirety.
(pp) deleting the address for Licensor as it appears in
Section 8.6 and inserting the following address in
lieu thereof:
Shoney's Investments, Inc.
Suite 1400
300 South Fourth Street
Las Vegas, Nevada 89101
2. Except as herein specifically amended, all terms and
provisions of the Existing License Agreement shall remain in full force and
effect.
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<PAGE> 9
3. This Amendment may be executed simultaneously in two (2) or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4. The terms of this Amendment shall be interpreted and construed
in accordance with the laws of the State of Nevada.
5. The parties hereto agree that the termination of the royalty
payment obligation created by this Amendment pertains only to future royalties
accruing after the date of this Amendment and that Licensee and ShoLodge shall
be liable for the payment of all royalties accrued through and including
October 25, 1996 in accordance with the terms of the Existing License
Agreement. Licensee shall pay such royalties to Licensor in such amounts, at
such times and otherwise in accordance with the terms of the Existing License
Agreement.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
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<PAGE> 10
IN WITNESS WHEREOF, the undersigned have executed this Amendment all
as of the day and date first above written.
LICENSOR:
SHONEY'S INVESTMENTS, INC.
By: /s/ John H. Mowbray
-------------------------------------
John H. Mowbray
Title: Assistant Secretary
LICENSEE:
SHOLODGE FRANCHISE SYSTEMS, INC.
By: /s/ Leon Moore
-------------------------------------
Title: Chairman
----------------------------------
SHOLODGE, INC.
By: /s/ Leon Moore
-------------------------------------
Title: President
----------------------------------
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<PAGE> 1
Exhibit 10.8
WARRANT PURCHASE AGREEMENT
THIS WARRANT PURCHASE AGREEMENT (sometimes herein the
"Agreement") is executed this 25th day of October, 1996, between SHONEY'S
INVESTMENTS, INC. ("SII") and SHOLODGE, INC. ("ShoLodge").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Stock Purchase and Warrant
Agreement dated as of October 25, 1991 between ShoLodge (then known as Gulf
Coast Development, Inc.) and SII (the "Warrant Agreement"), SII obtained
certain warrants to acquire shares of common stock of ShoLodge (the "Warrants");
and
WHEREAS, the Warrants are evidenced by that certain Warrant
Certificate dated October 25, 1991 (the "Warrant Certificate") executed by
ShoLodge (then known as Gulf Coast Development, Inc.) in favor of SII, the
Warrant Certificate having been executed and issued pursuant to the Warrant
Agreement; and
WHEREAS, SII desires to transfer the Warrants to ShoLodge for
the sum of $2,050,000 in good and collected funds, on the terms and subject to
the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. Except as specified otherwise, when
used in this Agreement, the following terms shall have the meanings specified:
"Agreement" shall mean this Warrant Purchase Agreement, as the
same shall be amended from time to time in accordance with the terms hereof.
"Warrants" shall mean the warrants to acquire common stock of
ShoLodge evidenced by the Warrant Certificate and to be acquired by ShoLodge
from SII pursuant to this Agreement.
1.2 Singular/plural; gender. Where the context so
requires or permits, the use of the singular form includes the plural, and use
of the plural form includes the singular, and the
<PAGE> 2
use of any gender includes any and all genders.
ARTICLE II
PURCHASE AND SALE OF THE WARRANTS
2.1 Purchase and Sale of the Warrants. SII hereby sells,
assigns and delivers to ShoLodge the Warrants, and ShoLodge hereby purchases
the Warrants from SII. Simultaneously with the execution of this Agreement, SII
has delivered, or caused to be delivered, to ShoLodge a Lost Warrant
Certificate Affidavit, which includes a transfer of rights of SII to the
Warrant Certificate.
2.2 Purchase Price for Warrants. In consideration of the
aforesaid sale, assignment and delivery of the Warrants, ShoLodge, in full
payment for the aforesaid sale, assignment and delivery, has paid to SII in
immediately available funds the sum of Two Million Fifty Thousand Dollars
($2,050,000), the receipt of which is hereby acknowledged.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SII
SII hereby represents and warrants to ShoLodge as follows,
which representations and warranties shall survive the closing of the
transaction contemplated by this Agreement:
3.1 Title to the Warrant Certificate. SII is the true
and lawful owner and holder of the Warrant Certificate and the Warrants
evidenced thereby.
3.2 Transfer of Warrant Certificate. SII has good right
and lawful authority to transfer and convey the Warrants and to execute the
Lost Warrant Certificate Affidavit to ShoLodge, and the Warrant Certificate and
the Warrants evidenced thereby have not been previously transferred, conveyed
or endorsed to any other person.
3.3 No Liens on Warrant Certificate. The Warrant
Certificate and the Warrants evidenced thereby are free and clear of any and
all liens, encumbrances or security interests of any kind.
3.4 Valid and Binding Agreement. This Agreement
constitutes a valid and binding agreement of SII, enforceable in accordance
with its terms, subject as to enforceability to bankruptcy, insolvency and
similar laws affecting creditors' rights generally and to the availability of
equitable remedies.
3.5 No Violation. Neither the execution and delivery of
this Agreement nor the
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<PAGE> 3
consummation by SII of the transactions contemplated hereby violates or
conflicts with any agreement or other restriction of any kind to which either
SII is a party or by which SII is bound.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SHOLODGE
ShoLodge hereby represents and warrants to SH as follows,
which representations and warranties shall survive the closing of the
transaction contemplated by this Agreement:
4.1 Valid and Binding Agreement. This Agreement
constitutes a valid and binding agreement of ShoLodge, enforceable in
accordance with its terms, subject as to enforceability to bankruptcy,
insolvency and similar laws affecting creditors' rights generally and to the
availability of equitable remedies.
4.2 No Violation. Neither the execution and delivery of
this Agreement nor the consummation by ShoLodge of the transactions
contemplated hereby violates or conflicts with any agreement or other
restriction of any kind to which Sholodge is as a party or by which ShoLodge is
bound.
ARTICLE V
MISCELLANEOUS
5.1 Expenses. All fees and expenses incurred by SII in
connection with this Agreement shall be paid by SII. All fees and expenses
incurred by ShoLodge in connection with this Agreement will be paid by ShoLodge.
5.2 Further Assurances. From time to time, at the
request of either party, and without further consideration, SII will execute
and deliver to ShoLodge or ShoLodge will execute and deliver to SII, as the
case may be, such documents and take such action as may reasonably be requested
in order to consummate more effectively the transactions contemplated hereby.
5.3 Parties in Interest. Except as otherwise expressly
provided herein, all the terms and provisions of this Agreement shall be
binding upon, shall inure to the benefit of, and shall be enforceable by the
respective heirs, beneficiaries, personal and legal representatives, successors
and assigns of the parties hereto.
5.4 Entire Agreement, Amendments. This Agreement
contains the entire understanding of the parties with respect to this subject
matter. There are no restrictions, agreements, promises, warranties, covenants
or undertakings other than those expressly set forth herein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to its subject matter. This Agreement may be amended only by a written
instrument
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<PAGE> 4
duly executed by the parties or their respective successors or assigns.
5.5 Headings, etc. The section and paragraph headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretations of this Agreement.
5.6 Notices. All notices, requests, demands and other
communications hereunder ("Notices") shall be in writing and shall be deemed to
have been duly given if hand-delivered, sent via overnight delivery service or
mailed (registered or certified mail, postage prepaid, return receipt
requested) as follows:
As to SII:
Suite 1400
300 South Fourth Street
Las Vegas, NV 89101
With a copy to:
Tuke, Yopp & Sweeney
414 Union Street
Suite 1100
Nashville, TN 37219
Attn: Robert P. Felber, Jr., Esq.
As to ShoLodge:
217 West Main Street
Gallatin, TN 37066
With a copy to:
Boult, Cummings, Conners & Berry, PLC
414 Union Street
Suite 1600
Nashville, TN 37219
Attn: Patrick L. Alexander, Esq.
or to such other address as any party may have furnished to the other in
writing in accordance herewith, except that Notices of change of address shall
only be effective upon receipt. All Notices shall be deemed received on the
date of delivery or, if mailed, on the date appearing on the return receipt
therefore
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<PAGE> 5
5.7 Counterparts. This Agreement may be executed
simultaneously in several counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.
5.8 Severability. If any provision, clause or part of
this Agreement or the application thereof under certain circumstances is held
invalid, the remainder of this Agreement or the application of such provision,
clause or part under other circumstances shall not be affected thereby.
5.9 No Reliance. No third party is entitled to rely on
any of the representations, warranties and agreements of any party contained in
this Agreement; the parties to this Agreement assume no liability to any third
party because of any reliance on the representations, warranties and agreements
contained in this Agreement.
5.10 Time of Essence. Time is of the essence in this
Agreement, and all dates and time periods specified herein shall be strictly
observed.
5.11 Enforcement Expenses. The prevailing party in any
action commenced due to the breach hereof shall be entitled to recover its
costs, expenses and reasonable attorney's fees incurred in the enforcement of
this Agreement.
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<PAGE> 6
IN WITNESS WHEREOF, this, Agreement has been duly executed and
by the parties hereto on the date first above written.
SHONEY'S INVESTMENTS, INC
By: /s/ John H. Mowbray
-------------------------------------
Title: Assistant Secretary
----------------------------------
SHOLODGE, INC.
By: /s/ Leon Moore
-------------------------------------
Title: President
----------------------------------
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<PAGE> 1
Exhibit 10.11
SHONEY'S, INC.
1981 STOCK OPTION PLAN
(As Amended and Restated Through 10/28/96)
Purpose of the Plan
This Stock Option Plan (the "Plan") is intended to promote the
interests of Shoney's, Inc. (the "Company") and its shareholders by encouraging
those key employees who will be responsible for the future growth and continued
development of the Company and its Subsidiaries, as hereinafter defined, to
own, and to increase their ownership of, the Company's stock, thereby giving
them, as shareholders, an increased personal interest in, and a greater concern
for, the Company's continued success and progress.
Statement of the Plan
1. Name. The Plan shall be known as the Shoney's, Inc. 1981
Stock Option Plan.
2. Definition of Terms. In addition to words and terms that may
be defined elsewhere in the Plan, the following words and terms as used in the
Plan shall have the following meanings unless the context or use fairly
indicates another or different meaning or intent, which definitions shall be
equally applicable to both the singular and plural forms of such words and
terms:
2.1 "Board" means the Company's Board of Directors.
2.2 "Change in Control" means a change in control of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange Act; provided,
however, that, without limitation, such a Change in Control shall be deemed to
have occurred if during the option exercise period: (a) any "person" (as such
term is used in the Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing more than
fifty percent (50%) of the combined voting power of Company's then outstanding
voting securities; or (b) all or substantially all of the fixed assets of the
Company based on the appraised value of such assets on a consolidated basis are
sold, exchanged or otherwise transferred (other than to secure debt owed by the
Company); or (c) the Company's shareholders approve a plan of liquidation or
dissolution; or (d) individuals who at the time an option is granted constitute
members of the Board cease for any reason to constitute a majority thereof
unless the election, or the nomination for election by Company's shareholders,
of each new director was approved by a vote of at least a majority of the
directors then still in office who were directors at the time the option was
granted.
2.3 "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
<PAGE> 2
2.4 "Committee" means the Human Resources and
Compensation Committee of the Board, consisting solely of three or more outside
directors (as defined by Code Section 162(m) and the regulations issued
thereunder), as from time to time designated by the Board, that administers the
Plan in accordance with Section 3, and who are not and have not at any time for
one year before appointment to the Committee been eligible to receive stock or
options under any plan (other than the Directors Stock Option Plan) of the
Company or any of its affiliates.
2.5 "Common Stock" means the common stock of the Company
having a par value of $1.00 per share.
2.6 "Disability" means, as defined by and to be construed
in accordance with Code Section 22(e)(3), any medically determinable physical
or mental impairment which can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not less than
twelve (12) months, and which renders Participant unable to engage in the
duties being engaged in before the impairment. A Participant shall not be
considered to have a Disability unless the Participant furnishes proof of the
existence thereof in a such form and manner, and at such time, as the Committee
may require.
2.7 "Exchange Act" means the Securities Exchange Act of
1934, as amended.
2.8 "Incentive Option" means an option which qualifies as
an incentive stock option within the meaning of Code Section 422.
2.9 "Nonqualified Option" means an option which does not
qualify as an incentive stock option under Code Section 422.
2.10 "Parent" means any corporation, which at the time an
option is granted, qualifies as a parent of the Company under the definition of
"parent corporation" contained in Code Section 424(e), i.e., any corporation,
other than the Company, in an unbroken chain of corporations ending with the
Company, if at the time of the granting of an option under the Plan, each of
the corporations other than the Company own stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
2.11 "Participant" means an employee of the Company or any
of its Subsidiaries to whom an option is granted under the Plan.
2.12 "Performance-Based Option" means an Incentive Option
or Nonqualified Option that vests as determined by the Committee in accordance
with Section 7.7[i].
2.13 "Prior Plan" means the Stock Option Plan originally
approved by the Company's shareholders on January 16, 1969, as amended.
2
<PAGE> 3
2.14 "Representative" means the personal representative of the
Participant's estate, and after final settlement of the Participant's estate,
the successor or successors entitled thereto by law.
2.15 "Subsidiary" means any corporation which at the time
an option is granted qualifies as a subsidiary of the Company under the
definition of "subsidiary corporation" contained in Code Section 424(f), i.e.,
any corporation, other than the Company, in an unbroken chain of corporations
beginning with the Company if, at the time of the granting of an option under
the Plan, each of the corporations other than the last corporation in the
unbroken chain owns stock possessing 50% or more of the total combined voting
power of all classes of stock of one of the other corporations in such chain.
2.16 "Trading Price of the Common Stock" means (i) the
closing price of the Common Stock on the principal national securities exchange
on which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) if the Common Stock is not then traded on
a national securities exchange, the average of the closing bid and asked
quotations or the closing high bid quotation, whichever is available, in the
over-the-counter market as reported by the NASDAQ National Market List; or
(iii) if the Common Stock is not then reported on the NASDAQ National Market
List, the average of the closing bid and asked prices last quoted by an
established quotation service for over-the counter-securities.
3. Administration. The Plan shall be administered by the
Committee. Members of the Committee shall not be eligible to participate in
the Plan. The Committee may interpret the Plan, prescribe, amend, and rescind
any rules and regulations necessary or appropriate for the administration of
the Plan, and make such other determinations and take such other action as it
deems necessary or desirable for the administration of the Plan and the
protection of the Company except as otherwise reserved to the Board or the
shareholders of the Company. Without limiting the generality of the foregoing
sentence, the Committee may, in its discretion, treat all or any portion of any
period during which an optionee is on military or other approved leave of
absence from the Company or a Subsidiary, as a period of employment of such
optionee by the Company or such Subsidiary, as the case may be, for purposes of
accrual of the Participant's rights under the Plan; provided, however, that in
the case of an Incentive Option such leave shall not be longer than 90 days or
the optionee's reemployment following such leave must be guaranteed by contract
or statute. In the event the leave described in the preceding sentence exceeds
90 days and reemployment is not guaranteed by contract or statute, the
optionee's employment by the Company or a Subsidiary shall be deemed to have
terminated on the 91st day of such leave. Any interpretation, determination,
or other action made or taken by the Committee shall be final, binding, and
conclusive. No member of the Committee shall be liable for any action taken or
omitted or determination made in good faith with respect to the Plan or any
option granted under the Plan.
4. Shares Subject to Plan. Options may be granted by the Company
from time to time to purchase an aggregate of 13,685,180 shares of Common
Stock, subject to adjustment as
3
<PAGE> 4
provided in Section 9. The shares issued upon exercise of options granted
under the Plan may be authorized and unissued shares or shares held by the
Company in its treasury. If any option granted under the Plan shall terminate,
expire, or, with the consent of the Participant, be cancelled as to any shares,
new options may thereafter be granted covering any such shares.
5. Eligibility. Options may be granted to those employees of the
Company (including officers, whether or not they are directors) who have and
exercise key management functions and responsibilities for the Company or any
Subsidiary. The granting of an option to any employee shall neither entitle
such employee to, nor disqualify such employee from, participation in any other
grant of options.
6. Grant of Options. The Committee shall have the authority,
subject to the terms of the Plan, to: (a) determine and designate from time to
time those employees of the Company or any Subsidiary to whom options are to be
granted and the number of shares to be optioned to each such employee, provided
that no director of the Company who is not also an employee of the Company or
of a Subsidiary and no director who is a member of the Committee administering
the Plan shall be entitled to receive any option under the Plan and further
provided that the maximum number of shares of Common Stock that may be granted
to any Participant during any fiscal year of the Company shall not exceed two
million (2,000,000) shares; (b) authorize the granting of Incentive Options,
Nonqualified Options, Performance-Based Options, or combinations of Incentive
Options, Nonqualified Options and Performance-Based Options; and to require, if
it so determines, that if an Incentive Option and a Nonqualified Option are
granted to the same Participant, then to the extent one option is exercised the
other option shall not be exercised and shall terminate; (c) determine the
number of shares subject to each option; and (d) subject to the restrictions of
Section 7.7, determine the schedule and duration of the exercise period for any
option. The date of grant of an option under the Plan will be the date on
which the option is awarded by the Committee.
7. Terms and Conditions of Options. Each option granted under
the Plan shall be evidenced by an agreement, in a form approved by the
Committee, and shall be subject to the terms and conditions contained in
Sections 7.1 through 7.8 and to such other terms and conditions as the
Committee may deem appropriate; provided, however, that no Incentive Option
shall be subject to any condition that is inconsistent with the provisions of
Code Section 422(b). In the event that any condition imposed hereunder on an
Incentive Option is at any time determined by the Internal Revenue Service or a
court of competent jurisdiction to be inconsistent with Code Section 422, then
each Incentive Option shall be deemed to have been granted without such
condition but shall continue in effect under such remaining terms and
conditions as may be applicable as if the invalid condition had not been
included.
7.1 Option Period. Each option agreement shall specify the period
during which the option thereunder is exercisable (which shall not exceed ten
(10) years from the date of grant, except as otherwise provided by Section 8.3)
and shall provide that the option shall expire at the end of such period.
4
<PAGE> 5
7.2 Option Price. Each option agreement shall specify the option
price at which the option thereunder is exercisable. The option price per
share shall be at least one hundred percent (100%) of the fair market value of
the Common Stock on the date of grant. The fair market value of the Common
Stock shall be the Trading Price of the Common Stock on the date of grant.
Such price shall be subject to adjustment as provided in Section 9.
7.3 Nontransferability. The options granted hereunder shall not
be transferable by the Participant otherwise than by will or the laws of
descent and distribution.
7.4 Ten Percent Shareholders. Incentive Options shall not be
granted to any employee who, immediately before the option is granted, owns
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of its Parent or Subsidiaries;
provided, however, that this prohibition shall not apply if at the time such
option is granted the option price is at least one hundred ten percent (110%)
of the fair market value of the Common Stock and such option is not exercisable
after the expiration of five (5) years from the date such option is granted.
7.5 $100,000 Incentive Option Limitation. To the extent the
aggregate fair market value (determined as of the date the option is granted)
of the Common Stock for which an Incentive Option will first become exercisable
by a Participant in any calendar year under all plans of the Participant's
employer corporation and its Parent and Subsidiaries exceeds $100,000, such
option shall be treated as a Nonqualified Option.
7.6 Termination of Employment. If any Participant shall cease to
be an employee of either the Company, or a Parent or Subsidiary, or a Parent or
Subsidiary corporation of each corporation issuing or assuming a stock option
in a transaction to which Code Section 424(a) applies, except when such
cessation of employment is caused by the death or Disability of the
Participant, the Participant may, subject to the provisions hereof and before
the earlier of the option's expiration date or the expiration of three (3)
months from such cessation of employment, exercise the option granted to such
Participant to the same extent that the Participant might have exercised such
option on the date of cessation of employment. To the extent that any option
is not exercised in accordance herewith, it shall terminate at the earlier of
the option's expiration date or the expiration of the three (3) month period
following cessation of employment. Participant's Representative, in the event
of the Participant's death, or the Participant, in the event of the
Participant's Disability, may, subject to the provisions hereof and before the
earlier of the option's expiration date or the expiration of twelve (12) months
after the date of such death or Disability, exercise the option granted to such
Participant up to the total number of shares covered by the option less any
previous exercises. To the extent that any option is not exercised in
accordance herewith, it shall terminate at the earlier of the option's
expiration date or the expiration of the twelve (12) month period following
death or Disability. Nothing in the Plan shall be construed as imposing any
obligation on the Company to continue the employment of any Participant.
5
<PAGE> 6
7.7 Period of Exercise of Options. Any option granted hereunder,
may, before its expiration or termination, be exercised from time to time, in
whole or in part, up to the total number of shares with respect to which it
shall have then become exercisable. An option granted hereunder shall become
exercisable in such installments as are specified in the option agreement, the
rate of which shall not be at a rate exceeding the following schedule, except
as otherwise provided by this Section 7.7: (a) After one (1) year from the date
the option is granted, it may be exercised as to not more than 33 1/3% of the
shares covered thereunder; (b) after two years from the date the option is
granted, it may be exercised as to not more than an additional 33 1/3%, or a
total of 66 2/3%, of the shares covered thereunder; (c) after three years from
the date the option is granted, it may be exercised as to all of the shares
covered thereunder. Notwithstanding the foregoing, the Committee may provide
in the option agreement that an option shall vest, in whole or in part:
[i] with respect to Performance-Based Options, at such
time, or within such time period as the Committee shall designate, as the fair
market value of the Company's Common Stock subject to the option increases
seventy-five percent (75%), or such greater percentage as determined by the
Committee, over the fair market value of the Common Stock at date of grant of
the option, with said option to vest no later than ten (10) years from the date
the option is granted provided that the Committee may provide for expiration of
the option upon termination of employment.
[ii] in the event of the Participant's termination of
employment with the Company or Subsidiary because of the Participant's death or
Disability; and
[iii] in the event of a Change in Control.
7.8 Determination of Fair Market Value for Vesting of
Performance-Based Options. A Performance-Based Option shall vest on such date
as the average of the Trading Price of the Common Stock for the immediately
preceding twenty (20) consecutive trading days is at least seventy-five percent
(75%), or such greater percentage as determined by the Committee, over the
Trading Price of the Common Stock on the date of grant.
8. Exercise of Option. The exercise of any option under the Plan
shall be subject to the provisions of Sections 8.1 through 8.3.
8.1 Manner of Exercise. To exercise an option, the
Participant shall deliver to the Company at its main office (attention of the
corporate Secretary): [i] written notice specifying the number of shares as to
which the option is being exercised and, if determined by counsel for the
Company to be necessary, representing that such shares are being acquired for
investment purposes only and not for purpose of resale or distribution; and
[ii] payment by the Participant, or a broker-dealer (as provided in Section
8.2), for such shares of the option price for the number of shares with respect
to which the option is exercised. Provided that all conditions precedent
contained in the Plan and option agreement are satisfied, the Company shall
deliver to the
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<PAGE> 7
Participant, at the offices of the Company, a certificate or certificates for
the Common Stock. If Participant fails to accept delivery of the Common Stock,
the Participant's rights to exercise the applicable portion of the option shall
terminate.
8.2 Payment for Shares. Except as otherwise provided in
this Section 8, the option price for the Common Stock shall be paid in full
when the option is exercised. Subject to such rules as the Committee may
impose, the option price may be paid in whole or in part in [i] cash, [ii]
whole shares of Common Stock owned by the Participant evidenced by negotiable
certificates, [iii] by a combination of such methods of payment, or [iv] such
other consideration as shall constitute lawful consideration for the issuance
of Common Stock and be approved by the Committee. If payment of the option
price is made in Common Stock, the value of the Common Stock used for payment
of the option price shall be the closing price of the Common Stock on the
national securities exchange on the business day preceding the day written
notice of exercise is delivered to the Company. The Committee, in its
discretion, may suspend or terminate the right of Participant to pay with stock
of the Company should the Committee deem such action to be in the Company's
best interests.
8.3 Exercises Causing Loss of Tax Deduction. No part of
an option may be exercised to the extent the exercise would cause the
Participant to have compensation from the Company and its affiliated companies
for any year in excess of $1 million and which is nondeductible by the Company
and its affiliated companies pursuant to Code Section 162(m) and the
regulations issued thereunder. Any option not exercisable because of this
limitation shall continue to be exercisable in any subsequent year in which the
exercise would not cause the loss of the Company's or its affiliated companies'
tax deduction, provided that an Incentive Option may not be exercised later
than ten (10) years from date of grant. This section shall not limit the
exercisability of an option in the event of Change in Control.
8.4 Investment Representation. Each option agreement may
provide that, upon demand by the Committee for such a representation, the
Participant or Participant's Representative shall deliver to the Committee at
the time of any exercise of an option or portion thereof a written
representation that the shares to be acquired upon such exercise are to be
acquired for investment and not for resale or with a view to the distribution
thereof. Upon such demand, delivery of such representation before delivery of
Common Stock issued upon exercise of an option and before expiration of the
option period shall be a condition precedent to the right of the Participant or
Participant's Representative to purchase Common Stock.
8.5 Withholding. The Company's obligation to deliver shares on
the exercise of any option shall be subject to satisfaction of any applicable
federal, state, and local tax withholding requirements, and the Company, in its
sole discretion, may withhold shares otherwise transferable to the Participant
upon exercise of an option in order to satisfy such withholding requirements.
8.6 Successive Options. Notwithstanding anything herein contained
to the contrary, no Incentive Option granted hereunder to a Participant before
May 1, 1996 shall be exercisable
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<PAGE> 8
while there is outstanding (within the meaning of former Code Section
422A(c)(7) which was repealed with respect to options granted after December
31, 1986) any Incentive Option theretofore granted to such Participant to
purchase stock in the Company or in a corporation which (at the time of the
granting of this option) is a Parent or Subsidiary of the Company, or is a
predecessor corporation of any such corporations.
9. Capital Adjustments. The number and price of shares of Common
Stock covered by each option and the total number of shares that may be
optioned and sold under the Plan shall be proportionately adjusted to reflect
any stock dividend, stock split or share combination of the Common Stock or any
recapitalization of the Company. In the event of any merger, consolidation,
reorganization, liquidation or dissolution of the Company, or any exchange of
shares involving the Common Stock, any option granted under the Plan shall
automatically be deemed to pertain to the securities and other property to
which a holder of the number of shares of Common Stock covered by the option
would have been entitled to receive in connection with any such event. The
Committee shall have the sole discretion to make all interpretations and
determinations required under this section to the extent it deems equitable and
appropriate.
10. Reservation and Delivery of Shares. The Company, during the
term of any options granted hereunder, will at all times reserve and keep
available, and will seek to obtain from any regulatory body having jurisdiction
any requisite authority in order to issue and sell, such number of shares of
Common Stock as shall be sufficient to satisfy the requirements of the options
granted under the Plan. If in the opinion of its counsel, the issuance or sale
of any shares of its stock hereunder shall not be lawful for any reason,
including the inability of the Company to obtain from any regulatory body
having jurisdiction authority deemed by such counsel to be necessary for such
issuance or sale, the Company shall not be obligated to issue or sell any such
shares.
11. Event of Defeasance. Any options granted hereunder are
specifically made subject to defeasance by the failure of the shareholders of
the Company to approve the Plan within a period of twelve months from the date
the Plan is adopted by the Board.
12. Securities Laws. Upon the exercise of an option at a time
when there is not in effect under the Securities Act of 1933, a current
registration statement relating to the shares of Common Stock to be received
upon such exercise, the Participant shall represent and warrant in writing to
the Company that the shares purchased are being acquired for investment and not
with a view to the distribution thereof and shall agree to the imposition of a
legend on the certificate or certificates representing said shares evidencing
the restrictions on transfer under the Securities Act of 1933 and the issuance
of stop-transfer instructions by the Company to its transfer agent with respect
thereto. No shares of Common Stock shall be issued or sold upon the exercise
of any option unless and until the then applicable requirements of the
Securities Act of 1933, as any of the same may be amended, the rules and
regulations of the Securities and Exchange Commission and any other regulatory
agencies and laws having jurisdiction over or applicability to the Company, and
the rules and regulations of any securities exchange on which the Common Stock
may be listed, shall have been fully complied with and satisfied.
8
<PAGE> 9
13. No Rights as Shareholder. A Participant shall not have any
rights as a shareholder with respect to any shares covered by any option
granted hereunder until the issuance of a stock certificate for such shares.
No adjustment shall be made on the issuance of a stock certificate to a
Participant as to any dividends or other rights for which the record date
occurred before the issuance of such certificate.
14. Indemnification and Exculpation. Each person who is or shall
have been a member of the Board or of the Committee shall be indemnified and
held harmless by the Company against and from any and all loss, cost,
liability, or expense that may be imposed upon or reasonably incurred by
him/her in connection with or resulting from any claim, action, suit, or
proceeding to which he/she may be or become involved by reason of any action
taken or failure to act under the Plan and against and from any and all amounts
paid by him/her in settlement thereof (with the Company's written approval) or
paid by him/her in satisfaction of a judgment in any such action, suit, or
proceeding, except a judgment in favor of the Company based upon a finding of
his/her lack of good faith; subject, however, to the condition that upon the
institution of any claim, action, suit, or proceeding against him/her, he/she
shall in writing give the Company an opportunity, at its expense, to handle and
defend the same before he/she undertakes to handle and defend it on his/her own
behalf. The foregoing right of indemnification shall not be exclusive of any
other right to which such person may be entitled as a matter of law or
otherwise, or any power that the Company may have to indemnify him/her or hold
him/her harmless. Each member of the Board or of the Committee, and each
officer and employee of the Company shall be fully justified in relying or
acting in good faith upon any information furnished in connection with the
administration of the Plan by any appropriate person or persons other than
himself/herself. In no event shall any person who is or shall have been a
member of the Board or of the Committee, or an officer or employee of the
Company, be held liable for any determination made, or other action taken, or
any omission to act in reliance upon any such information as referred to in the
preceding sentence, or for any action (including the furnishing of information)
taken or any omission to act, when any such determination, action, or omission
is made in good faith.
15. Amendment and Discontinuance. The Board or the shareholders
of the Company may terminate or amend the Plan in any respect at any time,
except that (a) no action of the Board or the shareholders may alter or impair
a participant's rights under any outstanding option without the Participant's
consent, and (b) without the approval of the shareholders, the total number of
shares that may be optioned and sold under the Plan may not be increased
(except by adjustment pursuant to Section 9), the provisions of Section 5
regarding eligibility may not be modified, the price at which shares may be
purchased pursuant to options granted hereunder may not be reduced (except by
adjustment pursuant to Section 9), the expiration date of the Plan may not be
extended, and the provisions of this Section 15 may not be changed.
16. Term of Plan. Subject to the provisions of Section 11, the
Plan shall be effective as of the date of the adoption of the Plan by the Board
and shall expire on September 2, 2001 (except as to options outstanding on that
date), and no option shall be granted under the Plan on or after such
expiration date.
9
<PAGE> 10
17. Construction. As herein used, the singular number shall
include the plural, the plural the singular, and the use of any gender shall be
applicable to all genders, unless the context or use shall fairly require a
different construction. Section or paragraph headings are employed herein
solely for convenience of reference, and such headings shall not affect the
validity, meaning, or enforceability of any provision of the Plan. All
references herein to "section" or "paragraph" shall mean the appropriately
numbered section or paragraph of the Plan except where reference is made to the
Code or any other specified law or instrument.
18. Severability. The invalidity or unenforceability of any
provision of the Plan or any option granted pursuant to the Plan shall not
affect the validity and enforceability of the remaining provisions of the Plan
and the options granted hereunder, and such invalid or unenforceable provision
shall be stricken to the extent necessary to preserve the validity and
enforceability of the Plan and the options granted hereunder.
19. Governing Law. Except as the same may be governed by the Code
and any applicable federal securities laws, the Plan and any
10
<PAGE> 11
options granted hereunder shall be governed by and construed in accordance with
the laws of the State of Tennessee.
This Plan, Shoney's, Inc. 1981 Stock Option Plan, as restated
through October 28, 1996, is executed this ____ day of December, 1996.
SHONEY'S, INC.
By:
-----------------------------------
Title
WITNESS:
- -------------------------------
Corporate Secretary
11
<PAGE> 1
Exhibit 10.13
SHONEY'S, INC.
1996 STOCK OPTION PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. PURPOSE ..................................................................... 1
2. DEFINITIONS ................................................................. 1
A. Board ............................................................... 1
B. Closing ............................................................. 1
C. Code ................................................................. 1
D. Common Stock ......................................................... 1
E. Company ............................................................. 1
F. Enterprises Common Stock ............................................. 1
G. Enterprises Option ................................................... 1
H. Exchange Ratio ....................................................... 2
I. Option Price ......................................................... 2
J. Optionee ............................................................. 2
K. Plan ................................................................. 2
L. Plan Committee ....................................................... 2
M. Reorganization Agreement ............................................. 2
N. TPI Plans ........................................................... 2
3. SHARES SUBJECT TO PLAN ....................................................... 2
4. ELIGIBILITY ................................................................. 2
5. GRANT OF OPTIONS ............................................................. 3
6. ADMINISTRATION ............................................................... 3
7. TERMS AND CONDITIONS OF OPTIONS ............................................. 3
A. Option Period; Vesting; Exercisability ............................... 3
B. Option Price ......................................................... 3
C. Number of Shares ..................................................... 4
D. Incentive Stock Options ............................................. 4
E. Transferability of Options ........................................... 4
F. No Rights as Shareholder ............................................. 4
G. No Rights to Continued Employment ................................... 4
8. COMPLIANCE WITH OTHER LAWS AND REGULATIONS ................................... 4
9. CAPITAL ADJUSTMENTS AFFECTING STOCK, MERGERS AND CONSOLIDATIONS ............. 5
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
10. AMENDMENT, SUSPENSION, OR TERMINATION ....................................... 5
11. EFFECTIVE DATE, TERM AND APPROVAL ........................................... 5
12. GOVERNING LAW; SEVERABILITY ................................................. 5
</TABLE>
ii
<PAGE> 4
SHONEY'S, INC. 1996 STOCK OPTION PLAN
1. PURPOSE. The purpose of the Shoney's, Inc. 1996 Stock Option
Plan is to consolidate into one plan the stock option plans of TPI Enterprises,
Inc. to the extent they are assumed by Shoney's, Inc. in connection with its
acquisition of substantially all of the assets of TPI Enterprises, Inc. in
1996. Participants will receive stock options under this Plan in exchange for
outstanding stock options under the TPI Enterprises, Inc. stock option plans
consolidated herein.
In connection with its acquisition of substantially all of the
assets of TPI Enterprises, Inc., Shoney's, Inc. is not assuming any obligation
of TPI Enterprises, Inc. with respect to stock options granted under its stock
option plans other than the obligation to issue shares of common stock of
Shoney's, Inc. upon a participant's timely exercise of stock options, as
authorized by this Plan. The exchange of stock options contemplated by this
Plan shall not affect the right of participants to participate in cash
distributions by TPI Enterprises, Inc. in its liquidation and dissolution
following the closing of the acquisition transaction, in accordance with the
Plan of Complete Liquidation, as adopted by its shareholders at a meeting held
on August 21, 1996.
2. DEFINITIONS.
A. "Board" means the Company's Board of Directors.
B. "Closing" means the closing of the transactions
contemplated by the Reorganization Agreement.
C. "Code" means the Internal Revenue Code of 1986, as
amended.
D. "Common Stock" means the Company's common stock,
having a par value of $1.00 per share.
E. "Company" means Shoney's, Inc., a Tennessee
corporation, with its principal place of business at 1727 Elm Hill Pike,
Nashville, Tennessee 37210.
F. "Enterprises Common Stock" means the common stock,
par value $.01 per share, of TPI Enterprises, Inc., a New Jersey corporation,
with its principal place of business at 3950 RCA Boulevard, Suite 5001, Palm
Beach Gardens, Florida 33410.
G. "Enterprises Option" means a stock option to purchase
shares of Enterprises Common Stock granted pursuant to and in accordance with a
TPI Plan but only to the extent such
<PAGE> 5
stock option represents the right to acquire shares of common stock and is
outstanding and has not expired or been terminated or been exercised as of the
Closing.
H. "Exchange Ratio" has the meaning given that term in
the Reorganization Agreement.
I. Option Price. The term "Option Price" means the
price to be paid for Common Stock upon the exercise of an option granted under
the Plan in accordance with Section 7.B.
J. "Optionee" means each person identified as an
optionee on Appendix A to the Plan.
K. "Plan" means the Shoney's, Inc. 1996 Stock Option
Plan, as set forth herein, and as amended from time to time.
L. "Plan Committee" means the Human Resources and
Compensation Committee of the Board.
M. "Reorganization Agreement" means the Plan of Tax-Free
Reorganization Under Section 368(a)(1)(C) of the Internal Revenue Code and
Agreement, dated March 15, 1996, as amended by Amendments No. 1, No. 2 and No.
3 thereto.
N. "TPI Plans" means the following stock options plans:
(1) TPI Enterprises, Inc. 1982 Stock Option Plan; (2) Telecom Plus
International, Inc. 1983 Stock Option Plan; (3) Telecom Plus International,
Inc. 1984 Stock Option Plan; (4) 1992 TPI Enterprises, Inc. Stock Option and
Incentive Plan; and (5) the TPI Enterprises, Inc. Non-Employee Directors Stock
Option Plan.
3. SHARES SUBJECT TO PLAN. Subject to adjustments and
substitutions made after the Closing pursuant to the terms of the stock option
agreements evidencing options granted under this Plan, the aggregate number of
shares that may be issued upon exercise of all options that may be granted
under the Plan shall not exceed Seven Hundred Thousand (700,000) of the
Company's authorized shares of Common Stock.
4. ELIGIBILITY. Attached as Appendix A hereto is a list
identifying each stock option granted in accordance with and outstanding under
the TPI Plans as of August __, 1996, identifying, with respect to each such
stock option, the date of grant, the name of the optionee, the number of shares
of Enterprises Common Stock subject to each such option, the exercise price and
the date of termination. Each person identified as an Optionee on Appendix A
is eligible to receive an option under this Plan.
2
<PAGE> 6
5. GRANT OF OPTIONS. Effective upon the Closing, each Optionee
shall be granted an option to purchase shares of Common Stock in accordance
with the terms of this Plan in exchange for each Enterprises Option held by
such Optionee.
6. ADMINISTRATION. The Plan shall be administered by the Plan
Committee. The Plan Committee shall have full power and authority to construe,
interpret, and administer the Plan and may from time to time adopt such rules
and regulations for carrying out the Plan as it may deem proper and in the best
interests of the Company. Subject to the terms, provisions and conditions of
the Plan, the Plan Committee shall have exclusive jurisdiction: [i] to
determine the manner in which each option shall be exercisable and the duration
of the exercise period; [ii] to condition grant of an option upon the
Optionee's exchange of an Enterprises Option as contemplated by this Plan;
[iii] to fix such other provisions of the option agreement as it may deem
necessary or desirable consistent with the terms of the Plan; [iv] to interpret
the provisions of the TPI Plans and the stock option agreements evidencing
options granted thereunder; and [v] to determine all other questions relating
to the administration of the Plan and options authorized and granted hereunder.
The interpretation of any provisions of the Plan, the TPI Plans and the stock
option agreements entered into pursuant to the Plan or the TPI Plans by the
Committee shall be final, conclusive, and binding upon all persons and the
officers of the Company shall place into effect and shall cause the Company to
perform its obligations under the Plan in accordance with the determinations of
the Plan Committee in administering the Plan.
7. TERMS AND CONDITIONS OF OPTIONS. Each option granted under
the Plan shall be evidenced by an option agreement signed by the Optionee and
by an executive officer of the Company on behalf of the Company. An option
agreement shall constitute a binding contract between the Company and the
Optionee, and every Optionee, upon acceptance of such option agreement, shall
be bound by the terms and restrictions of the Plan and of the option agreement.
Such agreement shall be subject to the following express terms and conditions
and to such other terms and conditions that are not inconsistent with the Plan
as the Plan Committee may deem appropriate.
A. Option Period; Vesting; Exercisability. Each option
agreement shall specify the period for which the option thereunder is granted
and shall provide that the option shall expire at the end of such period. In
determining the vesting or exercisability, as well as the term, of any option
granted hereunder, the grant date of the option shall be the original grant
date of the Enterprises Option for which the option was exchanged subject to
any acceleration of vesting or exercisability of the Enterprises Option for
which the option was exchanged which occurs as a result of the Closing.
B. Option Price. With respect to each option granted
under this Plan, the Option Price per share of Common Stock will be the
exercise price per share of Enterprises
3
<PAGE> 7
Common Stock under the Enterprises Option in exchange for which such option is
granted, divided by the Exchange Ratio. The Option Price shall be subject to
adjustments in accordance with the provisions of the stock option agreement
evidencing such option.
C. Number of Shares. With respect to each option
granted under this Plan, the number of shares of Common Stock subject to the
option will be that number of shares of Enterprises Common Stock subject to the
Enterprises Option in exchange for which such option is granted, multiplied by
the Exchange Ratio. The number of shares shall be subject to adjustments in
accordance with the provisions of the stock option agreement evidencing such
option.
D. Incentive Stock Options. It is the intent that each
option issued in exchange for an Enterprises Option that, immediately before
the Closing, qualified as an incentive stock option within the meaning of Code
Section 422 shall, to the extent permitted under the Code and the terms of this
Plan, qualify such option as an incentive stock option within the meaning of
Code Section 422.
E. Transferability of Options. An option granted under
the Plan may not be transferred by the Optionee otherwise than by will or the
laws of descent and distribution, and during the lifetime of the Optionee to
whom granted, may be exercised only by such Optionee.
F. No Rights as Shareholder. No Optionee or optionee's
representative shall have any rights as a shareholder with respect to Common
Stock subject to Optionee's option before the date of transfer to the Optionee
of a certificate or certificates for such shares.
G. No Rights to Continued Employment. The Plan and any
option granted under the Plan shall not confer upon any Optionee any right with
respect to employment or continuance of employment by the Company or any
subsidiary as defined in Code Section 424(f), nor shall it interfere in any way
with the right of the Company or any such subsidiary by which an Optionee is
employed to terminate Optionee's employment at any time.
8. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the
grant and exercise of options thereunder, and the obligation of the Company to
sell and deliver Common Stock under such options, shall be subject to all
applicable federal and state laws, rules and regulations and to such approvals
by any government or regulatory agency as may be required. The Company shall
not be required to issue or deliver any certificates for Common Stock before
[i] the listing of the Common Stock on any stock exchange or over-the-counter
market on which the Common Stock may then be listed and [ii] the completion of
any registration or qualification of any governmental body which the Company
shall, in its sole discretion, determine to be necessary or advisable.
4
<PAGE> 8
9. CAPITAL ADJUSTMENTS AFFECTING STOCK, MERGERS AND
CONSOLIDATIONS. The granting of an option pursuant to the Plan shall not
affect in any way the right and power of the Company to make adjustments,
reorganizations, reclassifications, or changes of its capital or business
structure or to merge, consolidate, dissolve, liquidate, sell or transfer all
or any part of its business or assets.
10. AMENDMENT, SUSPENSION, OR TERMINATION. The Board shall have
the right, at any time, to amend, suspend or terminate the Plan in any respect
that it may deem to be in the best interests of the Company.
11. EFFECTIVE DATE, TERM AND APPROVAL. The effective date of the
Plan shall be the date of the Closing. The Plan was adopted by the Board on
August 29, 1996. The Plan shall terminate on November 21, 2004, and no
options may be granted under the Plan after such time, but any option granted
prior thereto may be exercised in accordance with its terms.
12. GOVERNING LAW; SEVERABILITY. The Plan shall be governed by
the laws of the State of Tennessee. The invalidity or unenforceability of any
provision of the Plan or any option granted pursuant to the Plan shall not
affect the validity and enforceability of the remaining provisions of the Plan
and the options granted hereunder, and such invalid or unenforceable provision
shall be stricken to the extent necessary to preserve the validity and
enforceability of the Plan and the options granted hereunder.
SHONEY'S, INC.
By:
----------------------------------------------------
C. Stephen Lynn, Chairman of the Board, Chief
Executive Officer and President
ATTEST:
- ------------------------
Secretary
5
<PAGE> 1
Exhibit 10.15
SHONEY'S, INC.
STOCK PURCHASE PLAN
(As Amended effective 12/17/96)
PURPOSE OF THE PLAN
The Shoney's, Inc. Employee Stock Purchase Plan (the "Plan") is intended to
promote the interests of Shoney's, Inc. (the "Company") and its shareholders by
encouraging employees of the Company and its Subsidiaries, as hereinafter
defined, to own, and to increase their ownership of, the Company's stock,
thereby giving them, as shareholders, an increased personal interest in, and a
greater concern for, the Company's continued success and progress. The Plan is
intended to be administered as a qualified "employee stock purchase plan" under
Section 423 of the Internal Revenue Code, and provisions of the Plan will
therefore be construed in a manner that will comport with Section 423 of the
Code.
STATEMENT OF THE PLAN
1. NAME. The Plan shall be known as the Shoney's, Inc. Employee Stock
Purchase Plan.
2. DEFINITION OF TERMS. In addition to words and terms that may be defined
elsewhere in the Plan, the following words and terms as used in the Plan shall
have the following meanings unless the context or use fairly indicates another
or different meaning or intent, which definitions shall be equally applicable to
both the singular and plural forms of such words and terms:
"Anniversary Date" shall mean each January 1 on and after January 1,
1986.
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Closing Market Price" shall mean the price of the last trade of the
Company's Common Stock as reported by the New York Stock Exchange ("NYSE");
provided that, if there shall be any material alteration in the present
system of reporting sales prices of such stock, or if such stock shall no
longer be listed on the NYSE, the market value of the stock as of a
particular date shall be determined in such a method as shall be determined
by the Compensation Committee of the Board.
"Committee" shall mean the Compensation Committee of the Board.
-1-
<PAGE> 2
"Common Stock" shall mean the common stock of the Company, having a
par value of $1.00 per share.
"Contribution Account" shall mean the account established on behalf of
a Member to which shall be credited the amount of the Member's
contribution, pursuant to section 6.
"Effective Date" shall mean January 1, 1986.
"Employee" shall mean each current or future employee of an Employer.
"Employer" shall mean the Sponsoring Employer, its successors and
assigns, any majority owned Subsidiary of the Sponsoring Employer, and any
corporation into which an Employer may be merged or consolidated or to
which all or substantially all of its assets may be transferred, provided
such corporation does not affirmatively disavow this Plan.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Exercise Date" shall mean the last trading date of any Plan Year on
the NYSE.
"Grant Date" shall mean the first trading date of any Plan Year on the
NYSE.
"Issue Price" shall mean the price of the stock to be charged to
participating members at the Exercise Date. The "Issue Price" shall be
subject to a minimum as outlined in section 7.
"Member" shall mean any Employee of an Employer who has met the
conditions and provisions for becoming a Member as provided in section 5.
"Member's Contribution Rate" shall be an exact number of dollars
elected by the member to contribute by regular payroll deduction to his or
her Contribution Account as outlined in section 6.
"Officer" shall have that meaning set forth in Title 17 of the Code of
Federal Regulations, Sec. 240.16a-1(f).
"Plan Year" shall mean a twelve (12) month period beginning on the
first day of January and ending on the last day of December.
"Plan Year Average Price" shall mean the arithmetic average of the
Closing Market Price on the first trading day of each of the twelve (12)
months of the Plan Year.
-2-
<PAGE> 3
"Request for Participation" shall mean the form that must be filed
with such officer of the Sponsoring Employer as is designated by the
Committee. The Request for Participation shall request and include such
information as may be prescribed from time to time by the Committee.
"Sponsoring Employer" shall mean the Company.
"Sponsoring Employer Stock" shall mean those shares of Sponsoring
Employer's Common Stock which pursuant to Section 4 are reserved for
issuance under the Plan.
"Subsidiary" shall mean any corporation that at the time qualifies as
a subsidiary of the Company under the definition of "subsidiary
corporation" contained in Section 425(f) of the Code.
3. ADMINISTRATION. The Plan shall be administered by the Committee, which
shall consist of not less than three members. The Committee shall be appointed
by the Board from its membership. Members of the Committee shall not be eligible
to participate in the Plan.
The Committee may interpret the Plan, prescribe, amend, and rescind any
rules and regulations necessary or appropriate for the administration of the
Plan, and make such other determinations and take such other action as it deems
necessary or desirable for the administration of the Plan and the protection of
the Company except as otherwise reserved to the Board or the shareholders of the
Company. Any interpretation, determination or other action made or taken by the
Committee shall be final, binding and conclusive.
No member of the Committee shall be liable for any action taken or omitted
or determination made in good faith with respect to the Plan or any option
granted under the Plan.
4. SHARES SUBJECT TO PLAN. The Company, from time to time, may issue an
aggregate of 2,918,730* shares of Common Stock pursuant to the Plan, subject to
adjustment as provided in section 10. The shares issued under the Plan may be
authorized and unissued shares or shares held by the Company in its treasury.
5. ELIGIBILITY. Each Employee shall become eligible to be a Member if
employed on or before November 30 immediately preceding the next Anniversary
Date; provided, however, that an Employee shall not be eligible to be a Member
who, on the Grant Date or immediately thereafter in the Plan Year, owns,
directly or indirectly (within the meaning of Section 423(b)(3) of the Code) 5
percent or more of the total combined voting power or value of all
*Adjusted for stock splits and 1988 recapitalization.
-3-
<PAGE> 4
classes of stock of the Company, its parent corporation or its subsidiaries.
Each Employee who is eligible to become a Member shall be furnished a
summary of the Plan and a Request for Participation. If such Employee elects to
become a Member hereunder, the Employee shall complete such form and submit it
to his/her Employer, to be received no later than November 30 prior to the next
Anniversary Date. If any Employee does not elect to become a Member in any given
Plan Year the Employee may elect to participate on any future Anniversary Date
so long as the Employee continues to meet the eligibility requirements. Upon
becoming a Member, said Member shall be bound by the terms of this Plan,
including any amendments hereto.
This Plan will not be deemed to constitute a contract between an Employer
and any Member or to be a consideration of an inducement for the employment of
any Member or Employee. Nothing contained in this Plan shall be deemed to give
any Member or Employee the right to be retained in the service of an Employer or
to interfere with the right of an Employer to discharge any Member or Employee
at any time regardless of the effect which such discharge shall have upon the
Employee as a Member of the Plan.
6. CONTRIBUTIONS. In order to participate in this Plan, an Employee must
authorize his/her Employer to deduct through a payroll deduction an exact number
of whole dollars per week. The minimum deduction shall be $10.00 per week and
the maximum deduction shall be $440 per week. This weekly amount is the Member's
Contribution Rate. Such authorization shall be in writing and on such forms as
provided by the Sponsoring Employer. Such deductions shall begin as of the first
pay period on or after the first day of the Plan Year and continue for
forty-eight weeks (48) weeks. No further payroll deductions shall be made during
any Plan Year after such forty-eight (48) week period. For all purposes of this
Plan, such contributions shall be deemed a part of the Member's Contribution
Account. Employee contributions will not be permitted to begin at any time other
than the beginning of a Plan Year. No interest shall accrue on any amounts
withheld under this Plan.
The Member's Contribution Rate, once established, shall remain in effect
for all Plan Years unless changed by the member in writing on such forms as
provided by the Sponsoring Employer and filed with the Sponsoring Employer at
least thirty-one (31) days prior to the next Anniversary Date; provided,
however, that a Member's Contribution Rate may not be increased or decreased
during a Plan Year.
At any time during the Plan Year, a member may notify the Sponsoring
Employer he wishes to discontinue his contributions. This notice shall be in
writing and on such forms as provided by
-4-
<PAGE> 5
the Sponsoring Employer and shall become effective as of a date not more than
thirty (30) days following its receipt by the Sponsoring Employer. Any Officer
that discontinues his/her contributions during any Plan Year may not again
become a Member until the next Plan Year that is at least six (6) months from
the date that such Officer discontinued his/her contributions.
Members may elect to withdraw their contributions, in full, at any time
during the Plan Year. However, if contributions are withdrawn during the Plan
Year no further contributions will be permitted during the Plan Year and, in the
case of Officers, any Officer withdrawing his/her contributions during any Plan
Year may not again become a Member until the next Plan Year that is at least six
(6) months from the date of withdrawal of such Officer.
In the event an Employee resides in a jurisdiction in which payroll
deductions are prohibited, the Committee may provide alternative methods for an
Employee to make contributions and to participate in the Plan.
7. DETERMINATION OF PRICE. The Issue Price of the Sponsoring Employer Stock
under this Plan shall be 85% of the lower of: (i) the Closing Market Price on
the Exercise Date (including any Special Exercise Date); or (ii) the Plan Year
Average Price. If, however, the Plan Year Average Price is less than both the
Closing Market Prices on the Grant Date and Exercise Date, the Issue Price shall
be 85% of the lower of the Closing Market Prices on: (i) the Grant Date; or (ii)
the Exercise Date. The Issue Price is further subject to a "Minimum Issue Price"
for any Plan Year, which is the book value of Common Stock at the close of the
most recent four-week accounting period preceding the first day of the Plan
Year. In the event the Issue Price on the Exercise Date of the Plan Year is
equal to or less than the Minimum Issue Price, the payroll deductions for that
year credited to a Member's Contribution Account shall be returned unless the
Member notifies the Employer to leave said deductions in the Member's
Contribution Account.
8. PURCHASE OF SHARES. On each Exercise Date, the Member's Contribution
Account shall be used to purchase the maximum number of whole shares of
Sponsoring Employer Stock, determined by dividing the Issue Price defined in
Section 7 into the Member's Contribution Account. The Sponsoring Employer Stock
certificates purchased hereunder shall be issued as soon as practicable after
the date of such purchase. Any amount in a Member's Contribution Account at the
end of the Plan Year that is not used to purchase Sponsoring Employer Stock
shall be paid to the Member (without interest) as
-5-
<PAGE> 6
soon as administratively practicable after the end of the Plan Year; provided,
however, that if the only amount remaining in a Member's Contribution Account at
the end of the Plan Year is an amount representing a fractional share, such
amount shall remain in the Member's Contribution Account to be used in the next
Plan Year, unless the Member requests return of such amount. If the total number
of shares to be purchased by all Members at any time exceeds the number of
shares authorized under this Plan, a pro-rata allocation of the available shares
will be made among all Members based on the amount of their respective
Contribution Accounts as of the Exercise Date. In no event may any member,
during a Plan Year, purchase Sponsoring Employer Stock (under this Plan and all
other employee stock purchase plans established by the company, its parent or
its subsidiaries) having a fair market value (determined at Grant Date) of more
than twenty-five thousand dollars ($25,000). If a Member or former Member
disposes of a share of Sponsoring Employer Stock obtained under the Plan (i)
prior to two (2) years after the Grant Date of such share, or (ii) prior to six
months (one year for stock purchased on Exercise Dates commencing December 31,
1988) after the Exercise Date of such share, then that Member or former Member
must notify the Sponsoring Employer immediately of such disposition in writing.
9. TERMINATION OF EMPLOYMENT. The rights of any Member shall immediately
terminate upon termination of employment with the Company or Subsidiary of the
Company, except when such termination of employment is caused by the Member's
death at any time ("Death"), or by the Member's disability or retirement within
three (3) months of the Exercise Date ("Disability" or "Retirement"). In the
event of termination of employment for any reason other than Death, Disability
or Retirement, the balance of the Member's Contribution Account shall be paid
immediately to such Member, without interest, and the Member shall have no right
to have shares purchased for the Member's account on the Exercise Date of such
Plan Year. In the event of termination of employment by reason of Death,
Disability or Retirement, no further contributions on behalf of the Member shall
be made. The personal representative of the Member, in the event of Death, or
the Member, in the event of such Disability or Retirement, may elect to withdraw
the balance in said Member's Contribution Account by notifying the Employer in
writing before the last day of the Plan Year; in the event no election to
withdraw is made, the balance accumulated in the Member's Contribution Account
shall be used to purchase shares of the Sponsoring Employer's Stock in
accordance with Section 8, provided that money representing a fractional share
shall be paid to the Member or the Member's personal representative and may not
be used in the next Plan Year. For purposes of this section, a Member shall be
considered to be subject to a disability when such Member is disabled within the
meaning of Code Section 22 (e) (3).
10. CAPITAL ADJUSTMENTS. The Issue Price of shares of Common
Stock and the total number of shares that may be sold under the Plan shall
be proportionately adjusted to reflect any stock dividend, stock split or share
combination of the Common Stock or any recapitalization of the Company.
11. REORGANIZATION OF THE COMPANY. In the event of the dissolution or
liquidation of the Company or in the event of a Reorganization (as hereinafter
defined) in which the Company is not a surviving corporation or in which the
Company is or will thereby become a subsidiary of another corporation, the
following shall apply:
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(a) There shall be a Special Exercise Date as of the date which shall
be fifteen (15) days prior to the scheduled dissolution, liquidation or
Reorganization; provided, that if the use of such date is not feasible for
any reason, then the Special Exercise Date shall be such reasonably
proximate date as may be designated by the Committee as being practicable
in the circumstances.
(b) On any Special Exercise Date, the Member's Contribution Account
shall be used to purchase the maximum number of whole shares of Sponsoring
Employer Stock, determined by dividing the Issue Price defined in Section 7
into the Member's Contribution Account. The Sponsoring Employer Stock
certificates purchased hereunder shall be issued as soon as practicable
after the date of such purchase. Any money remaining in a Member's
Contribution Account after a Special Exercise Date shall be returned to the
Employee.
(c) As herein used, the term "Reorganization" shall mean any merger,
consolidation, sale of all or substantially all of the assets of the
Company, or the sale of securities of the Company pursuant to an agreement,
to which the Company is a party, under which the Company is or will thereby
become a subsidiary of another corporation.
(d) This Plan shall terminate on the occurrence of any dissolution,
liquidation or Reorganization of the Company, and, in any such event, there
shall be no further contributions and the Members shall have no further
rights hereunder except to receive any Common Stock (or any other
securities or property into which the same may have been converted) which
remain to be distributed to them in accordance with the provisions hereof.
12. RESERVATION AND DELIVERY OF SHARES. The Company, during the term of any
options granted hereunder, will at all times reserve and keep available, and
will seek to obtain from any regulatory body having jurisdiction any requisite
authority in order to issue and sell, such number of shares of Common Stock as
shall be sufficient to satisfy the requirements of the options granted under the
Plan. If in the opinion of its counsel, the issuance or sale of any shares of
its stock hereunder shall not be lawful for any reason, including the inability
of the Company to obtain from any regulatory body having jurisdiction authority
deemed by such counsel to be necessary for such issuance or sale, the Company
shall not be obligated to issue or sell any such shares.
13. EVENT OF DEFEASANCE. Any rights granted hereunder are specifically made
subject to defeasance by the failure of the shareholders of the Company to
approve the Plan within a period of twelve months from the date the Plan is
adopted by the Board.
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14. SECURITIES LAWS. Upon any sale of Common Stock hereunder at a time when
there is not in effect under the Securities Act of 1933, as amended, a current
registration statement relating to the shares of Common Stock to be received
upon such exercise, the Member shall represent and warrant in writing to the
Company that the shares purchased are being acquired for investment and not with
a view to the distribution thereof and shall agree to the imposition of a legend
on the certificate or certificates representing said shares evidencing the
restrictions on transfer under said Act and the issuance of stop-transfer
instructions by the Company to its transfer agent with respect thereto. No
shares of Common Stock shall be issued or sold upon the exercise of any option
unless and until the then applicable requirements of the Securities Act of 1933,
the Tennessee Business Corporation Act, the Tennessee Securities Act of 1933,
the Tennessee General Corporation Act, the Tennessee Securities Act of 1980, as
any of the same may be amended, the rules and regulations of the Securities
Exchange Commission and any other regulatory agencies and laws having
jurisdiction over or applicability to the Company, and the rules and regulations
of any securities exchange on which the Common Stock may be listed, shall have
been fully complied with and satisfied.
15. NO RIGHTS AS SHAREHOLDER. A Member shall not have any rights as a
shareholder with respect to any shares hereunder until on or after the Exercise
Date for such shares. No adjustment shall be made on the issuance of a stock
certificate to a Member as to any dividends or other rights for which the record
date occurred prior to such Exercise Date.
16. NONTRANSFERABILITY OF RIGHT TO PURCHASE. The right of an Employee
electing to become a Member hereunder to purchase shares of the Company's Common
Stock under the Plan shall be exercisable during the Member's lifetime only by
the Member, and shall not be assignable or transferable by the Member other than
by will or the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or Title I of ERISA.
17. INDEMNIFICATION AND EXCULPATION. Each person who is or shall have been
a member of the Board or of the Committee shall be indemnified and held harmless
by the Company against and from any and all loss, cost, liability or expense
that may be imposed upon or reasonably incurred by him/her in connection with or
resulting from any claim, action, suit, or proceeding to which he/she may be or
become involved by reason of any action taken or failure to act under the Plan
and against and from any and all amounts paid by him/her in satisfaction of a
judgment in any such action, suit, or proceeding, except a judgment in favor of
the Company based upon a finding of his/her lack of good faith; subject,
however, to the condition that upon the institution of any claim, action, suit,
or proceeding against him/her, he/she shall in writing give the
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<PAGE> 9
Company an opportunity, at its expense, to handle and defend the same before
he/she undertakes to handle and defend it on his/her own behalf. The foregoing
right of indemnification shall not be exclusive of any other right to which such
person may be entitled as a matter of law or otherwise, or any power that the
Company may have to indemnify him/her or hold him/her harmless. Each member of
the Board or of the Committee, and each officer and employee of the Company
shall be fully justified in relying or acting in good faith upon any information
furnished in connection with the administration of the Plan by any appropriate
person or persons other than himself/herself. In no event shall any person who
is or shall have been a member of the Board or of the Committee, or an officer
or employee of the Company, be held liable for any determination made, or other
action taken, or any omission to act in reliance upon any such information as
referred to in the preceding sentence, or for any action (including the
furnishing of information) taken, or any omission to act, when any such
determination, action or omission is made in good faith. No liability whatever
shall attach to or be incurred by any past, present or future shareholders,
officers or directors, as such, of the Employer, under or by reason of any of
the terms, conditions or agreements contained in this Plan or implied therefrom,
and any and all liabilities of and any and all rights and claims against the
Employer, or any shareholder, officer or director as such, whether arising at
common law or in equity or created by statute or constitution or otherwise,
pertaining to this Plan, are hereby expressly waived and released by every
Member, as a part of the consideration for any benefits by the Employers under
this Plan.
18. USE OF PROCEEDS. Proceeds from the sale of stock pursuant to options
granted under the Plan shall constitute general funds of the Company.
19. AMENDMENT AND DISCONTINUANCE. The Board or the shareholders of the
Company may terminate or amend the Plan in any respect at any time, except that
without the approval of the shareholders, the total number of shares that may be
sold under the Plan may not be increased (except by adjustment pursuant to
section 10), the provisions of section 5 regarding eligibility may not be
modified, the price at which shares may be purchased hereunder may not be
reduced (except by adjustment pursuant to section 10), and the provisions of
this section 19 may not be changed.
20. GENERAL. Except as the same may be governed by the Code and any
applicable federal securities laws, the Plan and any options granted hereunder
shall be governed by and construed in accordance with the laws of the State of
Tennessee. As herein used, the singular number shall include the plural, the
plural, the singular, and the use of any gender shall be applicable to all
genders, unless the context or use shall fairly require a different
construction. Section or paragraph headings are employed herein solely for
convenience of reference, and such headings shall not
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affect the validity, meaning or enforceability of any provision of the Plan. All
references herein to "section" or "paragraph" shall mean the appropriately
numbered section or paragraph of the Plan except where reference is made to the
Code or any other specified law or instrument.
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Exhibit 10.23
AMENDED AND RESTATED AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT (the "Agreement") is made as of
the 1st day of May, 1996, between SHONEY'S, INC., a Tennessee corporation,
whose principal place of business is located at 1727 Elm Hill Pike, Nashville,
Tennessee 37210 (the "Company"), and CHARLES E. PORTER, a resident of Davidson
County, Tennessee, whose address is 12212 Old Hickory Boulevard, Hermitage,
Tennessee 37076 (the "Executive").
W I T N E S S E T H:
WHEREAS, Company and Executive previously have entered into an
Employment Agreement, dated as of January 17, 1995 (the "Employment
Agreement"), pursuant to which Company employed Executive as its President in
accordance with its terms; and
WHEREAS, Executive indicated his desire to retire as President of the
Company effective January 31, 1996 and as an employee of the Company as of May
1, 1996; and
WHEREAS, Company desires to retain Executive as a consultant for a
period of one year following the effective date of his retirement and Executive
desires to be retained to provide such consulting services;
WHEREAS, Company and Executive now wish to amend and restate the
Employment Agreement and modify the terms thereof as set forth herein in order
to reflect their modified agreement;
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, intending to be legally bound,
Company and Executive hereby agree as follows:
1. TERM OF RETENTION.
1.1. RETENTION. Company hereby retains Executive, and
Executive hereby agrees to be retained by Company, for the Consulting Term (as
hereinafter defined).
1.2. CONSULTING TERM. The "Consulting Term" shall mean
the period commencing on the date of this Agreement and ending on April 30,
1997. The Consulting Term shall not be extended or renewed.
<PAGE> 2
2. DUTIES OF EXECUTIVE; NONDISCLOSURE; NONCOMPETE.
2.1. GENERAL DUTIES. Executive is hereby employed as a
special consultant to the Chairman of the Board and Chief Executive Officer of
Company with such duties and responsibilities as Company's Chairman of the
Board and Chief Executive Officer may designate.
2.2. DEVOTION OF TIME TO COMPANY'S BUSINESS. Throughout
the Consulting Term: (a) Executive will be available to provide advice to
Company and to work on such special assignments as are designated by the
Chairman of the Board of Company that are consistent with the responsibilities
exercised by Executive during his tenure with the Company; and (b) Executive
may accept employment with another company so long as such employment (i) does
not interfere with Executive's obligations to provide advice and to work on
special assignments; and (ii) does not violate the provisions of either Section
2.3 or Section 2.4 hereof.
2.3. DISCLOSURE OF INFORMATION. Executive recognizes and
acknowledges that, as a result of his prior employment by Company and his
retention as a consultant, he has and may continue to become familiar with and
acquire knowledge of confidential information and certain trade secrets that
are valuable, special, and unique assets of Company. Executive agrees that any
such confidential information and trade secrets are the property of Company.
Therefore, Executive agrees that, for and during the entire Consulting Term,
any such confidential information and trade secrets shall be considered to be
proprietary to Company and kept as the private records of Company and will not
be divulged to any firm, individual, or institution except pursuant to and
within the course and scope of the services that Executive is to provide
hereunder. Further, upon termination of this Agreement for any reason
whatsoever, Executive agrees that he will continue to treat as private and
proprietary to Company any such confidential information and trade secrets and
will not release any such confidential information and trade secrets to any
person, firm, or institution, or use them to the detriment of Company. The
parties agree that nothing in this Agreement shall be construed as prohibiting
Company from pursuing any remedies available to it for any breach or threatened
breach of this Section 2.3, including, without limitation, the recovery of
damages from Executive or any person or entity acting in concert with
Executive.
2.4. COVENANT NOT TO COMPETE. Executive acknowledges that
Company's business is built upon the confidence of its customers, suppliers,
employees, and the general public, and that Executive will acquire confidential
knowledge that should not be divulged or used for his own benefit. Executive
covenants and agrees that during the Consulting Term, he will not engage in,
own, manage, operate, control, or participate in any food service business that
conducts or franchises activities which are the same as or similar to any of
the restaurant concepts and operations of Company as an employer, employee,
principal, partner, director, agent, consultant, or otherwise, directly or
indirectly, anywhere in the United States of America, without the prior
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<PAGE> 3
express written consent of the Chairman of the Board and Chief Executive
Officer of the Company. Executive understands and acknowledges that his
violation of this covenant not to compete would cause irreparable harm to
Company and Company would be entitled to seek an injunction by any court of
competent jurisdiction enjoining and restraining Executive and each and every
other person concerned from any employment, service, or other act prohibited by
this Agreement. Executive and Company recognize and acknowledge that the area
and time limitations contained in this Agreement are reasonable. In addition,
Executive and Company recognize and acknowledge that the area and time
limitations are properly required for the protection of the business interests
of Company due to Executive's status and reputation in the industry and the
knowledge to be acquired by Executive through his association with Company's
business and the public's close identification of Executive with Company and
Company with Executive. The parties agree that nothing in this Agreement shall
be construed as prohibiting Company from pursuing any other remedies available
to it for any breach or threatened breach of this covenant not to compete,
including, without limitation, the recovery of damages from Executive or any
other person or entity acting in concert with Executive. Executive also agrees
that, in the event he breaches this covenant not to compete, Executive will pay
reasonable attorney's fees and expenses incurred by Company in enforcing this
covenant not to compete. Executive acknowledges and understands that, as
consideration for his execution of this Agreement and his agreement with the
terms of this covenant not to compete, Executive will receive employment by
Company in accordance with this Agreement as well as the Company's agreement to
be bound by the terms of this Agreement. Company acknowledges that Executive's
execution of this Agreement and agreement with the terms of this covenant not
to compete is consideration for Company's agreement to employ Executive
pursuant to this Agreement. If any part of this covenant not to compete is
found to be unreasonable, then it may be amended by appropriate order of a
court of competent jurisdiction to the extent deemed reasonable. Company shall
receive injunctive relief without the necessity of posting bond or other
security, such bond or other security being hereby waived by Executive. In
addition to any other remedies that the parties may have at law or in equity,
Executive and Company agree that, in the event of a breach by Executive of the
provisions of either Section 2.3 or Section 2.4 hereof, damages to Company
would be difficult to determine and, in the event of such breach by Executive,
Company shall be released from its obligation to make any further payments to
Executive under Section 3.1 hereof.
3. COMPENSATION; RETIREMENT BENEFITS.
3.1. FEE. As compensation for his services hereunder,
Executive shall receive a consulting fee per annum of $300,000, payable
commencing as of May 1, 1996 and ending on April 30, 1997 in accordance with
the general payroll practices of Company.
3.2. OTHER BENEFIT PROGRAMS. Effective with Executive's
retirement as of May 1, 1996, Executive acknowledges and agrees that, except as
expressly set forth herein, Executive's right to participate in all employee
benefit, bonus, stock option and similar programs, including,
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without limitation, programs of insurance, automobile plans, deferred
compensation arrangements, and all other benefits made available by Company to
its personnel ceased effective as of that date.
3.3. RETIREMENT BENEFITS. By reason of Executive's
retirement, effective May 1, 1996, Executive is entitled to, and shall receive
the following:
(a) the right, upon compliance with all applicable requirements
(including payment of premiums), to receive continuation
coverage under the Company's health insurance plan pursuant to
COBRA (Part 6 of Subtitle B of Title I of the Employee
Retirement Income Security Act of 1974, as amended and Section
4980B of the Internal Revenue Code of 1986, as amended);
(b) the right, subject to all applicable requirements, to convert
the total amount of Executive's life insurance in force on
April 30, 1996 to a term life or whole life insurance policy;
(c) payments of $2,500 for 120 consecutive months, commencing May
1, 1997, pursuant to the Company's Salary Continuation Plan,
with the balance of any unpaid installments to be continued to
the Executive's designated beneficiary in the event the
Executive were to die prior to all 120 payments being made;
(d) a lump sum distribution on the last business day of August,
1997 pursuant to the Company's Supplemental Executive
Retirement Plan ("SERP"), the amount of such distribution to
be determined under Sections 3.03, 3.04 and 4.19 of the SERP;
and
(e) a return of all contributions currently in Executive's account
under the Company's Employee Stock Purchase Plan.
4. ACKNOWLEDGEMENT OF BENEFITS AND RELEASE. In consideration of
the Company's entering into this Agreement with Executive, the Executive
irrevocably and unconditionally releases, acquits, and forever discharges the
Company and its officers, agents, representatives, employees, divisions,
successors, assigns, and all persons acting on behalf of, through, or at the
direction of the Company from any and all charges, complaints, claims, demands,
liabilities, controversies, costs, losses, expenses and causes of action,
including actual or potential attorneys' fees and costs, whether based on law,
statutes, contract, tort, or otherwise, known and unknown, which the Executive
now has, claims to have, or otherwise has accrued to the Executive, his heirs,
executors, administrators, legal representatives, successors or assigns,
arising out of or related to the Employment Agreement or Executive's employment
with the Company or the termination of that employment. This release includes
but is not limited to claims arising under federal, state or local law,
regulation, or policy prohibiting employment discrimination based on age,
including the Age Discrimination in Employment Act, or
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<PAGE> 5
discrimination based on race, sex, national origin, religion, disability,
wrongful termination of employment, or any claims growing out of or based on
other statutes or legal restrictions on the Company's rights to terminate its
employees. The consideration mentioned above is accepted by Executive in full
compromise, settlement, and satisfaction of all claims for damages, equitable
relief, costs, attorneys' fees or other sums allegedly due based on, arising
out of, relating to or in connection with any alleged employment action,
interference with contract, or discrimination by the Company. As part of the
consideration for the payment of the above sum of money, Executive, for
himself, his heirs, executors, administrators, legal representatives,
successors and assigns has agreed to and does hereby indemnify and hold
harmless each and all of the parties hereby released from any and all claims,
demands, actions and causes of action of whatsoever nature or character which
have been or which may hereafter be asserted by any agency, person, firm or
corporation whomsoever claiming by, through or under Executive for back wages,
damages, or other relief claimed to be due as a result of the claims released
herein.
5. DEATH OF EXECUTIVE. In the event Executive dies during the
Consulting Term, upon Executive's death, Executive's estate shall be entitled
to receive all fees that would have been payable to Executive pursuant to
Section 3.1 following Executive's death had Executive not died. The
entitlement (and extent thereof) of Executive's estate or designated
beneficiary to any of the retirement benefits made available to Executive
pursuant to Section 3.3 shall be determined by the particular plan pursuant to
which such benefits are payable and/or made available if not otherwise
specified in this Agreement.
6. GENERAL PROVISIONS.
6.1. NOTICES. Any notices to be given hereunder by either
party to the other may be effected by personal delivery in writing or by mail,
registered or certified, postage prepaid with return receipt requested. Mailed
notices shall be addressed to the parties at the addresses appearing in the
introductory paragraph of this Agreement (to the attention of the Secretary in
the case of notices to Company), but each party may change such address by
written notice in accordance with this Section 6.1. Notices delivered
personally shall be deemed communicated as of actual receipt; mailed notices
shall be deemed communicated as of the second day following deposit in the
United States Mail.
6.2. ENTIRE AGREEMENT. This Agreement supersedes any and
all other agreements (including, without limitation, the Employment Agreement,
which is hereby wholly terminated and cancelled upon execution of this
Agreement), either oral or in writing, between the parties hereto with respect
to the employment of Executive by Company and contains all of the covenants and
agreements between the parties with respect to such employment in any manner
whatsoever. Each party to this Agreement acknowledges that no representations,
inducements, promises, or agreements, orally or otherwise, have been made by
any party, or anyone acting on behalf of any party, which are not embodied
herein and that no other agreement shall be valid or
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<PAGE> 6
binding unless in writing and signed by the party against whom enforcement of
such agreement is sought. Any modification of this Agreement will be effective
only if it is in writing signed by the party against whom enforcement of such
modification is sought.
6.3. PARTIAL INVALIDITY. If any provision in this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remaining provisions shall nevertheless continue in full
force without being impaired or invalidated in any way.
6.4. LAW GOVERNING AGREEMENT. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Tennessee.
6.5. WAIVER OF JURY TRIAL. Company and Executive hereby
expressly waive any right to a trial by jury in any action or proceeding to
enforce or defend any rights under this Agreement, and agree that any such
action or proceeding shall be tried before a court and not a jury. Executive
and Company hereby agree that any action or proceeding to enforce any claim
arising out of this Agreement shall be brought and maintained in any state or
federal court having subject matter jurisdiction and located in Nashville,
Tennessee. Executive irrevocably waives, to the fullest extent permitted by
law, any objection that he may have or hereafter have to the laying of the
venue of any such action or proceeding brought in any court located in
Nashville, Tennessee, and any claim that any such action or proceeding brought
in such a court has been brought in an inconvenient forum.
6.6. MISCELLANEOUS. Failure or delay of either party to
insist upon compliance with any provision hereof will not operate as and is not
to be construed to be a waiver or amendment of the provision or the right of
the aggrieved party to insist upon compliance with such provision or to take
remedial steps to recover damages or other relief for noncompliance. Any
express waiver of any provision of this Agreement will not operate and is not
to be construed as a waiver of any subsequent breach, irrespective of whether
occurring under similar or dissimilar circumstances. Executive acknowledges and
represents that the services to be rendered by him are unique and personal.
Accordingly, Executive may not assign any of his rights or delegate any of his
duties or obligations under this Agreement. The rights and obligations of
Company under this Agreement shall inure to the benefit of and shall be binding
upon the successors and assigns of Company.
IN WITNESS WHEREOF, Executive has hereunto affixed his hand and
Company has caused this Agreement to be executed by its duly authorized officer
or representative as of the day and year first above written.
SHONEY'S, INC.
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By:
-------------------------------------
Title:
----------------------------------
----------------------------------------
CHARLES E. PORTER
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<PAGE> 1
Exhibit 10.24
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of this 1st day
of November, 1996, between SHONEY'S, INC., a Tennessee corporation, whose
principal place of business is located at 1727 Elm Hill Pike, Nashville,
Tennessee, 37210 (the "Employer"), and W. CRAIG BARBER, a resident of
Williamson County, Tennessee, whose address is 807 Stuart Lane, Brentwood,
Tennessee, 37027 (the "Employee").
1. TERM OF EMPLOYMENT.
1.1 EMPLOYMENT. Employer hereby employs Employee, and
Employee hereby accepts employment with Employer for the Employment Term (as
hereinafter defined). Notwithstanding anything to the contrary in this
Agreement and subject to the other provisions of this Agreement, Employee's
employment is at the will of Employer.
1.2 EMPLOYMENT TERM. The term of this Agreement and the
Employment Term shall be three years, commencing on October 28, 1996, and
terminating on October 27, 1999, unless sooner terminated as herein provided or
extended pursuant to Section 1.3.1 hereof. Unless either party to this
Agreement notifies the other in writing not less than 180 days prior to the
termination date provided for herein of an intent to terminate this Agreement,
the terms of this Agreement shall automatically be extended for an additional
term of three (3) years and shall be so extended in future years subject to the
same notification requirements set forth above.
1.3 CHANGE IN CONTROL.
1.3.1 EXTENSION BECAUSE OF CHANGE IN CONTROL. In
the event of a Change in Control (as hereinafter defined), the Employment Term
shall automatically be extended for two (2) calendar years on the date of the
Change in Control. For purposes of this Agreement, a "Change in Control" of
Employer shall mean a change in control of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); provided, however, that, without limitation, such a Change in
Control shall be deemed to have occurred if (a) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of Employer representing 50% or more of the
combined voting power of Employer's then-outstanding voting securities; (b) all
or substantially all of the assets of the Employer are sold, exchanged or
otherwise transferred (other than to secure debt owed by Employer); (c) the
Employer's shareholders approve a plan of liquidation or dissolution; or (d)
during the Employment Term, individuals who at the beginning of the Employment
Term constitute members of the Board of Directors of Employer cease for any
reason to constitute a
1
<PAGE> 2
majority thereof unless the election, or the nomination for election by
Employer's shareholders, of each new director was approved by a vote of at
least two-thirds of the directors then still in office who were directors at
the beginning of the Employment Term.
1.3.2 POTENTIAL CHANGE IN CONTROL. In the
event of a Potential Change in Control (as hereinafter defined), Employee
agrees to remain employed by Employer from the time period beginning with the
Potential Change in Control and continuing through the earlier of two (2)
months after a Change in Control occurs (as defined in Section 1.3.1) or the
one-year anniversary of the commencement of the Potential Change in Control
period. If Employee chooses to terminate his employment after a Change in
Control occurs, the provisions set forth at Section 4.2.1 of this Agreement
control such action. For purposes of this Agreement, a "Potential Change in
Control" shall occur upon the execution of any agreement or memorandum of
understanding, the completion of which would result in a "Change in Control" as
defined in Section 1.3.1 of this Agreement or the commencement of a proxy
contest that has the potential of causing a "Change in Control" as defined in
Section 1.3.1 of this Agreement.
2. DUTIES OF EMPLOYEE.
2.1 GENERAL DUTIES. Employee is hereby employed as
Senior Executive Vice President, Chief Financial Officer and Chief
Administrative Officer of Employer with such duties and responsibilities as
Employer's Board of Directors shall designate. He shall do and perform all
services, acts, or things necessary or advisable to manage and conduct the
business of Employer, subject always to the policies set forth by Employer's
Board of Directors, in accordance with any and all governing rules and
regulations of regulatory agencies.
2.2 DEVOTION OF ENTIRE TIME TO EMPLOYER'S BUSINESS.
Employee will devote his entire productive time, ability, and attention during
normal business hours to the business of Employer during the Employment Term.
Employee shall not, directly or indirectly, render any services of a business,
commercial, or professional nature to any other person or organization, whether
for compensation or otherwise, without the prior written consent of Employer's
Board of Directors; provided, however, that the foregoing shall not preclude
reasonable participation as a member in community, civic, or similar
organizations, or the pursuit of personal investments that neither interfere
nor conflict with his normal business activities for Employer.
2.3 DISCLOSURE OF INFORMATION. Employee recognizes and
acknowledges that, as a result of this employment by Employer, he will become
familiar with and acquire knowledge of confidential information and certain
trade secrets that are valuable, special, and unique assets of Employer.
Employee agrees that any such confidential information and trade secrets are
the property of Employer. Therefore, Employee agrees that, for and during the
entire Employment Term, any such confidential information and trade secrets
shall be considered to be proprietary to Employer and kept as the private
records of Employer and will not be divulged to any firm,
2
<PAGE> 3
individual, or institution except pursuant to and within the course and scope
of Employee's employment hereunder. Further, upon termination of this
Agreement for any reason whatsoever, Employee agrees that he will continue to
treat as private and proprietary to Employer any such confidential information
and trade secrets to any person, firm or institution, and will not use such
information to the detriment of Employer. The parties agree that nothing in
this Agreement shall be construed as prohibiting Employer from pursuing any
remedies available to it for any breach or threatened breach of this Section
2.3, including, without limitation, the recovery of damages from Employee or
any person or entity acting in concert with Employee.
3. COMPENSATION OF EMPLOYEE.
3.1 SALARY. As compensation for his services hereunder,
Employee shall receive a base salary (the "Base Salary") per annum of $288,900,
which shall be payable in accordance with the general payroll practices of
Employer. Increases in the Base Salary may be made in the sole discretion of
Employer's Board of Directors, except that employee shall be entitled to an
annual minimum increase each year consistent with the performance merit matrix
as established by the Board of Directors.
3.2 BONUSES. Employee shall be eligible for an annual
bonus as established by the Board of Directors through the annual bonus plan.
3.3 OTHER BENEFIT PROGRAMS. Employee shall be entitled
to participate in all employee benefit, bonus and similar programs, including,
without limitation, programs of insurance, automobile plans, deferred
compensation arrangements, and all other benefits made available by Employer to
Executive Vice Presidents/Division Presidents and above. During the Employment
Term, so long as any additional benefit is made available to Executive Vice
Presidents/Division Presidents and above by Employer, such benefit shall be
provided to Employee. By way of explanation, and not by way of limitation,
Employee shall be entitled to the use of an automobile of make, model, and year
of manufacture commensurate with the position of Employee.
3.4 VACATION. Employee shall be entitled annually to four
(4) weeks of paid vacation.
4. TERMINATION OF EMPLOYMENT; SEVERANCE.
4.1 BY EMPLOYER.
4.1.1 TERMINATION WITHOUT CAUSE. Employer's Board
of Directors may terminate Employee's employment, with or without cause, at any
time by giving written notice of such termination to Employee, such termination
of employment to be effective on a date
3
<PAGE> 4
specified in such notice; provided, however, that only in the event of such a
termination without cause Employee shall be entitled to receive the greater of
(a) the Base Salary and bonus paid or accrued on Employee's behalf for the
fiscal year of Employer immediately prior to the fiscal year in which the
termination took place; or (b) the amount due Employee for Base Salary and
target bonus during the balance of the then-current Employment Term. Payments
shall be made, at the option of Employer, in cash or, in the case of the
preceding item (a), in equal weekly payments using Employer's regular payroll
periods or, in the case of the preceding item (b), over the balance of the
Employment Term at the same time as current wages and bonuses are normally
payable. Employee's participation in all benefit programs other than life,
medical and disability insurance shall cease as of the date of termination.
Employee's participation in the life, medical and disability insurance programs
shall continue until the earlier of: (a) such time as Employee is employed by
another employer and is covered or permitted to be covered by benefit plans of
another employer without regard to the extent of such coverage; (b) the
Employer no longer provides such benefit plans to individuals holding the
position of Executive Vice President/Division President and above; or (c) the
expiration of the Employment Term in effect at the time of termination. This
provision supersedes any other severance program or policy that may be offered
by Employer and is in lieu of such plan rather than in addition to other
severance plans that may be in place, except with regard to any rights Employee
may have pursuant to COBRA.
4.1.2. TERMINATION FOR CAUSE. If Employee is
terminated for cause, Employer shall have no further obligation whatsoever to
Employee hereunder, and Employee's participation in all benefit programs shall
cease as of the date of termination. For purposes of this Agreement, "cause"
shall mean any one of the following:
(i) Employee's personal dishonesty;
(ii) Employee's willful misconduct;
(iii) breach of fiduciary duty involving personal profit by
Employee;
(iv) conviction of Employee for any felony or crime
involving moral turpitude;
(v) material intentional breach by Employee of any
provision of this Agreement; or
(vi) unsatisfactory performance by Employee of the duties
designated for Employee by Employer's Board of
Directors as a result of alcohol or drug use by
Employee.
4
<PAGE> 5
4.2 TERMINATION BY EMPLOYEE.
4.2.1 TERMINATION AFTER CHANGE IN CONTROL. In the
event a Change in Control occurs, Employee, at any time within ninety (90) days
after such Change in Control, may terminate his employment with Employer by
giving not less than sixty (60) nor more than ninety (90) days' prior written
notice of such termination to Employer. In the event that Employee terminates
his employment pursuant to this Section 4.2.1, he shall be entitled to receive
the greater of: (A) an amount equal to two (2) times the base salary and bonus
paid or accrued on Employee's behalf for the fiscal year of Employer
immediately prior to the fiscal year in which the termination took place; or
(B) the amount due Employee for base salary during the balance of the
then-current Employment Term. Payments shall be made in the case of the
preceding item (A) in equal weekly payments using employer's regular payroll
periods or, in the case of the preceding item (B), over the balance of the
employment term at the same time as current wages and bonuses normally are
payable. Employee's participation in all benefit programs other than life,
medical and disability insurance shall cease as of the date of termination from
active employment with Employer. Employee's participation in the life, medical
and disability insurance programs shall continue until the earlier of: (a) such
time as Employee is employed by another employer and is covered or permitted to
be covered by benefit plans of another employer without regard to the extent of
such coverage; (b) the Employer no longer provides such benefit plans to
individuals holding the position of Executive Vice President/Division President
and above; or (c) the expiration of the Employment Term then in effect.
Nothing contained herein is intended to in any way limit Employee's rights
under COBRA.
4.2.2 TERMINATION OTHER THAN AFTER CHANGE IN CONTROL.
Except as limited by Section 1.3.2 of this Agreement, Employee may terminate
his employment with Employer at any time without further obligation whatsoever
by either party hereunder (except for the obligations and covenants of Employee
pursuant to Sections 2.3 and 4.4, which shall survive termination as specified
herein) by giving not less than sixty (60) nor more than ninety (90) days'
prior written notice of such termination to Employer.
4.3 EFFECT OF TERMINATION ON STOCK OPTIONS. In the event
of any termination of this Agreement and the Employment Term, all stock options
held by Employee that are vested prior to the effective date of the termination
shall be exercisable in accordance with their terms, and all stock options held
by Employee that are not vested prior to the effective date of the termination
shall lapse and be void. Also, in the event of any termination of Employee's
employment pursuant to Section 4.1.1 or Section 4.2.1, then, in addition to any
other rights of Employee hereunder, Employee shall receive, within thirty (30)
days after such termination, a lump sum cash distribution equal to: (a) the
number of shares of Employer's common stock that is subject to options held by
Employee which are not vested on the date of termination of employment;
multiplied by (b) the difference between: (i) the closing price of a share of
Employer's common stock on the New York Stock Exchange as reported by The Wall
Street
5
<PAGE> 6
Journal as of the day prior to the effective date of termination of employment
(or, if the New York Stock Exchange is closed on that date, on the last
preceding date on which the New York Stock Exchange was open for trading), and
(ii) the applicable exercise price(s) of such non-vested shares.
4.4 COVENANT NOT TO COMPETE. Employee acknowledges that
Employer's business is built upon the confidence of its customers, suppliers,
employees, and the general public, and that Employee will acquire confidential
knowledge that should not be divulged or used for his own benefit. In the
event of any termination of Employee's employment pursuant to Sections 4.1.2,
4.2.1 or 4.2.2 of this Agreement, Employee covenants and agrees that, for a
period of one year from the effective date of his termination from active
employment with the Employer, he will not engage in, own, manage, operate,
control, or participate in any food service business that conducts or
franchises activities which are the same as or similar to the restaurant
concepts and operations of Employer as an employer, employee, principal,
partner, director, agent, or otherwise, directly or indirectly, anywhere in the
United States of America. Employee understands and acknowledges that his
violation of this covenant not to compete would cause irreparable harm to
Employer, and Employer would be entitled to seek an injunction by any court of
competent jurisdiction enjoining and restraining Employee and each and every
other person concerned from any employment, service, or other act prohibited by
this Agreement. Employee and Employer recognize and acknowledge that the area
and time limitations contained in this Agreement are reasonable. In addition,
Employee and Employer recognize and acknowledge that the area and time
limitations are properly required for the protection of the business interests
of Employer due to Employee's status and reputation in the industry and the
knowledge to be acquired by Employee through his association with Employer's
business and the public's close identification of Employee with Employer and
Employer with Employee. The parties agree that nothing in this Agreement shall
be construed as prohibiting Employer from pursuing any other remedies available
to it for any breach or threatened breach of this covenant not to compete,
including, without limitation, the recovery of damages from Employee or any
other person or entity acting in concert with Employee. Employee also agrees
that, in the event he breaches this covenant not to compete, Employee will pay
reasonable attorneys' fees and expenses incurred by Employer in enforcing this
covenant not to compete. Employee acknowledges and understands that, as
consideration for his execution of this Agreement and his agreement with the
terms of this covenant not to compete, Employee will receive employment by
Employer in accordance with this Agreement. Employer acknowledges that
Employee's execution of this Agreement and agreement with the terms of this
covenant not to compete is consideration for Employer's agreement to employ
Employee pursuant to this Agreement. If any part of this covenant not to
compete is found to be unreasonable, then it may be amended by appropriate
order of a court of competent jurisdiction to the extent deemed reasonable.
Employer shall receive injunctive relief without the necessity of posting bond
or other security, such bond or other security being hereby waived by Employee.
6
<PAGE> 7
5. DEATH OR DISABILITY OF EMPLOYEE.
5.1 DEATH OF EMPLOYEE. In the event Employee dies during
the Employment Term, this Agreement and the Employment Term shall terminate
upon Employee's death. Employee's estate shall be entitled only to any Base
Salary earned but not paid plus any bonus accrued by Employer for Employee
through the date of death. Such payment shall be paid in lump sum to the
Employee's estate within ninety (90) days after Employer is given notice of
Employee's death.
5.2 DISABILITY OF EMPLOYEE. Employer has disability
insurance insuring those individuals holding the position of Executive Vice
President/Division President and above, and Employee is included under such
disability insurance. In the event of the Disability (as hereinafter defined)
of Employee, this Agreement and the Employment Term shall terminate. Upon a
termination resulting from the Disability of Employee, Employee shall be
entitled to receive (i) any Base Salary earned but not paid through the date
that Employee becomes eligible for disability payments under such disability
insurance, and (ii) an amount equal to the Base Salary and bonus received by
Employee in the last full fiscal year of Employer immediately prior to the
Disability of Employee, which amount shall be payable, at the option of
Employee, in a lump sum payment or in equal installments paid in accordance
with the general payroll policies of Employer over a period not to exceed three
(3) years from the effective date of a termination due to the Disability of
Employee; provided, however, that Employee shall not be entitled to any
payments under this Section 5.2 in the event this Agreement is terminated
pursuant to Section 4.1.2 hereof regardless of whether the "cause" for which
this Agreement is terminated pursuant to Section 4.1.2 also may constitute a
Disability. For purposes of this Agreement, a "Disability" of Employee shall
occur if (i) Employee suffers any mental or physical condition that impairs
Employee's ability to perform the essential functions of his duties hereunder
and (ii) Employee, within thirty (30) days after Employee receives written
notice from Employer requesting that Employee resume his duties hereunder, is
unable or refuses to do so.
6. GENERAL PROVISIONS.
6.1 EXPENSES. Employer shall reimburse Employee for all
reasonable and necessary business expenses of Employee incurred in the conduct
of his duties hereunder. Employee shall comply with all applicable policies of
Employer with respect to documentation and approval of such expenses.
6.2 NOTICES. Any notices to be given hereunder by either
party to the other may be effected by personal delivery in writing or by mail,
registered or certified, postage prepaid, with return receipt requested.
Mailed notices shall be addressed to the parties at the addresses appearing in
the introductory paragraph of this Agreement (to the attention of the Secretary
in the case of notices to Employer), but each party may change such address by
written notice in
7
<PAGE> 8
accordance with this Section 6.2. Notices delivered personally shall be deemed
communicated at the time of the actual receipt; mailed notices shall be deemed
communicated as of the second day following deposit in the United States Mail.
6.3 ENTIRE AGREEMENT. This Agreement supersedes any and all
other agreements (including, without limitation, that certain employment
agreement between Employer and Employee dated as of June 17, 1996), either oral
or in writing, between the parties hereto with respect to the employment of
Employee by Employer and contains all of the covenants and agreements between
the parties with respect to such employment in any manner whatsoever. Each
party to this Agreement acknowledges that no representations, inducements,
promises, or agreements, orally or otherwise, have been made by any party, or
anyone acting on behalf of any party, which are not embodied herein and that no
other agreement shall be valid or binding unless in writing and signed by the
party against whom enforcement of such agreement is sought. Any modification
of this Agreement will be effective only if it is in writing signed by the
party against whom enforcement of such modification is sought.
6.4 PARTIAL INVALIDITY. If any provision in this Agreement
is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions shall nonetheless continue in full
force without being impaired or invalid in any way.
6.5 LAW GOVERNING AGREEMENT. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Tennessee.
6.6 WAIVER OF JURY TRIAL. Employer and Employee hereby
expressly waive any right to a trial by jury in any action or proceeding to
enforce or defend any rights under this Agreement, and agree that any such
action or proceeding shall be tried before a court and not a jury. Employee
and Employer hereby agree that any action or proceeding to enforce any claim
arising out of this Agreement shall be brought and maintained in any state or
federal court having subject matter jurisdiction and located in Nashville,
Tennessee. Employee irrevocably waives, to the fullest extent permitted by
law, any objection he may have or hereafter have to the laying of the venue of
any such action or proceeding brought in any court located in Nashville,
Tennessee, and any claim that any such action or proceeding brought in such a
court has been brought in an inconvenient forum.
6.7 MISCELLANEOUS. Failure or delay of either party to
insist upon compliance with any provision hereof will not operate as and is not
to be construed to be a waiver or amendment of the provision or the right of
the aggrieved party to insist upon compliance with such provision or to take
remedial steps to recover damages or other relief for noncompliance. Any
express waiver of any provision of this Agreement will not operate and is not
to be construed as a waiver of any subsequent breach, irrespective of whether
occurring under similar or dissimilar circumstances. Employee acknowledges and
represents that the services to be rendered
8
<PAGE> 9
by him are unique and personal. Accordingly, Employee may not assign any of
his rights or delegate any of his duties or obligations under this Agreement.
The rights and obligations of Employer under this Agreement shall inure to the
benefit of and shall be binding upon the successors and assigns of Employer.
IN WITNESS WHEREOF, Employee has hereunto affixed his hand, and
Employer has caused this Agreement to be executed by its duly authorized
officer as of the day and year first above written.
EMPLOYER:
SHONEY'S, INC.
By:
-------------------------------------
Title:
----------------------------------
EMPLOYEE:
----------------------------------------
W. CRAIG BARBER
9
<PAGE> 1
(11) STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEARS ENDED
OCTOBER 27, OCTOBER 29, OCTOBER 30,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Earnings per Common Share - Primary
Average shares outstanding 42,590,581 41,405,428 41,042,134
Net effect of dilutive stock options - based on the treasury
stock method using average market price 87,916 113,688 256,927
------------ ------------ ------------
Totals 42,678,497 41,519,116 41,299,061
Income from continuing operations before extraordinary charge
and cumulative effect of change in accounting principle $ 26,045,894 $ 11,202,369 $ 52,317,557
Income from discontinued operations 397,816 8,136,588 10,276,649
Income from gain on sale of discontinued operations 22,080,375 5,532,748
Extraordinary charge on early extinguishment of debt (1,037,808)
Cumulative effect of change in accounting for income taxes 4,468,386
------------ ------------ ------------
Net income $ 48,524,085 $ 24,871,705 $ 66,024,784
============ ============ ============
Per Share Amount:
Income from continuing operations before extraordinary charge
and cumulative effect of change in accounting principle $ .61 $ .27 $ 1.27
Income from discontinued operations .01 .20 .25
Income from gain on sale of discontinued operations .52 .13
Extraordinary charge on early extinguishment of debt (.03)
Cumulative effect of change in accounting for income taxes .11
------------ ------------ ------------
Net income $ 1.14 $ .60 $ 1.60
============ ============ ============
Earnings per Common Share - Fully Diluted:
Average shares outstanding 42,590,581 41,405,428 41,042,134
Net effect of dilutive stock options - based on the treasury
stock method using the quarter-end market price, if higher
than average market price 97,569 113,688 264,408
Assumed conversion of convertible debentures 5,577,679 (A) 5,213,456
------------ ------------ ------------
Totals 48,265,829 41,519,116 46,519,998
============ ============ ============
Income from continuing operations before extraordinary charge
and cumulative effect of change in accounting principle $ 26,045,894 $ 11,202,369 $ 52,317,557
Add convertible debentures interest, net of income tax 4,806,760 (A) 4,110,057
------------ ------------ ------------
Total from continuing operations before extraordinary charge
and cumulative effect of change in accounting principle 30,852,654 11,202,369 56,427,614
Income from discontinued operations 397,816 8,136,588 10,276,649
Income from gain on sale of discontinued operations 22,080,375 5,532,748
Extraordinary charge on early extinguishment of debt (1,037,808)
Cumulative effect of change in accounting for income taxes 4,468,386
------------ ------------ ------------
Net income $ 53,330,845 $ 24,871,705 $ 70,134,841
============ ============ ============
Per Share Amount:
Income from continuing operations before extraordinary charge
and cumulative effect of change in accounting principle $ .64 $ .27 $ 1.21
Income from discontinued operations .01 .20 .22
Income from gain on sale of discontinued operations .45 .13
Extraordinary charge on early extinguishment of debt (.02)
Cumulative effect of change in accounting for income taxes .10
------------ ------------ ------------
Net income $ 1.10 $ .60 $ 1.51
============ ============ ============
</TABLE>
(A) For the fiscal year 1995, both primary and fully diluted earnings per
share utilized average shares outstanding and common stock
equivalents. No consideration was given to the convertible debentures
since they were not considered dilutive.
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF SHONEY'S, INC.
<TABLE>
<CAPTION>
STATE (or other
jurisdiction) of
NAME incorporation
---- ----------------
<S> <C>
Shoney's Real Estate, Inc. Tennessee
Pargo's of Frederick, Inc. Tennessee
Shoney's Equipment Corporation Tennessee
Commissary Operations, Inc. Tennessee
Corporate Benefit Services, Incorporated of Nashville Tennessee
Evadon Corporation Tennessee
Shoney's of Canada, Inc. Canada
Pargo's of York, Inc. Tennessee
Shoney's Investments, Inc. Nevada
RJR Investments, Inc. Nevada
Shoney's International, Inc. Nevada
Shoney's of Michigan, Inc. Tennessee
BarbWire's of Kansas, Inc. Kansas
TPI Restaurants Acquisition Corporation Tennessee
TPI Entertainment, Inc. Deleware
TPI Insurance Corporation Hawaii
TPI Restaurants, Inc. Tennessee
TPI Transportation, Inc. (a subsidiary of TPI Restaurants, Inc.) Tennessee
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
TPI Commissary, Inc. (a subsidiary of TPI Restaurants, Inc.) Tennessee
TPI West Palm, Inc. (a subsidiary of TPI Restaurants, Inc.) Tennessee
Insurex Agency, Inc. (a subsidiary of TPI Restaurants, Inc.) Tennessee
Insurex Benefits Administrators, Inc. (a subsidiary of TPI Restaurants) Tennessee
</TABLE>
<PAGE> 1
Exhibit 23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (File No. 333-11717) and the related Prospectus pertaining to the
Shoney's, Inc. 1996 Stock Option Plan; the Registration Statement on Form S-8
(File No. 333-11715) and the related Prospectus pertaining to the Shoney's,
Inc. 1981 Stock Option Plan; the Post-Effective Amendment No. 2 to the
Registration Statement on Form S-4 (File No. 333-4201) and the related Joint
Proxy/Prospectus; Post-Effective Amendment No. 5 to the Registration Statement
on Form S-8 (File No. 2-64257) and related Prospectus pertaining to the
Shoney's, Inc. Stock Option Plan; Post-Effective Amendment No. 4 to the
Registration Statement on Form S-8 (File No. 33-605) and related Prospectus
pertaining to the Shoney's, Inc. Employee Stock Purchase Plan; Post-Effective
Amendment No. 3 to the Registration Statement on Form S-8 (File No. 2-84763)
and related Prospectus pertaining to the Shoney's, Inc. 1981 Stock Option Plan;
Post-Effective Amendment No. 2 to the Registration Statement on Form S-8 (File
No. 33-25725) and related Prospectus pertaining to the Shoney's, Inc. 1981
Stock Option Plan, and the Registration Statement on Form S-8 (File No.
33-45076) and related Prospectus pertaining to the Shoney's, Inc. Directors'
Stock Option Plan; of our report dated January 24, 1997, with respect to the
consolidated financial statements and schedule of Shoney's, Inc. included in
the Annual Report (Form 10-K) for the year ended October 27, 1996.
Nashville, Tennessee
January 24, 1997
<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 OCTOBER 27, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-27-1996
<PERIOD-START> OCT-30-1995
<PERIOD-END> OCT-27-1996
<CASH> 13,968,882
<SECURITIES> 0
<RECEIVABLES> 14,515,630
<ALLOWANCES> 1,503,470
<INVENTORY> 44,248,060
<CURRENT-ASSETS> 109,725,260
<PP&E> 885,313,927
<DEPRECIATION> 320,801,387
<TOTAL-ASSETS> 747,081,441
<CURRENT-LIABILITIES> 215,365,502
<BONDS> 0
0
0
<COMMON> 48,458,231
<OTHER-SE> (47,930,651)
<TOTAL-LIABILITY-AND-EQUITY> 747,081,441
<SALES> 1,066,049,153
<TOTAL-REVENUES> 1,099,741,789
<CGS> 951,565,436
<TOTAL-COSTS> 1,057,742,895
<OTHER-EXPENSES> 68,226,580
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,950,879
<INCOME-PRETAX> 41,998,894
<INCOME-TAX> 15,953,000
<INCOME-CONTINUING> 26,045,894
<DISCONTINUED> 397,816
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,524,085
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.10
</TABLE>
<PAGE> 1
Exhibit 99.1
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Shoney's, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Charged
Balance at to Costs Charged Balance at
Beginning and to Other End of
of Period Expenses Accounts Deductions Period
--------- -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Fiscal year ended
October 27, 1996:
Reserves and
allowances deducted
from asset accounts:
Allowance for
doubtful accounts $1,645,000 $ 481,000 $ 282,000(B) $ 904,000(A) $1,504,000
========== ========== ========== ========== ==========
Valuation allowance
for deferred tax
assets $ 0 $ 0 $4,902,000(C) $ (153,000)(D) $4,749,000
========== ========== ========== ========== ==========
Fiscal year ended
October 29, 1995:
Reserves and
allowances deducted
from asset accounts:
Allowance for
doubtful accounts $1,193,000 $1,045,000 $ 274,000(B) $ 867,000(A) $1,645,000
========== ========== ========== ========== ==========
Fiscal year ended
October 30, 1994:
Reserves and
allowances deducted
from asset accounts:
Allowance for
doubtful accounts $1,846,000 $1,349,000 $ 59,000(B) $2,061,000(A) $1,193,000
========== ========== ========== ========== ==========
</TABLE>
(A) Account written off.
(B) Recoveries from accounts written off in prior year.
(C) Deferred tax valuation allowance established as part of the purchase
price allocation for the Company's acquisition of TPI.
(D) Expiration of tax credit carryforwards.
