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UNITED STATES
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 (No Fee Required)
FOR THE FISCAL YEAR ENDED OCTOBER 26, 1997
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:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, par value $1 per share New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Liquid Yield Option Notes, Due 2004 New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to Form 10-K. [ ]
As of January 20, 1998, there were 43,806,570 shares of Shoney's, Inc.,
$1 par value common stock held by non-affiliates with an aggregate market value
of $142,371,352.
As of January 20, 1997, there were 48,673,365 shares of Shoney's, Inc., $1 par
value common stock outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
DOCUMENT INCORPORATED INTO
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<S> <C>
Portions of the Definitive Proxy Statement for Annual Meeting of
Shareholders on April 2, 1998, to be filed with the Securities and
Exchange Commission (the "Commission") within 120 days after the fiscal
year ended October 26, 1997 (hereinafter the "1998 Proxy Statement") Part III
</TABLE>
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INDEX
<TABLE>
<CAPTION>
Page
Referenced
Form 10-K
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<S> <C> <C>
PART I
Item 1. Business...............................................................................1
Item 2. Properties.............................................................................7
Item 3. Legal Proceedings......................................................................7
Item 4. Submission of Matters to a Vote of Security Holders....................................8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................12
Item 6. Selected Financial Data...............................................................13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................14
Item 8. Financial Statements and Supplementary Data...........................................24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..............................................................52
PART III
Item 10. Directors and Executive Officers of the Registrant................................... 53
Item 11. Executive Compensation............................................................... 53
Item 12. Security Ownership of Certain Beneficial Owners and Management....................... 53
Item 13. Certain Relationships and Related Transactions....................................... 53
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................53
Signatures............................................................................60
</TABLE>
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PART I
ITEM 1. BUSINESS.
Shoney's, Inc. (the "Company") operates and franchises a chain of 1,387
restaurants in 34 states. The Company was incorporated under the laws of the
State of Tennessee on November 1, 1968. The Company is a diversified food
service chain that consists of three restaurant divisions: Shoney's Restaurants,
Captain D's and a Casual Dining Group. Based on U.S. System wide revenues, the
Company is the 22nd 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 two casual dining restaurant concepts: Fifth Quarter, a steakhouse
concept, and Pargo's, a contemporary casual dining restaurant featuring a wide
variety of fresh, made-from-scratch dishes. The Company also operates a
distribution and manufacturing operation which includes four distribution
centers that support Company and franchised restaurant operations by providing
most of the necessary food and supplies. The distribution and manufacturing
operation also includes a meat processing facility for ground beef, steaks, and
soup products. The Company's fiscal year ends on the last Sunday in October.
Fiscal years 1997, 1996 and 1995 each included 52 weeks. All references herein
to particular years refer to the Company's fiscal year unless otherwise noted.
RESTAURANT CONCEPTS
Shoney's Restaurants
Shoney's Restaurants, which began operation in 1952, are full-service,
family dining restaurants that generally are open 18 hours each day and serve
breakfast, lunch and dinner. At October 26, 1997, there were 489 Company-owned
and 281 franchised Shoney's Restaurants located in 32 states. 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. Entree selections range in menu price from $5.99 to
$7.49 at dinner and $3.99 to $5.99 at lunch. The average guest check was $6.13
for Company-owned units in 1997, compared to $5.95 in 1996 and $5.75 in 1995.
Shoney's Restaurants also offer its signature all-you-care-to-eat breakfast bar
and the soup, salad and fruit bar. In addition to its regular menu, Shoney's
Restaurants often feature promotional menus offering special entrees for a
limited time. These promotional menu items are used to generate new guest trials
and to increase guests' dining frequency. Promotions also serve as a vehicle to
test new items that, if popular, may be added to the regular menu. Shoney's
Restaurants generally have between 120 and 180 seats and employ 65 people,
including management personnel.
Shoney's Restaurants seek to differentiate themselves 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
- --------
1 Based on the 1997 annual survey of the top 100 restaurant chains
published by Nation's Restaurant News (June 23, 1997).
1
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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.
During 1997, comparable restaurant sales declined 4.0% for all
Company-owned Shoney's Restaurants, including the effects of a menu price
increase of 1.4%. Average sales volumes for Company-owned units open all year
were $1,418,000 in 1997, compared to $1,498,000 in 1996 and $1,525,000 in 1995.
Shoney's Restaurants average unit volumes were lower in 1997 as a result of the
decline in comparable restaurant sales and the acquisition of lower volume
restaurants from TPI Enterprises, Inc. ("TPI") in 1996.
Captain D's
Captain D's, which began operation in 1969, are quick-service seafood
restaurants which offer in-store, carryout or drive-thru service and are
generally open seven days a week from 11 a.m. until 11 p.m, serving lunch and
dinner. There were 378 Company-owned and 213 franchised Captain D's restaurants
located in 22 states at October 26, 1997. The typical Captain D's restaurant 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. Entree selections range in menu price from $3.09 to $6.99. The average
guest check for Company-owned units was $4.41, $4.35 and $4.30 in 1997, 1996 and
1995, respectively. During 1996, Captain D's successfully tested a "Coastal
Classics" menu which features more upscale seafood items (e.g., broiled salmon,
orange roughy, catfish, and fried oysters) at price points higher than the
average guest check. The Company intends to offer the "Coastal Classics" menu in
approximately 100 Company-owned Captain D's by the end of 1998. Captain D's
restaurants also offer a variety of non-seafood items to broaden the menu's
appeal. Captain D's conducts on-going research and development to develop
appealing new menu items and improve the quality of existing items.
Captain D's units are generally 2,400 square foot buildings with wood
siding exteriors. During 1996, the Company began a remodeling program for its
Captain D's units to include an enhanced nautical appearance with a new
"seaberry" exterior color and redesigned, graphics-oriented drive-thru menus.
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.
Comparable store sales for Company-owned units declined 1.1% in 1997, including
the effects of a 1.0% menu price increase. The average sales volume for
Company-owned Captain D's open all year was $780,000 in 1997, compared to
$797,000 in 1996 and $767,500 in 1995. Captain D's average unit volumes were
lower in 1997 as a result of the decline in comparable restaurant sales and the
acquisition of lower volume restaurants from TPI in 1996.
Casual Dining Concepts
The Company has two distinct casual dining concepts: Pargo's and Fifth
Quarter. In January 1995, the Company announced a reorganization which included
plans to divest these two restaurant concepts. In July 1995, the Company
announced that these concepts would be retained, and substantially all of senior
management of these concepts was replaced during 1996. During 1997, the
President of the
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Casual Dining Group left the Company, which resulted in uncertainty regarding
the future plans for the concepts. As a result, operational execution
deteriorated, and negatively affected the sales and profitability of these
concepts. Management intends to retain the concepts, strengthen their
management, and improve their operational performance. During 1997, the Company
sold five of its seven BarbWire's steakhouses which previously had been included
in the Casual Dining Group and closed the other two units. The Company intends
to dispose of the related property of the remaining closed BarbWire's units.
PARGO'S--Pargo's, founded in 1983 and acquired by the Company in
1986, are mid-scale, casual dining restaurants that serve fresh,
made-from-scratch entrees designed to cater to a diverse range of customer
tastes. There are 19 Pargo's located in 7 states. 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,
fresh breads, a daily "fresh catch" entree, and periodic promotional food
events. 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
provides a warm environment for families by offering balloons, coloring books
and crayons for children.
Comparable restaurant sales for Pargo's restaurants during 1997
declined 8.9%, with no menu price changes. The average sales volume of units
open all year in 1997 was $1,944,000, compared with $2,201,000 in 1996 and
$2,345,000 in 1995.
FIFTH QUARTER--Fifth Quarter, which began operation in 1973, are
special occasion steakhouses that operate in the mid-scale steakhouse segment.
Fifth Quarter restaurants are open seven days a week, and serve lunch and
dinner. There are 7 Fifth Quarter restaurants located in 5 states. The Fifth
Quarter's menu includes a wide range of USDA choice steaks, a variety of chicken
and seafood entrees, and its signature slow-cooked prime rib. Fifth Quarter
restaurants also offer burgers, sandwiches, soups, a host of appetizers and side
items, an extensive salad bar, and a full selection of desserts. Fifth Quarter
restaurants generally feature 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 Fifth Quarter restaurants was $2,157,000
in 1997, $2,185,000 in 1996, and $2,340,000 in 1995. Comparable restaurant sales
for the Fifth Quarter concept decreased 4.7% in 1997 with no menu price changes.
3
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The table below presents revenues and earnings (loss) before interest
and taxes for each of the Company's restaurant concepts for the last three
fiscal years.
<TABLE>
<CAPTION>
($ in Millions)
Shoney's Restaurants Captain D's Restaurants
-------------------------------- ---------------------------------
1997 1996 1995 1997 1996 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Revenues $705.8 $580.3 $546.7 $295.4 $254.5 $246.5
Earnings before interest
and taxes $ 10.0 $ 15.1 $ 25.5 $ 20.3 $ 20.6 $ 19.5
Pargo's Restaurants Fifth Quarter Restaurants
-------------------------------- ---------------------------------
Revenues $ 36.9 $ 39.7 $ 36.4 $ 15.6 $ 17.5 $ 21.4
Earnings (loss) before
interest and taxes $ (0.6) $ 1.8 $ 1.8 $ 0.7 $ 1.1 $ 1.7
</TABLE>
Distribution and Manufacturing
The Distribution and Manufacturing Operation includes four
distribution facilities and a meat processing facility which supplies ground
beef, steaks, and soups to Company-owned and franchised restaurants. The
objective of the Distribution and Manufacturing Operation 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. As part of the Company's acquisition of
the assets of TPI in September 1996, the Company acquired TPI's two distribution
centers located in Memphis, Tennessee and Charlotte, North Carolina. Shortly
after the acquisition, the Company closed these two distribution centers, and
closed the Company's Atlanta distribution center. During 1997, distribution was
shifted from those facilities to the remaining four distribution facilities to
increase efficiency.
Total revenues for the Distribution and Manufacturing Operation,
including intercompany sales, were $542,576,000 in 1997, $502,893,000 in 1996
and $505,085,000 in 1995. Revenues for the Distribution and Manufacturing
Operation, excluding intercompany sales, were $137,866,000 in 1997, $158,661,000
in 1996 and $163,687,000 in 1995. Earnings before interest and taxes for the
Distribution and Manufacturing Operation were $11,214,000 in 1997, $10,137,000
in 1996 and $11,939,000 in 1995. The Company's distribution centers currently
serve 461 franchised restaurants.
BUSINESS DEVELOPMENT AND FRANCHISING
The Company's business plan is to focus its available personnel and
capital resources on improving the operations of its existing store base and to
close under-performing units which have been assessed as having limited future
potential. Sales proceeds from such units will be used to reduce outstanding
debt. As a result, the Company does not intend to develop any new restaurants
during 1998.
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The Company franchises both its Shoney's Restaurant and Captain D's
concepts. Franchise agreements normally cover a period of 20 years and require
payment of an initial franchise fee and a royalty based on a percentage of the
franchised restaurants' sales. Franchise agreements also require restaurants to
conform to express standards of appearance, service, food quality and menu
content. Management may, from time to time, offer to sell certain Company-owned
restaurant properties, which are located outside of the Company's core
southeastern market, to its franchisees.
The table below presents the change in the number of restaurant units,
both Company-owned and franchised restaurants, during 1997, by restaurant
concept:
<TABLE>
<CAPTION>
At October 27, 1996 Openings Closings At October 26, 1997
--------------------------- -------------------- ------------------ ---------------------------
Company Franchise Total Company Franchise Company Franchise Company Franchise Total
------- --------- ----- ------- --------- ------- --------- ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shoney's 544 300 844 10 8 (65) (27) 489 281 770
Captain D's 379 219 598 1 4 (2) (10) 378 213 591
Fifth Quarter 8 0 8 0 0 (1) 0 7 0 7
Pargo's 19 0 19 0 0 0 0 19 0 19
BarbWire's 7 0 7 0 0 (7) 0 0 0 0
--- --- ----- -- -- ---- ---- --- --- -----
957 519 1,476 11 12 (75) (37) 893 494 1,387
=== === ===== == == ==== ==== === === =====
</TABLE>
ADVERTISING AND MARKETING
The Company's marketing strategies continue to focus on advertising
designed to both increase guest frequency and new guest trial. The marketing and
advertising strategies for the Shoney's Restaurant concept revolve around
utilization of television and radio advertising in the Company's larger markets
to attain greatest media efficiency. In markets where Company-owned Shoney's
Restaurants are sparsely distributed, marketing and advertising strategies rely
more on local advertising (i.e., contact development with local hotels, civic
organizations and tourism groups and advertising in local newspapers and
sponsorship of local events). The Company also utilizes this same general
advertising strategy with its Captain D's concept, except that Captain D's has
historically more heavily utilized newspaper and promotional coupons to support
its marketing activities. Captain D's also strives to maximize its advertising
during the Lent season to leverage its market position against this seasonal
increase in demand for fish. The Company's Casual Dining Group relies solely on
local advertising and limited radio and print exposure for its marketing
activities.
The Company's franchise agreements require advertising contributions
to the Company to be used exclusively for the purpose of maintaining, directly
administering and preparing standardized advertising and promotional activities.
Those agreements also require franchisees with restaurants in markets with
Company-owned restaurants to contribute to a fund used for the purchase of
advertising. Franchisees may also spend additional amounts on local advertising.
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RAW MATERIALS SOURCES AND AVAILABILITY
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. The Company's ability to maintain consistent quality throughout
its restaurant system depends in part upon its 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. 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.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company's restaurant operations constitute a dominant segment in
accordance with Statement of Financial Accounting Standards No. 14 "Financial
Reporting for Segments of a Business Enterprise".
SERVICE MARKS
The Company has registered the names "Shoney's," "Captain D's," Fifth
Quarter," and "Pargo's," and their respective logos, as service marks with the
United States Patent and Trademark Office. The Company regards its service marks
as having significant value and being an important factor in the development and
marketing of its restaurants. The Company's policy is to pursue registration of
its service marks and trademarks whenever possible and to oppose vigorously any
infringement of its service marks and trademarks.
EMPLOYEES
At December 31, 1997, the Company employed approximately 33,000
persons. A substantial number of the Company's restaurant personnel are employed
on a part-time basis. None of the Company's employees are covered by a
collective bargaining agreement. The Company considers its employee relations to
be good.
COMPETITION
The restaurant industry is intensely competitive with respect to
price, service, location, and food quality. 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 restaurant business is often affected by changes in consumer taste,
national, regional or local economic conditions, demographic trends, traffic
patterns, and the type, number, and location of competing restaurants. In
addition, factors such as inflation, increased food, labor and benefits costs
and the lack of experienced management and hourly employees may adversely affect
the restaurant industry in general and the Company's restaurants in particular.
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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 26, 1997:
<TABLE>
<CAPTION>
Number of Properties(3)
Use Total Owned Leased
--- ----- ----- ------
<S> <C> <C> <C>
Office and Distribution Facilities(4) 7 7 0
Shoney's Restaurants 489 282 207
Captain D's Restaurants 378 243 135
Pargo's Restaurants 19 10 9
Fifth Quarter Restaurants 7 3 4
--- ---- ----
900 545 355
=== === ===
</TABLE>
Leases
Most of the leases for 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 $16.2
million in 1997, 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 185 of the leases (46%) expire prior to October 31, 2002; however,
approximately 124 of these leases (67% of the 185 leases) provide for renewal
options. Notes 8 and 10 of the Notes to Consolidated Financial Statements on
pages 40 and 46 respectively, of Item 8 in this Annual Report on Form 10-K are
incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS.
Belcher, et al. v. Shoney's, Inc. - See paragraphs 1 through 5 of Note
13 and paragraphs 3 through 5 of Note 15 of the Notes to Consolidated Financial
Statements at pages 49 through 51 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.
- --------
2 The Company's 893 restaurant properties in operation as of October 26,
1997 were located in 27 states.
3 In addition, the Company owns or leases 90 properties that are in turn
leased to others and 73 parcels of land.
4 The Company's principal offices and distribution facility 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
distribution facilities in Ripley, West Virginia; Macon, Georgia; and
Wichita, Kansas.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On August 10, 1997, the Company announced that it had entered into a
settlement agreement with Raymond D. Schoenbaum and Betty J. Schoenbaum (the
"Schoenbaums") on behalf of The Shoney's Shareholders' Committee (the
"Committee") to end the Schoenbaum's pending proxy contest to replace the
Company's Board of Directors. Under the terms of the settlement agreement, the
Company's bylaws were amended to increase the number of directors from seven to
eleven. Raymond D. Schoenbaum and J. Michael Bodnar were added to the Company's
Board of Directors and the Company agreed that one additional director selected
from the Committee's slate of nominees would be added within two weeks of the
settlement with a fourth mutually acceptable director to be added to the Board
as soon as practicable and, in any event, within 60 days. The Company and the
Committee also agreed that the new directors would be nominated for election to
the Board by the Company at the next annual meeting of the Company's
shareholders. The Committee agreed to withdraw their request for a Special
Meeting of Shareholders and to terminate their proxy solicitation including a
standstill provision prohibiting certain actions, including the commencement of
a new proxy contest, until April 30, 1998, subject to certain exceptions. The
agreement also provided that Raymond D. Schoenbaum be added to three committees
of the Company's Board of Directors: the Executive Committee, the Nominating
Committee and a newly formed Operations Committee. In addition, the settlement
agreement required that at least one of Raymond D. Schoenbaum or a nominee from
the Committee's slate of nominees will be appointed to serve on each other
committee of the Board.
The settlement agreement also provided that the Company would reimburse
the Schoenbaums $2.5 million for professional fees and other expenses associated
with the proxy contest. The total costs incurred by the Company in connection
with the proxy contest, including the reimbursement of costs to the Schoenbaums,
was approximately $5.3 million.
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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. ss. 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 50
J. Michael Bodnar President and Chief Executive Officer 53
Robert M. Langford Senior Executive Vice President and
Chief Operating Officer 46
Bernard W. Gray Chief Information Officer 50
Gregory A. Hayes Chief Financial Officer 41
F.E. McDaniel, Jr. Chief Administrative Officer, Secretary and
General Counsel 42
Kevin P. Carey President and Chief Operating Officer - Casual Dining 40
Haney A. Long, Jr. President and Chief Operating Officer - Distribution
and Manufacturing 52
Ronald E. Walker President and Chief Operating Officer - Captain D's 47
James W. Arnett, Jr. Senior Vice President - Shoney's Restaurants 48
David L. Gilbert Senior Vice President - Real Estate 40
David A. Jordan Senior Vice President - Business Development 44
Betty J. Marshall Senior Vice President - Corporate Communications and
Community Relations 47
Robert A. Speck Senior Vice President - Strategic Planning 43
Gary W. Wilson Senior Vice President - Captain D's 38
</TABLE>
There is no family relationship among any of the executive officers and
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 the Chairman of the Board and Chief Executive
Officer of the Company on April 11, 1995 and was named President in January
1996. He served as Chief Executive Officer and President until November of 1997.
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. Bodnar was named President and Chief Executive Officer of the
Company in November 1997 and previously had been elected to the Board of
Directors in August 1997 pursuant to the settlement with the Schoenbaums. See
Item 4. "Submission of Matters to a Vote of Security Holders." Mr. Bodnar has
served as President of Bodnar Investment Group, Inc., a real estate investment
company focusing primarily on the restaurant industry, since 1984. From January
1986 to May 1996, Mr. Bodnar served as President of Triangle Management Group,
Inc., a restaurant management company.
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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. 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.
Mr. Gray first joined the Company in April 1994 and served as Vice
President, Management Information Systems until October 1997. Mr. Gray had
formerly served as Systems Development Manager from July 1992 to April 1994 with
The Park City Group. In October 1997, Mr. Gray joined Podiatrist Insurance
Corporation of America as Chief Information Officer. Mr. Gray rejoined the
Company in December 1997 and was named Chief Information Officer.
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
and was appointed as Chief Financial Officer in December 1997. 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. 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 and was elected to the additional position of Treasurer in December
1992. In March 1994, he was named a Vice President of the Company and was named
Senior Vice President, Secretary and Treasurer in October 1996. In December
1997, he was named Chief Administrative Officer, Secretary and General Counsel.
Mr. Carey was named President and Chief Operating Officer of the
Company's Casual Dining Group in December 1997 and had served as a consultant to
the Company since November 1997. From October 1996 to October 1997, Mr. Carey
served as Area Director and consultant for Innovative Restaurants Concepts,
Inc., responsible for Ray's on the River, an Atlanta Restaurant, Rio Bravo
Grille and Green Hills Grille. Mr. Carey served as managing partner of three
one-of-a-kind concepts for Liberty House Restaurant Corporation from April 1992
to June 1996 and served in various positions with Houston's Restaurants, Inc.
from May 1982 to April 1992.
Mr. Long joined the Company as Senior Vice President of Purchasing and
Distribution in September 1996 and was named President and Chief Operating
Officer of the Company's Distribution and Manufacturing division in December
1997. Prior to joining the Company, Mr. Long served as Senior Vice President of
Purchasing and Distribution for TPI from November 1989 to September 1996.
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. In December 1997, Mr. Walker was named President and Chief Operating
Officer of the Captain D's division.
10
<PAGE> 13
Mr. Arnett was named Senior Vice President - Shoney's Operations in
January 1997. Mr. Arnett had been employed by TPI, as Vice President of its
Shoney's Restaurant division from July 1995 to September 1996. From October 1990
to January 1995, Mr. Arnett had served as President and Chief Operating Officer
and as a Director of the Company.
Mr. Gilbert joined the Company in January 1998 as Senior Vice President
- - Real Estate. Mr. Gilbert formerly served as Director of Development and
Purchasing for Innovative Restaurant Concepts, Inc. from October 1989 to March
1995 and as Executive Director of Development for Applebee's International,
Inc., from March 1995 to January 1998.
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.
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. Speck joined the Company in December 1995 and was elected Division
President - Shoney's Restaurants at that time. In January 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.
Mr. Wilson joined the Company in December 1975 and has served in
various positions in the Captain D's division. He was promoted to Division
Director in February 1987, to Regional Director in December 1991 and to Regional
Vice President of Operations in February 1995. He was elected Senior Vice
President - Captain D's in December 1997.
11
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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
Market Market
High Low
---- ---
1997
<S> <C> <C>
First Quarter 8 3/4 6 3/4
Second Quarter 8 1/4 4 3/8
Third Quarter 6 5/8 5 1/4
Fourth Quarter 6 1/4 4 1/2
1996
First Quarter 11 5/8 7 7/8
Second Quarter 13 3/8 8 1/8
Third Quarter 13 3/8 8 3/8
Fourth Quarter 9 7/8 7 3/8
</TABLE>
There were 8,564 shareholders of record of the Company's Common Stock
as of January 20, 1998.
The Company has not paid a dividend on its common shares during the
last two years. 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 prohibit
dividends and distributions on common stock.
12
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA.
FIVE YEAR FINANCIAL SUMMARY
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Fiscal year ended October 1997 1996(d) 1995(d) 1994 1993(a)
----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,227,076 $1,099,742 $ 1,053,332 $ 1,072,459 $ 1,051,747
Costs and expenses
Cost of sales 1,093,789 951,565 922,545 895,893 877,582
General and administrative 84,401 68,227 63,905 55,397 54,440
Interest expense 45,016 37,951 39,816 41,237 44,466
Litigation settlement (1,700)
Impairment of long-lived assets 53,967
Restructuring expense 7,991
----------- ---------- ----------- ---------- -----------
1,277,173 1,057,743 1,034,257 990,827 976,488
Income (loss) from continuing operations
before income taxes, extraordinary charge,
and cumulative effect of change in
accounting principle (50,097) 41,999 19,075 81,632 75,259
Income taxes (benefit) (14,386) 15,953 7,873 29,314 28,456
----------- ---------- ----------- ---------- -----------
Income (loss) from continuing operations before
extraordinary charge and cumulative effect of
change in accounting principle (35,711) 26,046 11,202 52,318 46,803
Discontinued operations, net of income taxes 398 8,137 10,277 11,207
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) $ (35,711) $ 48,524 $ 24,872 $ 66,025 $ 58,010
=========== ========== =========== ========== ===========
Weighted average shares
outstanding (fully diluted) 48,540 48,266 41,519 46,520 45,644
Per share data--fully diluted
Income (loss) from continuing operations $ (0.74) $ 0.64 $ 0.27 $ 1.21 $ 1.11
Net income (loss) $ (0.74) $ 1.10 $ 0.60 $ 1.51(b) $ 1.35
Dividends -- -- -- -- --
Total assets $ 644,689 747,081 $ 535,016 $ 554,978 $ 525,520
Long-term debt and obligations under
capital leases $ 466,039 $ 476,540 $ 406,032 $ 414,026 $ 389,898
Shareholders' equity (deficit) $ (12,345) $ 528 $ (108,307) $ (136,764) $ (209,988)
Number of restaurants at year-end (c)
Company-owned 893 957 698 719 708
Franchised 494 519 826 874 875
----------- ---------- ----------- ---------- -----------
Total restaurants 1,387 1,476 1,524 1,593 1,583
=========== ========== =========== ========== ===========
</TABLE>
Notes: (a) - 53 week year.
(b) - Income before extraordinary charge and cumulative effect
of change in accounting principle was $1.43 per share.
(c) - Continuing operations.
(d) - See Note 2 - Acquisitions and Note 3 - Discontinued
Operations and Restructuring of the Notes to Consolidated
Financial Statements included as Item 8 herein.
13
<PAGE> 16
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. 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 and under the caption "Risk
Factors" herein. 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.
RESULTS OF OPERATIONS
REVENUES
The components of the change in revenues from continuing operations
during 1997, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
($ in millions)
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Sales from restaurants opened or acquired $ 220.0 $ 65.1 $ 22.2
Higher menu prices 9.7 16.5 3.7
Sales at prior year prices (38.9) (9.1) 2.5
Closed restaurants (33.2) (30.1) (8.9)
Distribution and manufacturing and other sales (20.9) (5.6) (26.0)
Franchise revenues (11.7) 2.7 (1.9)
Other income 2.3 6.9 (10.7)
--------- --------- ---------
Total $ 127.3 $ 46.4 $ (19.1)
========= ========= =========
</TABLE>
Comparable restaurant sales of all the Company's restaurant concepts
declined 3.4% in 1997, increased 0.2% in 1996, and declined 2.1% in 1995, before
considering menu price increases of 1.2%, 2.0% and 2.5% for 1997, 1996 and 1995,
respectively. Restaurant revenues were also negatively affected by the closure
of under-performing restaurants in 1997, 1996 and 1995. Overall restaurant
revenues increased in 1997 and 1996 despite the decline in comparable restaurant
sales as a result of additional revenues from restaurants acquired from TPI in
the fourth quarter of 1996.
SHONEY'S RESTAURANTS -- Comparable restaurant sales for the Company's
Shoney's Restaurants declined 4.0%, 0.9% and 3.2% during 1997, 1996 and 1995,
respectively, including the effects of menu price increases of 1.4%, 2.7% and
0.4% for 1997, 1996 and 1995, respectively. Average sales volume of
Company-owned Shoney's Restaurants was $1,418,000 in 1997, $1,498,000 in 1996
and $1,525,000
14
<PAGE> 17
in 1995. The lower average sales volume in 1997 and 1996 reflects the decline in
comparable restaurant sales and the inclusion of Shoney's Restaurants acquired
from TPI, which had 1997 average sales volumes 12% lower than other
Company-owned Shoney's Restaurants. 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, food quality and service standards which have contributed to declines
in customer traffic.
The Company is focusing on improving customer traffic and sales at its
Shoney's Restaurants through a variety of back-to-basics initiatives designed to
significantly improve food quality, consistency, customer service and restaurant
cleanliness. New research and development personnel have been charged with
upgrading the quality of menu items and developing new menu offerings to broaden
customer appeal. The Company is testing an enhanced version of its popular
"Breakfast Bar" at varying price points, and will introduce the enhanced bar in
additional markets if test results are favorable. Management plans to redirect
customers to higher quality menu items with higher margins, while maintaining
and upgrading its signature "Soup, Salad and Fruit Bar" as a compliment to the
menu. The Company also plans to strengthen field management by increasing the
ability of the multi-unit supervisors to oversee the restaurant operations by
reducing the number of restaurants under their supervision from eight to ten
restaurants to four to six restaurants. During 1998, the Company plans to
continue to remodel and refurbish Company-owned Shoney's Restaurants focusing
on areas with greatest customer impact and to enhance kitchen equipment to
support improved food quality. The Company has engaged a new advertising agency
to develop a marketing campaign for Shoney's Restaurants and expects to
introduce a new ad campaign in the spring of 1998. The Company plans to use
advertising to drive customer retrial following successful implementation of
improvements to food quality and operational execution.
During 1996, the Company tested an "Owner/Manager" program for Shoney's
Restaurants in the Company's 48 unit middle Tennessee market, which was later
offered at additional restaurants. Under this program, Owner/Managers made an
"investment" in their restaurants and received a salary plus incentive
compensation based on the improvement of the restaurants' cash flow. This
program has not produced improvements in performance nor did it significantly
reduce manager turnover. In 1998, the Company intends to introduce a simplified
incentive compensation plan for its Shoney's Restaurant managers which will
reward managers for increasing sales, meeting cost objectives and improving the
profitability of their restaurant. The plan also will include granting managers
options to purchase the Company's common stock and a cash retention bonus to
discourage turnover. Management believes this revised incentive program will be
more effective in improving sales and profitability at the unit level.
CAPTAIN D'S RESTAURANTS -- Comparable restaurant sales declined 1.1% in
1997, and increased 4.0% and 0.7% in 1996 and 1995, respectively, including menu
price increases of 1.0%, 0.9% and 0.5% in 1997, 1996 and 1995, respectively.
Captain D's average sales volume was $780,000 in 1997, $797,000 in 1996 and
$767,500 in 1995. The lower average sales volume in 1997 was the result of the
decline in comparable restaurant sales and the inclusion of 67 lower-volume
Captain D's restaurants acquired from TPI. Management believes that the decline
in comparable restaurant sales at Captain D's is the result of less effective
advertising in 1997 and increased competition. The Company has taken steps to
address the decline in comparable restaurant sales including the introduction of
a new advertising campaign, new promotional menu items, such as "Buffalo" (hot
and spicy) style chicken, fish and shrimp dinners, and the introduction of a new
"Coastal Classics" menu featuring items such as broiled salmon, orange roughy
and flounder dinners in certain markets, and the addition of a "Catfish Feast"
dinner to menus in selected markets. Management believes the upscale "Coastal
Classics" menu, with a higher average check ($5.99
15
<PAGE> 18
and up), has been well received by customers and the Company intends to
introduce the "Coastal Classics" menu in approximately 100 Company-owned Captain
D's restaurants by the end of 1998.
CASUAL DINING -- Revenues of the Company's Casual Dining restaurants
declined to $59.9 million in 1997 from $68.5 million in 1996. The decline in
revenue resulted from the closure and sale of the seven unit BarbWire's chain
during 1997, the sale of one Fifth Quarter restaurant and a decline in
comparable restaurant sales. For 1997, comparable restaurant sales declined 8.9%
at Pargo's and 4.7% at Fifth Quarter restaurants. Comparable restaurant sales
declined in 1996 for Pargo's and Fifth Quarter restaurants by 5.2% and 6.6%,
respectively, and declined by 3.2% in 1995 for both concepts. The decline in
comparable restaurant sales for the Casual Dining Group is the result of
increased competition, a decline in operational execution and significant
management turnover and organizational changes and uncertainty as to the
potential sale of these concepts. The Company intends to retain the concepts and
has hired an experienced casual dining executive as President and Chief
Operating Officer of the Casual Dining Group to improve their performance.
DISTRIBUTION & MANUFACTURING -- Revenues of the distribution and
manufacturing operation declined by approximately $20.8 million in 1997, $5.0
million in 1996, and $24.0 million in 1995. The decline in sales resulted from a
loss of franchised restaurant customers resulting from store closures and
increased competition and a decline in purchases by existing customers resulting
from negative comparable restaurant sales of franchisees. In late 1996, the
Company closed two leased distribution facilities obtained in the acquisition of
TPI and, during 1997, closed the Company's Atlanta distribution facility and has
shifted their distribution activities to the remaining four distribution centers
to increase efficiency.
FRANCHISING -- Franchise revenues declined by $11.7 million in 1997 as
a result of the loss of franchise fees from TPI following the 1996 acquisition
of its 243 franchised Shoney's and Captain D's restaurants, a decline in
comparable restaurant sales of franchisees, fewer franchised restaurants in
operation (excluding TPI) and $5.2 million of nonrecurring franchise revenues
earned in 1996. Franchise revenues increased $2.7 million during 1996 as the
result of $5.2 million of nonrecurring franchise revenues offset by lower
franchise revenues resulting from the acquisition of franchised restaurants,
franchised restaurant closures and a decline in comparable restaurant sales of
franchisees. Franchise revenues declined in 1995 principally as a result of
declines in comparable restaurant sales of franchised Shoney's restaurants and
the closure of franchised restaurants.
OTHER INCOME -- During 1997, other income increased by $2.3 million as
a result of increased gains from asset disposals ($2.9 million), revenues from
an insurance services subsidiary acquired in 1996 ($1.9 million), offset by the
inclusion of a realized gain in 1996 ($2.0 million). Other income increased in
1996 by $6.9 million as a result of increased asset sales ($200,000), additional
interest income ($300,000), and a gain from the sale of investments in ShoLodge
($2.5 million). In addition, the Company had a $3.9 million unrealized loss on
ShoLodge securities in 1995 with no comparable loss in 1996. Other income
declined in 1995 by $10.7 million as a result of an unrealized loss on
investment in ShoLodge ($6.3 million), a decline in asset sales ($1.5 million),
offset by the inclusion of a gain on sale of minority interest during 1994 with
no comparable item in 1995 ($1.7 million).
16
<PAGE> 19
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>
1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Food and supplies 39.0% 40.1% 40.9%
Restaurant labor 26.0 24.6 23.8
Operating expenses 24.1 21.8 22.8
- --------------------------------------------------------------------------------------------------
89.1% 86.5% 87.5%
==================================================================================================
</TABLE>
As compared to restaurant revenues, distribution 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 distribution and manufacturing revenue have an exaggerated effect on
these expenses as a percentage of total revenues. Food and supplies costs as a
percentage of revenues declined by 1.1% in 1997, 0.8% in 1996 and 0.9% in 1995,
principally as a result of the decline in distribution and manufacturing revenue
in each year and the increase in franchise and other revenues in 1996. Food and
supplies compared to restaurant revenues were relatively stable in 1997, 1996
and 1995, averaging approximately 37.0%.
Restaurant labor increased 1.4% and 0.8% as a percentage of total
revenues in 1997 and 1996, respectively, as a result of higher wages, declining
comparable restaurant sales and a decline in distribution and manufacturing
revenues. The Company's hourly employees and tipped servers generally earn wages
in excess of the federal minimum wage. Wage rates increased during 1997 and 1996
as a result of low unemployment conditions in many markets and a very
competitive restaurant labor market. Management plans to control restaurant
labor costs as a percentage of revenue by increasing restaurant average sales
volumes, increasing prices as improvements in food quality are achieved, and
through more effective labor scheduling. Restaurant labor increased 2.0% as a
percentage of revenues in 1995 as a result of increased hours and higher wage
rates, which were not offset by menu price increases during 1995 because of
competitive pressure, and a decrease in distribution and manufacturing revenue.
Operating expenses, as a percentage of total revenues, increased 2.3%
during 1997 as a result of increased operating costs, a decline in comparable
restaurant sales and average sales volumes of the Company's restaurant concepts
and the closure of 75 Company-owned restaurants during 1997. The Company
anticipates continued pressure on restaurant operating margins until meaningful
improvements in comparable restaurant sales are achieved. Operating expenses, as
a percentage of revenues, declined 1.0% during 1996 as a result of a small net
increase in operating expenses offset by increased revenues from restaurants
acquired from TPI, and 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 programs, additional advertising expense from Shoney's
Restaurants' ad campaigns, and an increase in self-insurance reserves and other
accruals.
17
<PAGE> 20
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>
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
General and administrative 6.9% 6.2% 6.1%
Interest expense 3.7% 3.5% 3.8%
</TABLE>
General and administrative expenses, as a percentage of revenues,
increased 0.7%, 0.1% and 0.9% during 1997, 1996, and 1995, respectively, as the
growth in expenses outpaced revenue growth rates. Since 1995, the Company has
experienced significant turnover of corporate management staff resulting in
increased salaries, relocation expenses, consulting and executive search fees
and severance costs. Such costs were $3.0 million, $3.5 million and $7.4 million
in 1997, 1996, and 1995, respectively. Additionally, general and administrative
expenses increased by $5.3 million in 1997 as a result of costs associated with
the settlement of the dissident shareholder proxy contest, increased
professional fees of $1.2 million related to the Company's refinancing of its
senior debt, increased goodwill amortization and expenses of an insurance
services unit acquired in 1996. The increase in general and administrative
expense in 1996 resulted from increased management costs and increased expenses
related to the TPI acquisition including goodwill amortization.
Interest expense increased $7.1 million in 1997 compared to 1996
principally as a result of additional debt and capital lease obligations
incurred in conjunction with the purchase of substantially all of the assets of
TPI in 1996. Interest expense declined by approximately $1.9 million during
1996, principally as a result of lower outstanding debt balances during the
first three quarters of 1996.
The Company refinanced approximately $300.0 million of its senior debt
on December 2, 1997 (see Liquidity and Capital Resources). Interest rates on the
new credit facility are generally 50 to 100 basis points higher than the debt
refinanced. The Company expects the increased costs to be incurred in 1998 as a
result of these higher interest rates will be largely offset by a reduction of
debt outstanding from proceeds from the sale of surplus restaurant properties
and other real estate. The Company incurred debt issue costs of $1.1 million in
the fourth quarter of 1997 to obtain waivers (for its inability to make
principal payments and comply with debt covenants) from its lenders to
facilitate the refinancing. These costs were deferred at the end of 1997, but
will result in additional interest expense in the first quarter of 1998.
Additionally, the Company had unamortized debt issue costs of $2.2 million
deferred at October 26, 1997 related to the debt refinanced, which will result
in an extraordinary loss, net of tax, of approximately $1.4 million, in the
first quarter of 1998.
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 two Fifth Quarter restaurants. The
Company recorded a restructuring expense of $8.0 million, including $6.6 million
to write-down assets to their net realizable value and to accrue future lease
costs, and $1.4 million of other restructuring expenses, consisting principally
of severance costs. Cash payments related to these restructuring expenses were
$353,000, $1,207,000 and $871,000 in 1997, 1996 and 1995, respectively. In
addition, the restructuring liability was reduced by $493,000 as a result of a
change in estimate for certain exit costs.
In the first quarter of 1997, the Company adopted Statement of
Financial Accounting Standards Statement No. 121 - "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" ("SFAS
121") and recorded an asset impairment charge of $17.6 million ($11.2 million
net
18
<PAGE> 21
of taxes) related to its restaurant and surplus properties. During 1997, the
Company experienced a continuing decline in comparable restaurant sales, an
overall decline in profitability, and poor operating performance for the
Shoney's and Captain D's restaurants acquired from TPI. As a result, the Company
reassessed its future cash flow estimates used to evaluate potential asset
impairments under SFAS 121 and recorded an additional asset impairment charge in
the fourth quarter of 1997 of $36.4 million ($24.6 million net of taxes) to
write down certain impaired assets to estimated fair values. The asset
impairment charge for 1997 totaling $54.0 million included $10.5 million to
write off goodwill related to acquired restaurants, which was not deemed to be
recoverable, based on their projected future cash flows.
The following table summarizes the components of pretax income from
continuing operations before noncash asset impairment charges:
<TABLE>
<CAPTION>
($ in millions)
Fiscal Year
----------------------------------------------------------------
1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C>
Restaurants $ 29.8 $ 37.9 $ 48.7
Distribution & Manufacturing 11.2 10.1 . 11.9
Franchising 10.5 21.6 18.0
Other (2.6) 10.3 (19.7)(2)
----------------------------------------------------------------
Total 48.9(1) 79.9 58.9
Interest Expense (45.0) (37.9) (39.8)
----------------------------------------------------------------
$ 3.9 $ 42.0 $ 19.1
================================================================
</TABLE>
(1) Excludes the $54.0 million noncash charge for asset impairment charges
recorded during 1997.
(2) Includes 1995 restructuring charge of $8.0 million.
The Company has provided income taxes for 1997 at an effective tax rate
of 28.7% as compared with 38.4% in 1996. During the third quarter of 1997,
recorded income tax liabilities totaling approximately $26.5 million related to
a 1993 transaction were determined to be no longer appropriate and were
reversed. Approximately $22.5 million of the reduction in tax liability was
credited to additional paid-in capital since the related deferred tax liability
arose from an equity transaction. The remaining $4.0 million decrease in the tax
liability, which represented accrued interest, reduced income tax expense for
1997. Offsetting such reduction was a $5.9 million increase in the Company's
valuation allowance for deferred tax assets resulting from a reassessment of the
realizability of those assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has met its liquidity requirements with cash
provided by operating activities supplemented by external borrowing. Cash
provided by continuing operating activities declined by approximately $21.0
million during 1997 compared with 1996. The net loss from operations of $35.7
million for 1997 was significantly affected by a noncash asset impairment charge
of $54.0 million ($35.8 million net of taxes). Cash provided by continuing
operating activities increased as a result of higher levels of depreciation,
noncash interest expense and other noncash charges and was reduced by a decline
in deferred income taxes and the change in operating assets and liabilities.
Operating cash flow from continuing operations declined by $10.1 million in 1996
as compared to 1995, principally as a result of a decline in the profitability
of the Company's Shoney's Restaurants and an increase in other income in 1996,
partially offset by the effect of nonrecurring restructuring expenses incurred
in 1995. During 1995 the
19
<PAGE> 22
Company's cash flow from continuing operations decreased $22.2 million as
compared to 1994 principally as a result of a $25.0 million decline in the
operating earnings of the Company's Shoney's Restaurants and additional expenses
incurred in connection with a restructuring and performance improvement program.
Cash used by investing activities during 1997 totaled $5.4 million
compared to $55.6 million in 1996. The Company received $51.3 million in
proceeds from the sale of a discontinued operation (Mike Rose Foods, Inc.)
during 1996 with no comparable amount in 1997. This decrease in cash flow, as
compared with 1996, was offset by a decrease in capital spending for property,
plant and equipment and goodwill arising from franchise acquisitions, and an
increase in proceeds from property disposals. Cash used by investing activities
in 1996 totaled $55.6 million and included $119.2 million used to acquire
property, plant and equipment, franchised restaurants and substantially all of
the assets of TPI. 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. Cash used by investing activities in 1995 was $37.7
million. The divestiture of its Lee's Famous Recipe division ("Lee's") generated
$19.4 million of cash in 1995, substantially all of which was utilized to reduce
debt.
During 1997, the Company's cash used by financing activities was $66.1
million compared with $27.7 million in 1996. Significant 1997 financing
activities included payments to reduce debt and capital lease obligations of
$39.8 million, scheduled payments of $22.6 million on the Company's litigation
settlement liability and net reduction in short-term borrowings of $2.1 million.
The Company will pay the final litigation settlement payment of $15.7 million by
March 1998, and future cash flow will be favorably affected. During 1996, the
Company borrowed $100.0 million under a senior secured bridge loan ("Bridge
Loan") to provide working capital and a source of financing for the acquisition
of the assets of TPI. Approximately $43.0 million of the Bridge Loan proceeds
were used to retire indebtedness of TPI and the remainder was used to reduce
debt and to provide working capital. The Company also made payments of $23.2
million on its litigation settlement liability in 1996. During 1995, the Company
retired $60.0 million of its senior fixed rate debt and reduced the amount
outstanding under its reducing revolving credit facility (the "Revolver") by
approximately $17.0 million utilizing cash provided by the sale of Lee's and
$28.0 million in proceeds from the issuance of senior variable rate debt.
The Company had $135.0 million outstanding under the Revolver at
October 26, 1997 and had approximately $14.5 million in letters of credit which
also were supported by the Revolver. The maximum amount available under the
Revolver at the end of the third quarter was $159.6 million and was scheduled to
be reduced by $30.0 million and $37.5 million on October 22, 1997 and April 22,
1998, respectively. Under the terms of the credit agreement, the Company would
have been required to repay $19.9 million on October 22, 1997 to reduce the
outstanding revolver balance (including letters of credit) to the scheduled
maximum of $129.6 million. In addition, the Company had a mortgage financing of
$17.4 million due on November 1, 1997. Based on the Company's operating results
during the first three quarters of 1997 and expected operating results for the
fourth quarter, including the expenses incurred in connection with the proxy
contest, the Company's cash flow from operations, supplemented by its available
unused line of credit, were insufficient to permit the Company to fund the
scheduled payments. In addition, management did not expect to be in compliance
with certain financial covenants in its credit agreements at the end of 1997,
which together with the Company's inability to fund the scheduled principal
payment due during the fourth quarter would have placed the Company in default
under its credit agreements.
As a result of the foregoing issues, during the fourth quarter of 1997,
the Company obtained a firm commitment from NationsBank, N.A. to refinance
certain existing debt obligations. The Company obtained waivers from its lenders
for the payments of $19.9 million and $17.4 million due in October and
20
<PAGE> 23
November 1997, respectively, until December 15, 1997, by which date the
refinancing was expected to have been completed. The lenders also waived, until
December 15, 1997, the Company's anticipated non-compliance with its debt
covenants for the year ended October 26, 1997. The Company closed the
refinancing on December 2, 1997. The new $375.0 million credit facility consists
of a $75.0 million revolving line of credit (the "1997 Revolver") and two term
notes of $100.0 million and $200.0 million, respectively, due in 2002. The term
notes replace the Revolver, Bridge Loan, and a series of mortgage financings.
The new term facilities and 1997 Revolver provide the Company with additional
liquidity and a debt amortization schedule which supports the Company's business
improvement plans. Based upon its commitment letter and waivers from its lending
banks, the Company classified the amounts due under the Revolver, Bridge Loan
and mortgage financings subsequently refinanced as long-term at October 26,
1997.
During the first quarter of 1997, the Company elected to close
approximately 82 under-performing Shoney's restaurants, of which 54 had been
closed and 21 had been sold, leased, or had the leases terminated as of October
26, 1997. The Company is marketing these properties and leasehold interests and
is required to apply all proceeds to reduce senior bank debt. In the first
quarter of 1997, the Company also identified additional Shoney's Restaurants
which have been given increased supervisory management attention in an effort to
improve their financial performance. At October 26, 1997, there were 72 of these
restaurants in operation which had 1997 revenues of $79.9 million, a loss before
interest and taxes of $6.8 million, and a carrying value of $19.6 million at
October 26, 1997. During the first and second quarters of 1998, management plans
to reassess the performance of these restaurants and, for those units which have
limited improvement potential, will consider the closure and the sale or
sublease of such properties to generate additional cash flow to reduce debt. To
the extent the Company determines to close such restaurants which are leased,
the Company will incur additional expense charges in 1998 related to the accrual
of lease costs for the unexpired lease terms. The Company also has approximately
93 surplus and rental properties which are being marketed and the proceeds from
such sales will be used to reduce debt.
The Company utilizes its net cash flow principally for capital
expenditures for the construction, acquisition, and remodeling of its
restaurants and for its distribution and manufacturing operation, the reduction
of debt and for the payment of its litigation settlement (see Note 12 to the
consolidated financial statements). Capital expenditures for 1997 were
originally budgeted for $65.0 million; however, in light of the Company's
negative comparable store sales trends and poor operating performance, such
expenditures were reduced to $40.2 million. The reduction in capital spending
was achieved by postponement of restaurant construction, reductions in
maintenance capital expenditures and postponement of restaurant remodeling.
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 has planned capital expenditures for 1998 of $35.0
million, the maximum amount permitted under its new credit agreement. The
Company does not plan to build new restaurants during 1998 and will focus its
capital expenditures on improvements to existing operations. Budgeted capital
expenditures for 1998 include $16.6 million for remodeling and refurbishment of
restaurants, $10.1 million for capitalizable maintenance, and $8.3 million for
other assets.
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 and places limitations on its ability
to incur additional indebtedness. The Company believes that it can meet its
needs for debt service, capital expenditures, the litigation settlement and
other general corporate purposes for the next twelve months
21
<PAGE> 24
through cash generated by the Company's operations, the sale of assets and the
1997 Revolver. The Company's new credit facility has a debt amortization
schedule that defers, until the latter part of the term of the credit facility,
significant debt repayments for the $200.0 million term loan due in 2002. In
addition, $51.6 million principal amount of the Company's 8.25% subordinated
convertible debentures mature in 2002, resulting in scheduled debt payments in
that year of approximately $271.0 million. The Company currently believes its
cash flow from operations and from proceeds from asset sales of surplus
restaurants, land and certain rental properties will be sufficient to reduce its
debt balances under the new credit facility in excess of amounts required by the
credit agreement. As a result, the Company expects its debt due in 2002 to be
substantially less than $271.0 million and plans to refinance a portion of its
long term debt prior to 2002. Management's plans are predicated on modest
improvements in operating performance of its Shoney's and Captain D's
restaurants which it believes to be conservative. However, if performance of the
Company's Shoney's Restaurants does not improve, its cash flow would be
negatively affected, and it may experience difficulty in refinancing its debt in
the future. In such an event, management believes the Company can meet its needs
for liquidity from the sale of other operating assets.
At October 26, 1997, the Company had cash and cash equivalents of
approximately $11.9 million and had an available secured line of credit totaling
$20.0 million with an interest rate of 8.5%. This $20.0 million secured line of
credit was terminated in conjunction with the refinancing of the Company's
senior debt on December 2, 1997 and was replaced by the 1997 Revolver, of which
$24.2 million of availability has been used to support letters of credit as of
January 23, 1998.
RISK FACTORS
The Company's business is highly competitive with respect to food
quality, concept, location, service and price. In addition, there are a number
of well-established food service competitors with substantially greater
financial and other resources compared to the Company. The Company's Shoney's
Restaurants have experienced declining customer traffic during the past five
years as a result of intense competition and a decline in operational execution,
food quality and service standards. The Company has initiated a number of
programs to address the decline in customer traffic; however, performance
improvement efforts for the Shoney's Restaurants during the past three years
have not resulted in improvements in sales and margins and there can be no
assurance that the current programs will be successful. The Company has
experienced increased costs for labor and operating expenses at its restaurant
concepts, which coupled with a decrease in average restaurant sales volumes, has
reduced its operating margins. The Company does not expect to be able to
significantly improve operating margins until it can increase its comparable
restaurant sales and restaurant average sales volumes.
The Company is highly leveraged and, under the terms of its credit
agreements, generally is not permitted to incur additional debt and its annual
capital expenditures are limited to $35.0 million. The Company has recently
completed a $375.0 million refinancing of its senior debt. The interest rates
for the new debt agreements are higher than those for the debt refinanced, and
may result in increased interest costs. Management believes that planned asset
sales will permit a reduction in total debt outstanding and should reduce the
impact of the higher interest rates. However, there is no assurance that such
asset sales will occur as quickly as management anticipates or that actual sales
proceeds will correspond to management's estimates. Management believes the
annual capital expenditures permitted under the new credit agreement will be
sufficient for the execution of its business plan, however, the restrictions on
capital spending will cause delay in the implementation of certain improvement
initiatives.
In the past five years, the Company has had significant turnover of its
senior management. In August 1997, the Company settled a dissident shareholder
proxy contest that had sought to replace the
22
<PAGE> 25
Company's Board of Directors. These changes have resulted in disruption to its
business operations, increased costs for executive recruitment, relocation,
salaries and severance costs. In November 1997, the Company's Board of Directors
appointed J. Michael Bodnar as CEO and President. Mr. Bodnar had been named to
the Company's Board in August 1997 in connection with the settlement of the
proxy contest.
Since 1995, the Company has closed a number of under-performing
restaurants and has identified certain additional under-performing restaurants
that it may close in the future. Management plans to sell or lease these
restaurant properties and will be required to utilize the proceeds to reduce its
indebtedness. These restaurants are not profitable and generally have negative
cash flow so that their closure and sale are expected to have a positive effect
on profitability and cash flow in future periods. However, in the event
management elects to close additional restaurants during 1998, the Company may
incur additional expense charges for lease termination costs.
As more fully discussed in Note 13 and Note 15 to the consolidated
financial statements, the Company is a defendant in three lawsuits, two of which
have been provisionally certified as class actions, which allege that the
Company violated certain provisions of the Fair Labor Standards Act. Discovery
is proceeding in two cases but is in a preliminary stage. The third case was
filed in December 1997 (subsequent to the Company's year end) and discovery in
that case has not yet commenced. Management believes that it has substantial
defenses to the claims made and intends to vigorously defend these cases.
However, neither the likelihood of an unfavorable outcome nor the amount of
ultimate liability, if any, with respect to these cases can currently be
determined and, accordingly, no provision for any potential liability has been
accrued in the financial statements. In the event of an unfavorable outcome in
these cases resulting in a material award for the plaintiffs, the Company's
financial position, results of operations and liquidity could be adversely
affected.
IMPACT OF THE YEAR 2000
The Company has completed an assessment of its Year 2000 information
systems compliance issues and has begun implementation of a plan to ensure its
systems are fully Year 2000 compliant. Management believes that the Company has
resolved its material Year 2000 compliance issues, and the cost of such
compliance has not had a material impact on the Company's results of operations.
23
<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 25 through 52 of this Annual Report on Form 10-K.
REPORT OF ERNST & YOUNG LLP
Independent Auditors
Shareholders and Board of Directors
Shoney's, Inc.
We have audited the accompanying consolidated balance sheets of
Shoney's, Inc. and subsidiaries as of October 26, 1997 and October 27, 1996, and
the related consolidated statements of operations, shareholders' equity
(deficit) and cash flows for each of the three fiscal years in the period ended
October 26, 1997. 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 26, 1997 and October 27, 1996, and
the consolidated results of their operations and their cash flows for each of
the three fiscal years in the period ended October 26, 1997, 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 4 to the consolidated financial statements, the
Company changed its method of accounting for impairment of long-lived assets
and for long-lived assets to be disposed of in the year ended October 26, 1997.
Nashville, Tennessee
December 18, 1997 /S/ ERNST & YOUNG LLP
24
<PAGE> 27
CONSOLIDATED BALANCE SHEET
Shoney's, Inc. and Subsidiaries
<TABLE>
<CAPTION>
October 26 October 27
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 11,851,223 $ 13,968,882
Notes and accounts receivable, less allowance for doubtful
accounts of $1,596,000 in 1997 and $1,504,000 in 1996 11,611,369 13,012,160
Inventories 38,382,843 44,248,060
Deferred income taxes 38,835,385 31,452,866
Prepaid expenses and other current assets 4,840,539 7,043,292
Net property, plant and equipment held for sale 28,021,259 16,605,300
------------- -------------
Total current assets 133,542,618 126,330,560
Property, plant and equipment, at cost
Land 134,119,937 151,195,879
Buildings 254,888,645 275,480,650
Buildings under capital leases 24,803,349 31,823,471
Restaurant and other equipment 281,930,600 301,694,457
Leasehold improvements 70,277,951 82,185,859
Rental properties 20,818,708 19,470,919
Construction in progress (estimated cost to complete:
$971,000 in 1997 and $1,706,000 in 1996) 3,237,014 3,299,090
------------- -------------
790,076,204 865,150,325
Less accumulated depreciation and amortization (343,645,369) (317,243,085)
------------- -------------
Net property, plant and equipment 446,430,835 547,907,240
Other assets
Goodwill (net of accumulated amortization of $3,230,000 in 1997
and $622,000 in 1996) 47,803,815 57,021,411
Deferred charges and other intangible assets 5,889,044 7,289,488
Other 11,022,447 8,532,742
------------- -------------
Total other assets 64,715,306 72,843,641
------------- -------------
$ 644,688,759 $ 747,081,441
============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
25
<PAGE> 28
CONSOLIDATED BALANCE SHEET
Shoney's, Inc. and Subsidiaries
<TABLE>
<CAPTION>
October 26 October 27
1997 1996
------------- -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 34,156,943 $ 44,746,056
Federal and state income taxes 112,319 3,614,019
Taxes other than income taxes 13,343,991 13,219,277
Employee compensation and related items 62,026,864 58,898,844
Accrued interest expense 2,708,585 4,282,462
Other accrued liabilities 32,422,225 33,893,526
Reserve for litigation settlement due within one year 16,010,297 22,887,523
Debt and capital lease obligations due within one year 10,997,069 33,823,795
------------- -------------
Total current liabilities 171,778,293 215,365,502
Long-term debt 443,284,483 450,846,359
Obligations under capital leases 22,754,134 25,693,916
Reserve for litigation settlement 294,672 16,000,000
Deferred credits
Income taxes 17,923,295
Income and other liabilities 18,922,137 20,724,789
------------- -------------
Total deferred credits 18,922,137 38,648,084
Commitments and contingencies
Shareholders' equity (deficit)
Common stock, $1 par value: 200,000,000 shares authorized;
issued and outstanding 48,568,109 in 1997 and 48,458,231 in 1996 48,568,109 48,458,231
Additional paid-in capital 136,861,158 113,889,253
Accumulated deficit (197,774,227) (162,063,385)
Unrealized gain on securities available for sale 243,481
------------- -------------
Total shareholders' equity (deficit) (12,344,960) 527,580
------------- ------------
$ 644,688,759 $ 747,081,441
============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
26
<PAGE> 29
CONSOLIDATED STATEMENT OF OPERATIONS
Shoney's, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years Ended
---------------------------------------------------------
October 26 October 27 October 29
1997 1996 1995
--------------- -------------- ---------------
<S> <C> <C> <C>
Revenues
Net sales $ 1,202,755,479 $1,066,049,153 $ 1,029,314,432
Franchise fees 14,921,918 26,615,679 23,886,704
Other income 9,398,968 7,076,957 131,284
--------------- -------------- ---------------
Total revenues 1,227,076,365 1,099,741,789 1,053,332,420
Costs and expenses
Cost of sales
Food and supplies 478,673,418 440,500,493 430,990,408
Restaurant labor 319,367,035 270,138,654 251,196,828
Operating expenses 295,748,837 240,926,289 240,357,620
--------------- -------------- ---------------
1,093,789,290 951,565,436 922,544,856
General and administrative expenses 84,401,341 68,226,580 63,904,769
Impairment of long-lived assets 53,967,244
Interest expense 45,015,794 37,950,879 39,815,887
Restructuring expense 7,991,539
--------------- -------------- ---------------
Total costs and expenses 1,277,173,669 1,057,742,895 1,034,257,051
--------------- -------------- ---------------
Income (loss) from continuing operations
before income taxes (50,097,304) 41,998,894 19,075,369
Provision for (benefit from) income taxes
Current (4,000,000) 7,315,000 9,087,000
Deferred (10,386,462) 8,638,000 (1,214,000)
--------------- -------------- ---------------
Total income taxes (14,386,462) 15,953,000 7,873,000
Income (loss) from continuing operations (35,710,842) 26,045,894 11,202,369
Discontinued operations, net of income taxes 397,816 8,136,588
Gain on sale of discontinued operations, net of
income taxes 22,080,375 5,532,748
--------------- -------------- ---------------
Net income (loss) $ (35,710,842) $ 48,524,085 $ 24,871,705
=============== ============== ===============
Earnings (loss) per common share
Primary:
Income (loss) from continuing operations $ (0.74) $ 0.61 $ 0.27
Discontinued operations, net of income taxes 0.01 0.20
Gain on sale of discontinued operations,
net of income taxes 0.52 0.13
--------------- -------------- ---------------
Net income $ (0.74) $ 1.14 $ 0.60
=============== ============== ===============
Fully diluted:
Income (loss) from continuing operations $ (0.74) $ 0.64 $ 0.27
Discontinued operations, net of income taxes 0.01 0.20
Gain on sale of discontinued operations,
net of income taxes 0.45 0.13
--------------- -------------- ---------------
Net income (loss) $ (0.74) $ 1.10 $ 0.60
=============== ============== ===============
Weighted average shares outstanding
Primary 48,539,573 42,678,497 41,519,116
Fully diluted 48,539,573 48,265,829 41,519,116
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
27
<PAGE> 30
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 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 1,098,411 1,260,869
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 198,569 198,569
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
Net income (35,710,842) (35,710,842)
Tax benefits related to
compensation plans 10,638 10,638
Distributions pursuant to
employee stock option and
stock benefit plans 109,878 471,014 580,892
Reversal of deferred tax liability 22,501,840 22,501,840
Compensation related to grant
of restricted shares
of common stock (11,587) (11,587)
Change in unrealized gain on
securities available for sale (243,481) (243,481)
----------- ------------- -------- ------------- -------------
Balances at October 26, 1997 $48,568,109 $ 136,861,158 $ 0 $(197,774,227) $ (12,344,960)
=========== ============= ======== ============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
28
<PAGE> 31
CONSOLIDATED STATEMENT OF CASH FLOWS
Shoney's, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------------
October 26 October 27 October 29
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ (35,710,842) $ 48,524,085 $ 24,871,705
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Income from discontinued operations, net of taxes (397,816) (8,136,588)
Gain on sale of discontinued operations, net of taxes (22,080,375) (5,532,748)
Depreciation and amortization 53,857,415 46,351,634 42,798,547
Interest expense on subordinated zero coupon
convertible debt and other noncash charges 15,588,438 10,985,921 13,060,911
Deferred income taxes (10,386,462) 8,691,000 (2,981,000)
(Gain) Loss on disposal of property, plant and equipment (2,269,793) 93,000 2,111,756
Realized and unrealized losses on
marketable equity securities and other assets 3,886,905
Restructuring expense, noncash portion 7,120,236
Impairment of long-lived assets 53,967,244
Changes in operating assets and liabilities:
Notes and accounts receivable 1,799,103 2,557,721 3,857,523
Inventories 5,865,217 (3,441,744) 4,303,725
Prepaid expenses 1,959,272 13,843 20,535
Accounts payable (10,660,082) 13,265,352 (1,998,856)
Accrued expenses 621,144 5,421,151 12,730,523
Federal and state income taxes (3,491,062) (17,904,149) 3,993,174
Deferred income and other liabilities (1,802,652) (1,736,308) 314,778
------------- ------------- -------------
Net cash provided by continuing operating activities 69,336,940 90,343,315 100,421,126
Net cash (used) provided by discontinued operating activities (655,622) 13,373,104
------------- ------------- -------------
Net cash provided by operating activities 69,336,940 89,687,693 113,794,230
Investing activities
Purchases of property, plant and equipment (40,205,993) (69,658,547) (58,254,507)
Purchases of assets held for sale (2,403,362)
Purchase of TPI assets, net of cash acquired (42,842,647)
Proceeds from disposal of discontinued operations 51,279,601 19,424,015
Proceeds from disposal of property, plant
and equipment 35,220,651 12,375,718 4,327,995
(Increase) in other assets (409,322) (6,716,860) (763,647)
------------- ------------- -------------
Net cash used in investing activities (5,394,664) (55,562,735) (37,669,506)
Financing activities
Proceeds from long-term debt 484,390 127,335,626 78,000,000
Payments on long-term debt and capital lease obligations (39,829,540) (122,077,514) (132,259,604)
Proceeds from line of credit and short-term debt 192,535,000 224,914,000 162,338,000
Payments on line of credit and short-term debt (194,667,000) (231,824,508) (157,129,000)
Exercise of employee stock options 155,717 578,002 1,797,973
Payments on litigation settlement (22,582,554) (23,212,800) (23,377,347)
Payments for debt issue costs (2,155,948) (3,382,470) (2,210,942)
------------- ------------- -------------
Net cash used by financing activities (66,059,935) (27,669,664) (72,840,920)
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents (2,117,659) 6,455,294 3,283,804
Cash and cash equivalents at beginning of year 13,968,882 7,513,588 4,229,784
------------- ------------- -------------
Cash and cash equivalents at end of year $ 11,851,223 $ 13,968,882 $ 7,513,588
============= ============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
29
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shoney's, Inc. and Subsidiaries
October 26, 1997, October 27, 1996 and October 29, 1995
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 1997 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.
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 estimates of future cash flows,
excluding interest costs, with the carrying value of goodwill.
IMPAIRMENT OF LONG-LIVED ASSETS -- In the first quarter of 1997, the Company
adopted Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long- Lived Assets to be Disposed Of" ("SFAS
121"). SFAS 121 requires periodic assessment of certain long-lived assets for
possible impairment when events or circumstances indicate that the carrying
amounts may not be recoverable. Long-lived assets are grouped and evaluated for
impairment at the lowest level for which there are identifiable cash flows that
are independent of the cash flows of other groups of assets. The Company
evaluates cash flows for individual restaurants. If it is determined that the
carrying amounts of such long-lived assets are not recoverable, the assets are
written down to their fair value. The Company estimates fair value based on
discounted estimated future cash flows or sales prices of comparable assets.
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 revenues when the restaurants begin operations and the cash payment
has been received. Franchise fees based on sales of franchisees are accrued as
earned.
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
30
<PAGE> 33
restaurant opens. These costs are capitalized and then amortized from the
opening date over a period not to exceed one year.
MARKETABLE SECURITIES -- The Company's marketable securities are categorized as
available for sale securities, as defined by Statement of Financial Accounting
Standards No.115 "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"). Unrealized holding gains and losses are reflected as a
net amount in a separate component of shareholders' equity until realized. The
Company uses the average cost method for purposes of determining realized gains
and losses on the sale of investment securities.
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 $45.0 million, $31.9 million and $30.3 million in 1997,
1996 and 1995, respectively.
FISCAL YEAR -- The Company's fiscal year ends on the last Sunday in October.
Fiscal years 1997, 1996 and 1995 were comprised of 52 weeks.
BUSINESS SEGMENTS -- The Company's restaurant operations constitute a dominant
segment in accordance with Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise."
STOCK-BASED COMPENSATION -- The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations in accounting for its stock-based
compensation plans. Under APB 25, because the Company generally grants stock
under its stock-based compensation plans at an exercise price equal to the fair
value of the shares at the date of grant, no material compensation expense is
recorded. The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No.123 "Accounting for Stock-Based Compensation"
("SFAS 123"), (see Note 9).
EARNINGS PER SHARE -- Primary net income (loss) per share for 1997, 1996 and
1995 has been computed using the weighted average number of shares of common
stock and common stock equivalents outstanding (when dilutive) 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 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 1997 and
1995 fully diluted earnings per share computations exclude the effect of the
assumed conversion of the debentures because it had an anti-dilutive effect.
FAIR VALUES OF FINANCIAL INSTRUMENTS -- The following methods and assumptions
were used by the Company in estimating its fair value disclosures for financial
instruments:
Cash and cash equivalents: The carrying amount reported in the balance sheet for
cash and cash equivalents approximates fair value.
Long-term debt: The carrying amounts of the Company's borrowings under its
senior debt-reducing revolving credit facility, senior debt-taxable variable
rate notes, bridge loan, and other senior debt with
31
<PAGE> 34
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.
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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS -- In February 1997, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standard No.128 ("SFAS 128") "Earnings per Share" which supersedes Accounting
Principles Board Opinion 15 ("APB 15") "Earnings per Share." SFAS 128 was issued
to simplify the computation of earnings per share ("EPS") by replacing Primary
EPS, which considers common shares and common stock equivalents in its
denominator, with Basic EPS, which considers only the weighted average common
shares outstanding. SFAS 128 also replaces Fully Diluted EPS with Diluted EPS,
which considers all securities that are exercisable or convertible into common
stock and which would either dilute or not effect Basic EPS. SFAS 128 is
effective for both interim and annual periods ending after December 15, 1997 and
early adoption is not permitted. Therefore, the Company will adopt this new
standard during fiscal 1998. The Company does not believe that the adoption of
SFAS 128 will have a material impact on reported earnings per share.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No.130 ("SFAS 130") "Reporting Comprehensive
Income." SFAS 130 requires that companies report comprehensive income in either
the Statement of Shareholders' Equity or in the Statement of Operations.
Comprehensive income is the change in shareholders' equity from nonowner
sources. Comprehensive income includes all changes in equity during a period
except those resulting from investments by owners and distributions to owners.
SFAS 130 is effective for fiscal years beginning after December 15, 1997. The
Company plans to adopt SFAS 130 in fiscal 1999 and does not anticipate its
adoption to have a material impact on the presentation of the financial position
or results of operations of the Company.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No.131 ("SFAS 131") "Disclosures about Segments of
an Enterprise and Related Information." SFAS 131, which supersedes Statement of
Financial Accounting Standards No.14 "Financial Reporting for Segments of a
Business Enterprise," changes financial reporting requirements for business
segments from an Industry Segment approach to an Operating Segment approach.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision-maker in deciding how to allocate resources and in assessing
performance. SFAS 131 is effective for fiscal years beginning after December 15,
1997; therefore the Company plans to adopt its provisions in fiscal 1999.
SFAS 131 will require the Company to provide disclosures regarding its segments
which it has not previously been required to provide. The disclosures include
certain financial and qualitative data about its operating segments. Management
is unable at this time to assess whether adding this disclosure will have a
material effect upon a reader's assessment of the financial performance and the
financial condition of the Company.
32
<PAGE> 35
RISKS AND UNCERTAINTIES -- The Company operates and franchises a chain of 1,387
restaurants in 34 states, which consists of three restaurant divisions: Shoney's
Restaurants, Captain D's, and a Casual Dining Group (which includes two distinct
restaurant concepts). The Company also operates a distribution 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 of $164.4 million consisted 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 indebtedness under TPI's 8.25% convertible
subordinated debentures, the assumption or satisfaction of TPI's outstanding
debt of approximately $59.1 million and transaction costs of $3.0 million net of
cash acquired of $3.7 million. The Company borrowed $100.0 million under a
bridge loan to finance the acquisition and to provide additional working capital
for the Company. Approximately $43.0 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. During 1997, the Company
adjusted its preliminary estimate of goodwill by $4.2 million relating to a
revised estimate of deferred tax assets. In addition, the Company wrote off
approximately $7.0 million in goodwill associated with the TPI acquisition in
conjunction with its impaired asset analysis (see Note 4).
33
<PAGE> 36
The following unaudited pro forma 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 pro forma
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 from continuing operations $ 14,713 $ 9,073
Net income $ 37,191 $ 22,743
Earnings per common share (fully diluted)
Continuing operations $ 0.30 $ 0.19
Net income $ 0.76 $ 0.47
</TABLE>
As of October 26, 1997, the Company has closed 30 of the acquired Shoney's
Restaurants, two distribution facilities that had provided TPI's restaurants
with food and supplies, and the former TPI corporate headquarters in West Palm
Beach, Florida. The Company closed 21 of the acquired Shoney's Restaurants
during 1997 and plans to close an additional 7 of the acquired Shoney's
Restaurants. The majority of these restaurants had been targeted for closure
during the Company's due diligence process as under-performing units. Costs to
exit these businesses were accrued as liabilities assumed in the purchase
accounting and consisted principally of severance pay for certain employees, 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 $21.0 million. During 1997,
approximately $4.5 million in costs were charged to this liability including
approximately $1.9 million in costs to exit restaurants acquired, and $2.6
million in severance costs and lease payments on the former TPI corporate
headquarters. Approximately $2.5 million in costs were charged to this liability
during 1996. The Company plans to dispose of the owned property and equipment
either by sale or lease. For leased property and equipment, the Company will
seek to terminate the leases or to enter into subleases or lease assignments
covering the remaining term of the leases. During the second quarter of 1997,
the TPI corporate office lease was terminated upon its assumption by a new
tenant and one of the TPI commissaries was subleased to a new tenant.
The Company acquired four franchised restaurants during 1997, each of which was
accounted for as a purchase for an aggregate purchase price of $3.6 million. In
addition to restaurants acquired from TPI, the Company acquired 18 franchised
restaurants during 1996 for 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. Pro forma results of operations have not been presented because the
effect of these acquisitions was not material.
NOTE 3 - DISCONTINUED OPERATIONS AND RESTRUCTURING
In January 1995, the Company's Board of Directors announced a reorganization
designed to improve the performance and growth of the Shoney's Restaurant
concept. The reorganization included the decision to divest certain non-core
lines of business including Lee's Famous Recipe, Pargo's and Fifth Quarter
restaurants, as well as Mike Rose Foods, Inc. ("MRF"), a private label
manufacturer of food products.
34
<PAGE> 37
In July 1995, the Company announced a change in its divestiture plan whereby it
would retain its Pargo's and Fifth Quarter restaurants.
The Company sold its Lee's Famous Recipe restaurants in October 1995 to RTM
Restaurant Group for $24.5 million cash and a $4.0 million promissory note,
resulting in a gain of $5.5 million, net of tax. The promissory note is due in
monthly installments over five years, is guaranteed by RTM, Inc., and is further
secured by perfected security interests in the Lee's Famous Recipe trademarks
and in the franchise license agreements of Lee's Famous Recipe. The sale of MRF
was completed in November 1995 for $55.0 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. These discontinued lines of
business had revenues of $86.7 million and earnings before interest and taxes of
$13.1 million for fiscal 1995.
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 two
Fifth Quarters). Seven of these units are still owned or leased and are being
actively marketed by the Company. The Company accrued approximately $6.6 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 accrued
severance costs related to the restructuring of $1.4 million. Amounts charged to
these liabilities were approximately $353,000, $1,207,000 and $871,000 in 1997,
1996 and 1995, respectively. In addition, during 1997, the restructuring
liability was reduced by $493,000 as a result of a change in estimate for
certain exit costs.
NOTE 4 - IMPAIRMENT OF LONG-LIVED ASSETS AND ASSETS HELD FOR DISPOSAL
The Company adopted Statement of Financial Accounting Standards No.121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), in the first quarter of 1997. Based on a review of
the Company's restaurants which had incurred operating losses or had negative
cash flow during 1996 and a review of the cash flow of rental properties, the
Company determined that certain of its restaurant assets and rental properties
were impaired. Management's projections of the expected future undiscounted cash
flows from these restaurants indicated that such cash flows were insufficient to
recover the asset carrying value; therefore, such carrying values were written
down to fair value. Under SFAS 121, the potential impairment evaluation is made
on an individual restaurant basis and involves considerable management judgment
as to the expected future sales and profitability of each individual restaurant.
Actual results of these restaurants are likely to differ from management's
estimates.
The charge related to the initial adoption of SFAS 121 was $17.6 million ($11.2
million net of taxes). Approximately $11.2 million of the asset impairment write
down related to properties that were held for disposal and approximately $6.4
million related to assets to be held and used in the Company's operations.
During the fourth quarter of 1997, based on the Company's continuing declines in
comparable restaurant sales, an overall decline in its restaurant profitability,
and the poor performance of restaurants acquired from TPI in late 1996, the
Company reassessed its future cash flow estimates utilized to evaluate potential
35
<PAGE> 38
asset impairments under SFAS 121. As a result, the Company recorded an
additional impairment loss of $36.4 million ($24.6 million net of taxes), of
which $33.1 million was related to assets held and used in the Company's
operations and $3.3 million was related to assets that are held for disposal.
During 1997, the Company identified approximately 55 under-performing
restaurants which it intended to close and sell the underlying assets and use
the net proceeds to reduce the Company's bank debt. At October 26, 1997, five of
these restaurants continue to be operated as a result of lease restrictions that
prohibit closure of the units until suitable new tenants are secured, 17
properties had been sold, subleased or had the lease terminated, and 38
properties (including the five operating units) are being actively marketed. For
fiscal 1997, the five operating restaurants in this group had revenues of $4.3
million and reported operating losses before interest and taxes of approximately
$645,000 and had negative cash flow of $326,000. In addition to the properties
previously discussed, the Company had available for future sale certain surplus
properties and rental properties, most of which are former restaurant sites or
land acquired for future expansion. The carrying value of these properties was
approximately $28.0 million which has been reflected on the balance sheet as net
assets held for disposal. Under the provisions of SFAS 121, depreciation and
amortization are not recorded during the period in which assets are being held
for disposal.
NOTE 5 - INVESTMENTS IN SHOLODGE
During 1997 and 1996, the Company owned common shares and (during 1996) warrants
to acquire additional common stock of ShoLodge, Inc. ("ShoLodge"), a Company
which had acquired the Company's Shoney's Inn motel chain in 1991. The Company
disposed of all its investment in common stock of ShoLodge during 1997. Proceeds
from sales of shares of ShoLodge common stock during 1997 and 1996 were $500,000
and $1.1 million, respectively, resulting in realized gross gains of $200,000
and $500,000, respectively. During 1996, the Company sold its ShoLodge common
stock warrants for $2.0 million, which was equal to the unrealized gain on the
sale of these securities based on the difference in the fair market value of
ShoLodge common stock and the exercise price of the warrants.
During 1995, the Company held common stock and warrants to acquire common stock
of ShoLodge, which were classified as trading securities under SFAS 115. Changes
in the fair market value of these securities were recorded as a component of
income from continuing operations in accordance with SFAS 115. Accordingly,
approximately $2.4 million in unrealized losses are reflected as a charge to
earnings in 1995. Under the terms of supplemental guidance on SFAS 115 issued in
November 1995, the Company reclassified its ShoLodge common shares and warrants,
for which it had registration rights within one year, from "trading securities"
to "securities available for sale" during the first quarter of 1996. 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 separate
component of shareholders' equity. At October 27, 1996, the Company owned 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 the Company's ShoLodge common
stock warrants during 1996, the Company agreed to accept payment of $5.2 million
from ShoLodge to terminate future royalty license fees owed to the Company
related to the operation and franchising of Shoney's Inns by ShoLodge. The
payment represented the present value of the estimated future license fees to
have been received by
36
<PAGE> 39
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 6 - 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 $2,156,000,
$3,382,000, and $2,211,000 relating to various financings during 1997, 1996 and
1995, respectively, have been paid and deferred. Amortization of debt issue
costs during 1997, 1996 and 1995 was $ 3,441,000, $2,956,000, and $2,215,000
respectively. Debt issue costs of $1.1 million were incurred during the fourth
quarter of 1997 to obtain various waivers of payments and financial covenants to
facilitate the Company's refinancing (see Note 15) and were deferred at October
26, 1997. These debt issue costs will be charged to expense in the first quarter
of 1998. The Company had unamortized debt issue costs deferred at October 26,
1997 totaling $2.2 million related to debt refinanced on December 2, 1997, which
will result in an extraordinary loss, net of tax, totaling approximately $1.4
million in the first quarter of 1998.
NOTE 7 - INCOME TAXES
The components of the Company's deferred tax assets and liabilities as of
October 26, 1997 and October 27, 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Reserve for lawsuit settlement $ 6,236,651 $14,874,478
Reserve for self insurance 21,614,138 20,142,213
Reserve for restructuring 4,964,291 6,022,886
Amortization of intangibles 4,579,318 5,296,270
Net operating loss, contribution
and tax credit carry forwards 20,173,766 14,791,571
Other - net 7,313,234 8,176,412
------------ -----------
64,881,398 69,303,830
Less valuation allowance for deferred tax assets (10,608,943) (4,748,634)
------------ -----------
Net deferred tax asset 54,272,455 64,555,196
------------ -----------
Deferred tax liabilities:
Tax over book depreciation 10,596,029 26,753,667
Capital contribution 22,501,840
Other - net 1,511,876 1,770,118
------------ -----------
12,107,905 51,025,625
------------ -----------
Total net deferred tax asset $ 42,164,550 $13,529,571
============ ===========
</TABLE>
At September 9, 1996, the Company recorded a net deferred tax asset of
$16,895,000 (net of $4,902,000 valuation allowance) related to the acquisition
of TPI (see Note 2).
At October 26, 1997, the Company had net operating loss (NOL) and contribution
carry forwards of approximately $22,463,000 and $1,813,000 respectively, which
expire during the years 1998 through
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<PAGE> 40
2011. The Company also had targeted jobs and tip credit carry forwards of
approximately $4,633,000 which expire during the years 2003 through 2010 and
alternative minimum tax credit carry forwards of $873,000 which have no
expiration. These carry forward items were acquired in the acquisition of TPI.
The utilization of these carry forwards is subject to limitations imposed by the
Internal Revenue Code. In addition, the Company has a net operating loss carry
forward of approximately $9,327,000 and tax credit carry forwards of
approximately $1,157,000 which expire in the year 2012 and are not subject to
any limitations imposed by the Internal Revenue Service.
During the third quarter of 1997, excess income tax liabilities totaling
approximately $26.5 million related to a fiscal 1993 transaction were reversed.
Approximately $22.5 million of the reduction in tax liability was credited to
additional paid in capital since the related deferred tax liability arose from
an equity transaction. The remaining $4.0 million, which represented accrued
interest, was reversed as a reduction to income tax expense.
A valuation allowance has been established primarily for net operating loss and
tax credit carry forward amounts 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 carry forward period, the carry back of
existing deductible temporary differences to prior years' taxable income, or
through the use of future pretax book income. The valuation allowance increased
$5,860,000 during 1997. Of the $10,609,000 valuation allowance, $4,749,000
relates to deferred tax assets acquired from TPI in 1996. If those assets are
realized in the future, the related tax benefits will be recorded as a reduction
of goodwill. The remaining $5,860,000 relates to assets which arose after the
acquisition. If the assets are realized in the future, the related tax benefits
will reduce income tax expense.
The balance sheet classification of the net deferred tax asset is as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Current deferred tax asset $38,835,385 $ 31,452,866
Noncurrent deferred tax asset 3,329,165
Noncurrent deferred tax liability (17,923,295)
----------- ------------
Net deferred tax asset $42,164,550 $ 13,529,571
=========== ============
</TABLE>
The components of the provision (benefit from) for income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- ----------
<S> <C> <C> <C>
Current
Federal $ (4,000,000) $18,441,000 $16,972,900
State 3,166,000 2,315,100
------------ ----------- -----------
(4,000,000) 21,607,000 19,288,000
------------ ----------- -----------
Deferred
Federal (7,460,000) 7,623,000 (2,767,100)
State (2,926,000) 1,068,000 (213,900)
------------ ----------- -----------
(10,386,000) 8,691,000 (2,981,000)
------------ ----------- -----------
Total income tax expense (benefit) $(14,386,000) $30,298,000 $16,307,000
============ =========== ===========
</TABLE>
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<PAGE> 41
The income statement classification of the provision for (benefit from) income
taxes is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Income tax expense (benefit)
attributable to continuing operations $(14,386,000) $15,953,000 $ 7,873,000
Discontinued operations 244,000 4,993,000
Gain on sale of discontinued operations 14,101,000 3,441,000
------------ ----------- -----------
Total income tax expense (benefit) $(14,386,000) $30,298,000 $16,307,000
============ =========== ===========
</TABLE>
A reconciliation of the difference between total income tax expense (benefit)
and the amount computed using the statutory federal income tax rate is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Statutory federal income tax rate 35% 35% 35%
Federal income taxes (benefit) based
on the statutory tax rate $(17,534,056) $27,587,730 $14,412,547
State and local income taxes, net
of federal tax benefit (1,883,836) 2,752,100 1,365,780
Targeted jobs and tip credits (1,011,929) (941,378) (1,427,424)
Goodwill amortization and impairment
write-down 3,218,100
Change in valuation allowance 5,860,309 (153,000)
Reversal of income tax reserves (4,000,000)
Other 965,412 1,052,548 1,956,097
------------ ----------- -----------
Total income tax expense (benefit) $(14,386,000) $30,298,000 $16,307,000
============ =========== ===========
</TABLE>
The Company made income tax payments of approximately $203,000, $25,906,000, and
$15,238,000 during 1997, 1996 and 1995, respectively.
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<PAGE> 42
NOTE 8 - DEBT AND OBLIGATIONS UNDER CAPITAL LEASES (SEE NOTE 15)
Debt and obligations under capital leases at October 26, 1997 and October 27,
1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Senior debt-reducing revolving credit facility $135,000,000 $135,000,000
Senior secured bridge loan 72,900,000 100,000,000
Senior debt-taxable variable rate notes 27,650,000 28,650,000
Senior debt-various 44,857,523 51,488,153
Subordinated zero coupon convertible debentures,
due April 2004 103,612,284 95,357,650
Subordinated convertible debentures, 8.25%,
due July 2002, (net of discount of $3,938,854
in 1997 and $4,560,608 in 1996) 47,624,146 47,002,392
Industrial Revenue Bonds, due in varying annual
installments to May 2006 collateralized by land,
buildings, equipment and restricted cash 13,820,417 13,876,667
Notes payable to others, 6.0% to 10.25%, maturing
at varying dates to 2009 (the balance of the 1997
notes are fully secured by land, buildings and equipment) 6,579,771 10,730,605
------------ ------------
452,044,141 482,105,467
Obligations under capital leases 24,991,545 28,258,603
------------ ------------
477,035,686 510,364,070
Less amount due within one year 10,997,069 33,823,795
------------ ------------
Amount due after one year $466,038,617 $476,540,275
============ ============
</TABLE>
SENIOR DEBT
The Company had a reducing revolving credit facility ("Revolver") with a
syndicate of financial institutions which had a maturity date of October 1999
and provided for reductions in the aggregate Revolver. Scheduled reductions in
the maximum amount available under the Revolver of $30 million and $37.5 million
were to occur on October 22, 1997 and April 22, 1998, respectively. In addition,
the Company had a $17.4 million mortgage financing due on November 1, 1997. The
Company did not expect to be able to meet these payments. In addition, the
Company expected to be in violation of certain of its debt covenants at the end
of 1997, which together with the inability of the Company to fund the scheduled
principal payments due during the fourth quarter, would have placed the Company
in default under its credit agreements and its lenders could have accelerated
demand for payment thereunder. As a result, the Company sought a refinancing of
its senior debt which was completed in December 1997 (see Note 15). During the
fourth quarter, the Company obtained waivers from its lenders for the scheduled
payments due and for non-compliance with debt covenants for the fourth quarter
to facilitate the refinancing.
The interest rate for the Revolver 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 26, 1997, the interest rate was 7.63%. In addition, at
October 26, 1997, the Company had outstanding letters of credit in the amount of
$14.5 million which were supported by the Revolver. A commitment fee of 0.5% is
due for available funds under the Revolver.
40
<PAGE> 43
During 1996, the Company borrowed $100.0 million under a senior secured bridge
loan to provide working capital and a source of financing for the Company's
acquisition of substantially all of the assets of TPI (see Note 2). At October
26, 1997, the interest rate for the bridge loan was at floating rates (LIBOR
plus 3.5%, 9.17% or the announced Alternate Base Rate of the bank plus 2.5%)
with a 0.5% increase in the interest rate effective March 9, 1998. The bridge
loan was secured by assets acquired from TPI and by a pledge of certain other
assets of the Company. The bridge loan was scheduled to convert to a term loan
on May 3, 1998 if not repaid on or before that date with a maturity on October
22, 1999. A fee equal to 3.0% of the outstanding balance of the bridge loan was
payable upon conversion to a term loan.
The senior debt-taxable variable rate notes were sold to investors through an
investment banking corporation. The notes were secured by standby letters of
credit of $30.7 million which included the face amount of the notes plus
interest for 145 days. The letters of credit were secured by a reimbursement
agreement and standby note which were collateralized by a fully perfected first
lien on certain land and buildings. Letters of credit securing $9.0 million and
$19.7 million of this indebtedness were scheduled to expire on February 1, 1998
and October 1, 1998, respectively. The effective interest rate at October 26,
1997 was 7.96%. The Company's other senior debt issues, totaling $44.9 million,
generally bore interest at 1.25% to 1.5% over LIBOR and at October 26, 1997,
their interest rates ranged from 7.03% to 7.16%. The senior debt taxable
variable rate notes and other senior debt issues were refinanced in December
1997.
Based upon its commitment letter and waivers for payments due and noncompliance
with covenants at the end of 1997 obtained from its lenders during the fourth
quarter, the Company's senior debt, which was subsequently refinanced, (see Note
15), has been classified on the Company's balance sheet at October 26, 1997,
based upon the maturity schedule provided in the Company's new senior credit
facility.
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.
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%
41
<PAGE> 44
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
The Company had a secured line of credit for $20 million with interest payable
monthly at the lending bank's index rate (8.50% at October 26, 1997) and no
amounts were outstanding at October 26, 1997. The line had been available
through October 22, 1998, with an automatic extension through January 31, 2000
unless the Company were notified that the line would not be extended by March
15, 1998. The weighted average interest rate for the line of credit facility was
8.3%, 7.8%, and 8.0% for 1997, 1996 and 1995, respectively (see Note 15).
The Company's industrial revenue bonds include $11.9 million at fixed interest
rates ranging from 8.5% to 11.5% and $1.9 million at a floating interest rate
subject to a floor of 7.5% and a ceiling of 15%.
Debt and obligations under capital leases maturing in each of the next five
fiscal years, which is based on the scheduled payments due under the terms of
the Company's refinanced senior debt structure (see Note 15), are as follows:
<TABLE>
<CAPTION>
($ in millions)
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
$11.0 $21.2 $27.5 $42.0 $270.7
</TABLE>
Net interest costs of approximately $300,000, $400,000, and $800,000 were
capitalized as a part of building costs during 1997, 1996 and 1995,
respectively. Interest paid was approximately $33.8 million, $26.5 million, and
$31.3 million, during 1997, 1996 and 1995, respectively.
In addition to the letters of credit supporting the taxable variable rate notes
previously described, the Company has standby letters of credit of $23.9 million
outstanding at October 26, 1997, and which are principally utilized to support
the Company's self insurance programs. A total of $14.5 million of these letters
of credit were supported by the Company's Revolver at October 26, 1997.
42
<PAGE> 45
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 26, 1997
------------------------------
Estimated
Carrying Value Fair Value
-------------- ------------
<S> <C> <C>
Senior debt-reducing revolving credit facility $135,000,000 $135,000,000
Senior secured bridge loan 72,900,000 72,900,000
Senior debt-various 72,507,523 72,508,000
Subordinated zero coupon convertible debentures 103,612,284 72,278,000
Subordinated convertible debentures 47,624,146 38,672,000
Industrial revenue bonds 13,820,417 14,285,000
Notes payable 6,579,771 6,566,000
------------ ------------
Total Debt $452,044,141 $412,209,000
============ ============
Reserve for litigation settlement $ 16,304,969 $ 15,895,000
</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 9 - STOCK OPTIONS AND STOCK BENEFIT PLANS
The stock option plan adopted by the Company in 1969, and as subsequently
amended, covered 54,335 and 97,008 shares of the common stock of the Company and
no options are available for future grant under this plan as of October 26, 1997
and October 27, 1996, respectively. A second stock option plan adopted by the
Company in 1981 (the "1981 Plan"), and as subsequently amended, covered
7,505,931 shares of the common stock of the Company and included 2,078,431 and
2,174,186 shares reserved for future grant as of October 26, 1997 and October
27, 1996, 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
options in connection with the Company's acquisition of the assets of TPI ("the
1996 Plan"). The 1996 Plan covered 620,000 shares and included 326,351 and 4,854
shares reserved for future grant, at October 26, 1997 and October 27, 1996,
respectively.
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 Human Resources and 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 Plan to permit the Company's Human Resources
and 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 (the "Directors Plan") under
which options to purchase 200,000 shares of common stock may be granted to
non-employee directors. At October 26, 1997 and October 27, 1996, the Directors
Plan covered 195,000 shares of the common stock of the
43
<PAGE> 46
Company and included 140,000 and 165,000 shares available for future grant at
October 26, 1997 and October 27, 1996, respectively. 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.
A summary of activity under the plans is as follows:
<TABLE>
<CAPTION>
Weighted-Average
Options Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding at October 30, 1994 2,292,554 $17.01
Issued 1,453,000 10.64
Exercised (271,460) 9.62
Expired or canceled (657,989) 18.32
---------- ------
Outstanding at October 29, 1995 2,816,105 14.14
Issued 3,912,146 11.95
Exercised (51,832) 7.01
Expired or canceled (602,520) 15.54
---------- ------
Outstanding at October 27, 1996 6,073,899 12.66
Issued 1,077,500 9.45
Exercised (20,373) 6.14
Expired or canceled (1,300,542) 15.22
---------- ------
Outstanding at October 26, 1997 5,830,484 $11.52
========== ======
</TABLE>
At October 26, 1997, October 27, 1996 and October 29, 1995, the number of
options exercisable was 1,194,383, 1,216,502, and 677,324, respectively, and the
weighted-average exercise price of those options was $16.20, $17.85, and $15.74
respectively.
The following table summarizes information about stock options outstanding at
October 26, 1997:
<TABLE>
<CAPTION>
Range of Number Weighted- Weighted-Average
Exercise Outstanding Average Remaining Contractual
Prices at October 26, 1997 Exercise Price Life (Years)
- -------- ------------------- -------------- ---------------------
<S> <C> <C> <C>
$5.38 to $7.75 391,335 $ 6.34 8.09
$8.25 to $11.88 4,233,000 $ 9.82 6.44
$13.88 to $20.18 694,427 $17.12 6.15
$20.63 to $25.51 511,722 $21.87 1.33
</TABLE>
44
<PAGE> 47
The following table presents the fair value of options granted during 1997 and
1996:
<TABLE>
<CAPTION>
1997
------------------------------------------------------
Number of Weighted-Average Weighted-Average
Options Exercise Price Fair Value
--------- ---------------- ----------------
<S> <C> <C> <C>
Where exercise price:
Exceeds market price 749,000 $10.82 $3.48
Equals market price 328,500 6.34 3.23
--------- ------ -----
1,077,500 $ 9.45 $3.40
=========
<CAPTION>
1996
------------------------------------------------------
Number of Weighted-Average Weighted-Average
Options Exercise Price Fair Value
--------- ---------------- ----------------
<S> <C> <C> <C>
Where exercise price:
Exceeds market price 250,000 $15.25 $4.71
Equals market price 3,662,146 11.73 4.26
--------- ------ -----
3,912,146 $11.95 $4.28
=========
</TABLE>
The Company also has an Employee Stock Purchase Plan under which 1,745,370
shares of the Company's common stock may be issued at October 26, 1997. 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 68,685, 76,506 and 122,184 were made in
1997, 1996 and 1995, respectively, issued at $5.95, $8.71, and $10.84, per share
for the same periods, respectively. There have been no charges to income in
connection with the plan other than incidental expenses in the administration of
the plan. The weighted-average fair value of shares purchased during 1997 and
1996 was $2.10 and $3.02 per share, respectively.
The Company has an Employee Stock Bonus Plan under which 603,883 shares of the
Company's common stock may be issued at October 26, 1997. 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 equal to 25% of the market value of
the shares being distributed also will be paid. A maximum of 1,000 shares may be
awarded to any employee annually. As of October 26, 1997, grants of bonuses
under this plan of 16,450 shares were outstanding. The Company has recognized
compensation expense related to this plan of approximately $130,000, $174,000
and $130,000 for 1997, 1996 and 1995, respectively.
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>
1995 4,675 $14,065
1996 4,040 $10,353
1997 3,450 $ 6,038
</TABLE>
45
<PAGE> 48
The Company applies APB 25 and the related interpretations in accounting for its
stock-based compensation plans; accordingly, the Company recognizes no
compensation expense for its stock option plans or Employee Stock Purchase Plan.
Pro forma information regarding net income and earnings per share is required by
SFAS 123 as if the Company had accounted for its stock-based compensation plans
under the fair value method prescribed by that Statement. The fair value for
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Risk-free interest rate 5.87% 6.41%
Dividend yield None None
Volatility factor .382 .382
Weighted-average expected option life 7 years 7 years
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's actual
and pro forma net earnings (loss) and earnings (loss) per share are presented in
the following table (in thousands, except for per share data.)
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Net Income (Loss) - as reported $(35,711) $48,524
Net Income (Loss) - pro forma $(37,780) $47,942
Primary Earnings (Loss) per common share - as reported $(0.74) $1.14
Primary Earnings (Loss) per common share - pro forma $(0.78) $1.12
Fully-Diluted Earnings (Loss) per Share - as reported $(0.74) $1.10
Fully-Diluted Earnings (Loss) per common share - pro forma $(0.78) $1.09
</TABLE>
Because SFAS 123 provides for pro forma amounts for options granted beginning in
fiscal 1996, the pro forma compensation expense will likely increase in future
years as new option grants are included in the pricing model.
NOTE 10 - LEASES
The Company has noncancellable lease agreements for certain restaurant land and
buildings. Substan tially 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.
46
<PAGE> 49
Buildings under capital leases of $24,803,000 at October 26, 1997 and
$31,823,000 at October 27, 1996 and accumulated amortization of $10,797,000 and
$8,810,000 at October 26, 1997 and October 27, 1996, 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 26, 1997, 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>
1998 $ 4,790,359 $14,056,211 $(1,112,921) $ 17,733,649
1999 4,476,965 12,642,405 (1,039,148) 16,080,222
2000 4,142,721 10,808,719 (852,858) 14,098,582
2001 3,964,178 9,516,787 (673,375) 12,807,590
2002 3,933,623 8,289,828 (591,506) 11,631,945
Thereafter 20,284,189 34,851,463 (2,755,200) 52,380,452
- ----------------------------------------------------------------------------------------------------
Total minimum rentals 41,592,035 $90,165,413 $ (7,025,008) $124,732,440
=========== ============ ============
Amount representing interest (16,600,490)
------------
Present value of net minimum rentals $ 24,991,545
============
</TABLE>
Contingent rental expense relating to the land and building portion of capital
leases was $1,268,000, $1,250,000 and $1,273,000 in 1997, 1996 and 1995,
respectively.
Total rental expense for all operating leases not capitalized is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ---------
<S> <C> <C> <C>
Minimum rentals $11,905,514 $7,640,511 $7,605,845
Contingent rentals 1,609,439 577,386 559,513
------------ ---------- ----------
Subtotal 13,514,953 8,217,897 8,165,358
Sublease rentals (1,092,823) (674,087) (560,433)
----------- ---------- ----------
Total $12,422,130 $7,543,810 $7,604,925
=========== ========== ==========
</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.
47
<PAGE> 50
NOTE 11 - 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 changes in commodity prices
which will cause the actual amount of annual purchases to change over time.
Actual purchases from MRF by the Company during 1997 were approximately $25.8
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. The agreements
restrict the covered executives from owning, managing, operating, controlling or
participating in a competing food service business. 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 then still in office who were directors 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 maximum contingent liability under
these employment agreements ranges from $2.6 million to $5.9 million.
In June 1997, a dissident shareholder group launched a proxy contest to replace
the Company's Board of Directors and certain key executives. On July 15, 1997, a
committee of the Board of Directors of the Company authorized the execution of
Management Retention Agreements with certain officers of the Company to assist
in the retention of key management personnel. The agreements provided for
payment of between one and two years of base salary in the event that the
executives were terminated without good cause or if the executives resigned for
"good reason" (as defined in the agreements) within a one year period following
a change in control of the Company. The proxy contest was settled in August
1997. The settlement of the proxy contest did not constitute a change in control
as defined in these agreements. The agreements restrict the covered executives
from owning, managing, operating, controlling or participating in a competing
food service business. The Company's total contingent liability with respect to
these agreements is approximately $4.6 million. The Company's policy for
officers not party to the Management Retention Agreements is to provide
severance benefits of up to six months salary for such officers 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 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 $3.5
million.
48
<PAGE> 51
NOTE 12 - SETTLEMENT OF DISCRIMINATION LAWSUIT
In January 1993, court approval was granted to a consent decree settling
litigation against the Company and its former chairman. The litigation was
certified as a class action under Title VII of the Civil Rights Act of 1964 and
a class consisting of black restaurant employees alleged claims of
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 agreed to pay $105.0 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 $4.0 million in payroll taxes (which was subsequently reduced
to $2.3 million) as well as certain administrative costs. During 1992, the
Company entered into a capital contribution agreement with the Company's former
chairman, whereby, in conjunction with the Court approved settlement of the
discrimination lawsuit, he contributed approximately 2.7 million shares of
Shoney's common stock to the Company and such shares were retired.
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 under the consent decree for the next five fiscal years are
as follows:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
----------- -------- -------- ------- -------
<S> <C> <C> <C> <C>
$15,705,000 $68,000 $68,000 $68,000 $68,000
</TABLE>
NOTE 13 - LITIGATION
On December 4, 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." ("Belcher I") in the U.S. District Court for the Middle District
of Tennessee claiming that the Company had violated the overtime provisions of
the Fair Labor Standards Act. Plaintiffs purported to act on behalf of similarly
situated current and former employees and requested Court-supervised notice of
their lawsuit be sent to other potential plaintiffs. The Court granted
provisional class status, and directed notice be sent to all former and current
salaried general managers and assistant general managers who were employed by
the Company's Shoney's Restaurants during the three years prior to filing of the
suit. Approximately 900 potential class members opted to participate in the suit
as of the cutoff date set by the Court. After the cutoff date set by the Court,
approximately 230 additional potential class members opted to participate in the
suit, but the Court has not yet ruled on their participation in the lawsuit. By
virtue of the provisional class status, the Court could subsequently amend its
decision and either reduce or increase the scope of those individuals who are
similarly situated or determine that certification as a class is altogether
unwarranted.
On August 26, 1997, plaintiffs in the case of "Robert Belcher, et al. v.
Shoney's, Inc." filed a motion to add to their complaint representative
plaintiffs from the Captain D's concept restaurants. Plaintiffs also requested
in their motion that the Court issue notice of the case to present and former
general managers and assistant managers who were employed by the Company at its
Captain D's concept
49
<PAGE> 52
restaurants within the three years preceding December 1, 1995. Plaintiffs sought
to assert the same claims on behalf of Captain D's concept managers and
assistant managers as previously asserted on behalf of Shoney's concept managers
and assistant managers. The Company filed pleadings opposing plaintiffs' motion
to add representative plaintiffs from the Captain D's concept restaurants and
also opposed plaintiffs' request for Court-supervised notice to present and
former managers and assistant managers employed at the Captain D's concept
restaurants. On November 17, 1997, the Court denied the plaintiff's motion and
on December 3, 1997, a separate lawsuit was filed on behalf of certain
Captain D's restaurant concept employees which makes substantially the same
claims as "Robert Belcher, et al. v. Shoney's, Inc." (see Note 15).
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." ("Belcher II") 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 the suit as
of the cutoff date set by the Court. After the cutoff date set by the Court,
approximately 1,700 additional potential class members opted to participate in
the suit, but the Court has not yet ruled on their participation in the lawsuit.
By virtue of the provisional class status, the Court could subsequently amend
its decision and either reduce or increase the scope of those individuals who
are similarly situated or determine that certification as a class is altogether
unwarranted.
In both lawsuits, the plaintiffs claim to be entitled to recover unpaid wages,
liquidated damages, attorneys' fees and expenses for an unspecified period of
time claiming that certain of Shoney's acts resulted in a tolling of the statute
of limitations. Discovery is proceeding in both cases, but is in a preliminary
stage.
Management believes it has substantial defenses to the claims made and intends
to vigorously defend the cases. However, neither the likelihood of an
unfavorable outcome nor the amount of ultimate liability, if any, with respect
to these cases can be determined at this time. Accordingly, no provision for any
potential liability has been made in the consolidated financial statements.
In addition to the litigation described in the preceding paragraphs, the Company
is a party to other legal proceedings incidental to its business. In the opinion
of management, based upon information currently available, the ultimate
liability with respect to these actions will not materially affect the operating
results or the financial position of the Company.
50
<PAGE> 53
NOTE 14 - RETIREMENT PLAN
The Company established the Shoney's, Inc. 401(k) Retirement Savings Plan (the
"Plan") effective January 1, 1996. The Plan covers all employees who meet
certain age and minimum service hour requirements. The Company matches employee
contributions at 25%, up to a maximum of 4% of the participants' base pay. Total
expense recognized by the Company under the Plan was approximately $341,000 and
$154,000 for 1997 and 1996, respectively.
NOTE 15 - SUBSEQUENT EVENTS
DEBT REFINANCING - On December 2, 1997, the Company completed a refinancing of
approximately $281.0 million of its senior debt. The new credit facility
replaced the Company's revolving credit facility, senior secured bridge loan,
and other senior debt mortgage financing agreements. The new credit facility of
up to $375.0 million consists of a $75.0 million revolving line of credit ("1997
Revolver"), and two term notes of $100 million and $200.0 million, respectively,
due in April 2002. Initially, the credit facility bears interest at 2.5% over
LIBOR or 1.5% over the prime base rate for amounts outstanding under the 1997
Revolver, and bears interest at 2.5% over LIBOR or 1.5% over the prime base rate
for the $100.0 million term loan and 3.0% over LIBOR or 2.0% over the prime base
rate for the $200.0 million term loan. Based on certain financial requirements,
the applicable margins could increase a maximum of .25% or decrease up to 1.0%
from the initial margins. In connection with the refinancing, the Company agreed
to terminate a $20.0 million bank line of credit (see Note 8) which was replaced
by the $75.0 million 1997 Revolver. The amounts available under the 1997
Revolver are reduced by letters of credit of approximately $24.2 million
resulting in available credit under the facility of approximately $50.8 million
at January 20, 1998. The Company pays an annual fee of 0.5% for unused available
credit under the facility. The new credit facility required the Company to enter
into an interest rate hedge agreement covering a notional amount of not less
than $50.0 million within 60 days from the date of the loan closing.
The Company's new credit facility 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.
LITIGATION - On December 3, 1997, two former Captain D's restaurant general
managers or assistant managers filed the case "Jerry Edelen, et al. v. Shoney's,
Inc. d\b\a Captain D's" ("Edelen") in the U.S. District Court for the Middle
District of Tennessee. Plaintiffs made claims in this case that are very similar
to those made in Belcher I (see Note 13). 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 has yet to determine whether it will authorize notice in the case.
Plaintiffs filed, along with their complaint and their own consents, the
consents of thirteen persons to become plaintiffs in the case. All of these
consents, however, are consents that were filed during 1995 or 1996 in Belcher
I. It is not clear at present whether such consents will suffice as consents to
become plaintiffs in Edelen. Plaintiffs claim to be entitled to recover unpaid
wages, liquidated damages, attorney's fees and expenses.
51
<PAGE> 54
The Plaintiffs in Edelen have moved to amend their complaint to include a claim
that certain of Shoney's acts resulted in a tolling of the statute of
limitations, but the Court has yet to rule on that motion. Discovery is
proceeding, but is in a preliminary stage.
Management believes that it has substantial defenses to the claims made in
Edelen and intends to vigorously defend this case. However, neither the
likelihood of an unfavorable outcome nor the amount of ultimate liability, if
any, with respect to this case can be determined at this time. Accordingly, no
provision for any potential liability has been made in the consolidated
financial statements.
In December 1997, plaintiffs' counsel in Belcher I, Belcher II and Edelen
indicated that they may file a lawsuit that would involve the Captain D's
concept and would purportedly involve allegations similar to those in Belcher II
(see Note 13). To date, plaintiffs' counsel has not served the Company or the
Company's counsel with such a suit, nor has plaintiffs' counsel provided any
further indication that it may file such a suit. The Company is presently unable
to assess the likelihood of assertion of this threatened litigation.
NOTE 16 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(in thousands except per share data)
<TABLE>
<CAPTION>
Per Share
--------------------
Income (Loss) Income(Loss)
No from Net Net from
of Gross Continuing Income Income Continuing Stock Market
Weeks Revenues Profit Operations (Loss) (Loss) Operations High Low
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997
First Quarter 16 $ 363,290 $ 35,016 $(13,770)(a) $(13,770)(a) $(.28)(a) $(.28)(a) $ 8.75 $6.75
Second Quarter 12 295,409 37,123 5,293 5,293 .11 .11 8.25 4.38
Third Quarter 12 294,209 36,166 8,767 8,767 .18 .18 6.63 5.25
Fourth Quarter 12 274,168 24,982 (36,001)(a) (36,001)(a) (.74)(a) (.74)(a) 6.25 4.50
-- ---------- -------- -------- -------- ----- -----
52 $1,227,076 $133,287 $(35,711) $(35,711) $(.74)(b) $(.74)(b)
== ========== ======== ======== ======== ===== =====
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(c) 11,370(c) .24(c) .24(c) 9.88 7.38
-- ---------- -------- -------- -------- ----- -----
52 $1,099,742 $148,176 $ 41,999 $ 48,524 $1.10(b) $ .61
== ========== ======== ======== ======== ===== =====
</TABLE>
(a) The first quarter of 1997 included an asset impairment charge resulting from
the Company's adoption of SFAS 121 of $17.6 million. The fourth quarter included
an additional asset impairment charge of $36.4 million.
(b) Quarterly earnings per share amounts for 1997 and 1996 do not sum to the
earnings per share for 1997 and 1996.
(c) The fourth quarter of 1996 included approximately $2.5 million arising from
nonrecurring 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. ss. 229.304.
52
<PAGE> 55
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
"Election of Directors" and "Reports of Beneficial Ownership" contained
in the 1998 Proxy Statement is incorporated herein by reference. See also,
"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 1998 Proxy Statement is
incorporated herein by reference. The matters labeled "Human Resources and
Compensation Committee Report" and "Shareholder Return Performance Graph"
contained in the 1998 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 1998 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
"Certain Transactions" contained in the 1998 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 26, 1997 and
October 27, 1996.
Consolidated Statement of Operations - Years ended
October 26, 1997, October 27, 1996, and October 29, 1995
Consolidated Statement of Shareholders' Equity (Deficit)
- Years ended October 26, 1997, October 27, 1996, and
October 29, 1995
Consolidated Statement of Cash Flows - Years ended
October 26, 1997, October 27, 1996, and October 29, 1995
Notes to Consolidated Financial Statements - Years ended
October 26, 1997, October 27, 1996, and October 29, 1995
(2) Schedule II-Valuation and qualifying accounts and
reserves, included as Exhibit 99.1.
53
<PAGE> 56
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. ss. 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.
3.1, 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 on September 11, 1996,
and incorporated herein by this reference.
3.2, 4.2 Restated Bylaws of Shoney's, Inc.
4.3 Amended and Restated Rights Agreement, dated as of May 25,
1994, between Shoney's, Inc. 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, as amended
by Amendment No.1, dated as of April 18, 1995, 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, and Amendment No. 2, dated as of June 14,
1996, filed as Exhibit 4.5 to the Company's Quarterly Report
on Form 10-Q for the quarter ended May 12, 1996, and
incorporated herein by this reference.
4.4 Indenture, dated as of April 1, 1989, between the Company and
Sovran Bank/Central South, as Trustee relating to $201,250,000
in principal amount of liquid yield option notes due 2004,
filed as Exhibit 4.8 to Amendment No. 1 to the Company's
Registration Statement on Form S-3 filed with the Commission
on April 3, 1989 (No. 33-27571), and incorporated herein by
this reference.
4.5 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%
54
<PAGE> 57
Convertible Subordinated Debentures due 2002, filed as Exhibit
10 (a) to the Current Report on Form 8-K of TPI Restaurants,
Inc. filed with the Commission on July 29, 1992 (Commission
File No. 0-12312), and incorporated herein by this reference.
4.6 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, as amended by
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, and incorporated herein by this
reference, and Amendment No. 2, dated as of March 18, 1994,
filed as Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 14, 1995, and incorporated
herein by this reference, and Amendment, No. 3, dated as of
March 31, 1995, filed as Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 14,
1995, and incorporated herein by this reference, and Amendment
No. 4, dated as of June 26, 1996, filed as Exhibit 10.5 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
August 4, 1996, and incorporated herein by this reference, and
Amendment No. 5, dated as of October 25, 1996, filed as
Exhibit 10.6 to the Company's Annual Report on Form 10-K for
the fiscal year ended October 27, 1996, and incorporated
herein by this reference.
55
<PAGE> 58
10.2 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.
10.3 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.
10.4 Shoney's, Inc. 1981 Stock Option Plan, as amended through
October 28, 1996, filed as Exhibit 10.11 to the Company's
Annual Report on Form 10-K for the fiscal year ended October
27, 1996, and incorporated herein by this reference.
10.5 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.
10.6 Shoney's, Inc. 1996 Stock Option Plan, filed as Exhibit 10.13
to the Company's Annual Report on Form 10-K for the fiscal
year ended October 27, 1996, and incorporated herein by this
reference.
10.7 Shoney's, Inc. Employee Stock Purchase Plan, filed as Exhibit
4.7 to Post Effective Amendment No. 4 to the Company's
Registration Statement on Form S-8 (File No. 33-605) filed
with the Commission on October 26, 1989, and incorporated
herein by this reference.
10.8 Shoney's, Inc. Employee Stock Purchase Plan, as amended
through December 17, 1996, filed as Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 27, 1996, and incorporated herein by this reference.
10.9 Shoney's, Inc. Employee Stock Bonus Plan, filed as Exhibit
10.9 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1993, and incorporated herein by
this reference.
10.10 Shoney's, Inc. Directors' Stock Option Plan, filed as Exhibit
4.38 to the Company's Registration Statement on Form S-8 (File
No. 33-45076) filed with the Commission on January 14, 1992,
and incorporated herein by this reference.
10.11 Shoney's Ownership Plan 1977, filed as Exhibit 10.47 to Post
Effective Amendment No. 5 to the Company's Registration
Statement on Form
56
<PAGE> 59
S-8 (File No. 2-64257) filed with the Commission on January
25, 1993, and incorporated herein by this reference.
10.12 Captain D's Ownership Plan 1976, filed as Exhibit 10.48 to
Post Effective Amendment No. 5 to the Company's Registration
Statement on Form S-8 (File No. 2-64257) filed with the
Commission on January 25, 1993, and incorporated herein by
this reference.
10.13 Captain D's Ownership Plan 1978-1979, filed as Exhibit 10.49
to Post Effective Amendment No. 5 to the Company's
Registration Statement on Form S-8 (File No. 2-64257) filed
with the Commission on January 25, 1993, and incorporated
herein by this reference.
10.14 Employment Agreement, dated as of November 12, 1997, between
the Company and J. Michael Bodnar.
10.15 Employment Agreement, dated as of November 1, 1996, between
the Company and W. Craig Barber, filed as Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 27, 1996, and incorporated herein by this reference.
10.16 Severance Agreement and Release, dated as of November 12,
1997, between the Company and W. Craig Barber.
10.17 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.
10.18 Amended and Restated Employment Agreement, dated as of
November 12, 1997, between the Company and C. Stephen Lynn.
10.19 Employment Agreement, dated as of November 1, 1996, between
the Company and Robert M. Langford, filed as Exhibit 10.26 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended February 16, 1997, and incorporated herein by this
reference.
10.20 Management Retention Agreement, dated as of July 15, 1997,
between the Company and Betty J. Marshall, filed as Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended August 3, 1997, and incorporated herein by this
reference.
10.21 Management Retention Agreement, dated as of July 15, 1997,
between the Company and Haney A. Long, Jr., filed as Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended August 3, 1997, and incorporated herein by this
reference.
10.22 Management Retention Agreement, dated as of July 15, 1997,
between the Company and Robert A. Speck, filed as Exhibit 10.3
to the Company's Quarterly Report on Form 10-Q for the quarter
ended August 3, 1997, and incorporated herein by this
reference.
57
<PAGE> 60
10.23 Management Retention Agreement, dated as of July 15, 1997,
between the Company and James W. Arnett, filed as Exhibit 10.4
to the Company's Quarterly Report on Form 10-Q for the quarter
ended August 3, 1997, and incorporated herein by this
reference.
10.24 Management Retention Agreement, dated as of July 15, 1997,
between the Company and David A. Jordan, filed as Exhibit 10.5
to the Company's Quarterly Report on Form 10-Q for the quarter
ended August 3, 1997, and incorporated herein by this
reference.
10.25 Management Retention Agreement, dated as of July 15, 1997,
between the Company and Ronald E. Walker, filed as Exhibit
10.6 to the Company's Quarterly Report on Form 10-Q for the
quarter ended August 3, 1997, and incorporated herein by this
reference.
10.26 Management Retention Agreement, dated as of July 15, 1997,
between the Company and F. E. McDaniel, Jr., filed as Exhibit
10.7 to the Company's Quarterly Report on Form 10-Q for the
quarter ended August 3, 1997, and incorporated herein by this
reference.
10.27 Management Retention Agreement, dated as of July 15, 1997,
between the Company and Gregory A. Hayes, filed as Exhibit
10.8 to the Company's Quarterly Report on Form 10-Q for the
quarter ended August 3, 1997, and incorporated herein by this
reference.
10.28 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, and incorporated herein by
this reference.
10.29 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, and incorporated
herein by this reference, as amended by Amendment No. 1, dated
as of November 10, 1995, filed as Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 29, 1995, and incorporated herein by this reference.
58
<PAGE> 61
10.30 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 October 29, 1995, and incorporated herein by this
reference.
10.31 $375,000,000 Credit Agreement, dated as of November 28, 1997,
among Shoney's, Inc., as Borrower, NationsBank, N.A., as
Administrative Agent for the lenders, NationsBanc Montgomery
Securities, Inc., as Syndication Agent, and various other
financial institutions now or hereafter parties thereto.
10.32 Registration Rights Agreement, dated as of December 1, 1997,
by and between Shoney's, Inc. and Raymond L. Danner.
10.33 Agreement, dated as of August 10, 1997, by and among the
Company, Raymond D. Schoenbaum, and Betty J. Schoenbaum, filed
as Exhibit 10 to the Company's Current Report on Form 8-K
filed with the Commission on August 12, 1997, and incorporated
herein by this reference.
10.34 Amendment to Agreement, dated November 11, 1997, amending the
Agreement, dated as of August 10, 1997, by and among the
Company, Raymond D. Schoenbaum, and Betty J. Schoenbaum.
10.35 Termination Agreement, dated as of January 8, 1998, by and
among the Company, Raymond D. Schoenbaum, and Betty J.
Schoenbaum.
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.
(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).
59
<PAGE> 62
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 23rd day of
January, 1998.
SHONEY'S, INC.
By: /s/ Gregory A. Hayes
-------------------------------------------
Gregory A. Hayes
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 below by the following persons on behalf of the
registrant and in the capacities indicated on this 23rd day of January, 1998.
<TABLE>
<CAPTION>
Signature Title
<S> <C>
/s/ C. Stephen Lynn Chairman of the Board and Director
- --------------------------------
(C. Stephen Lynn)
/s/ J. Michael Bodnar Chief Executive Officer, President and Director
- --------------------------------
(J. Michael Bodnar)
/s/ Gregory A. Hayes Chief Financial Officer
- --------------------------------
(Gregory A. Hayes)
/s/ Carole F. Hoover Director
- --------------------------------
(Carole F. Hoover)
/s/ Jeffry F. Schoenbaum Director
- --------------------------------
(Jeffry F. Schoenbaum)
Director
- --------------------------------
(Raymond D. Schoenbaum)
</TABLE>
60
<PAGE> 63
<TABLE>
<S> <C>
/s/ William A. Schwartz Director
- ---------------------------------
(William A. Schwartz)
/s/ Carroll D. Shanks Director
- ---------------------------------
(Carroll D. Shanks)
Director
- ---------------------------------
(Cal H. Turner, Jr.)
- --------------------------------- Director
(Felker W. Ward, Jr.)
/s/ William M. Wilson Director
- ---------------------------------
(William M. Wilson)
- --------------------------------- Director
(James D. Yancey)
</TABLE>
61
<PAGE> 1
RESTATED BYLAWS
OF
SHONEY'S, INC.
ARTICLE I
OFFICES
The executive offices of the Corporation shall be in Davidson County,
Tennessee, but the Corporation may have other offices at such places as the
Board of Directors may from time to time decide or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders
shall be held at the call of the Board of Directors on a date and at a time and
place, either within or without the State of Tennessee, as may be selected by
the Board of Directors.
Section 2. Special Meeting. Special Meetings of the shareholders may be
called at any time by the Board of Directors, and shall be called by the Board
of Directors if the holders of at least ten percent (10%) of all the votes
entitled to be cast on any issue proposed to be considered at the proposed
special meeting sign, date and deliver to the Corporation's Secretary one (1) or
more written demands for the meeting describing the purpose or purposes for
which it is to be held. The special meeting shall be held at such time and
place, either within or without the State of Tennessee, as is designated in the
call of the meeting by the Board of Directors. The Board of Directors shall fix
the record date (which shall be a future date) for a special meeting. If the
meeting is to be called by the Board of Directors pursuant to demands delivered
by the holders of at least ten percent (10%) of all votes entitled to be cast on
any issue proposed to be considered at the proposed special meeting, then,
within 20 days after the date on which such demands are received, the Board of
Directors shall fix the record date. If no record date has been fixed by the
Board of Directors within 20 days of the date on which such demands are
received, the record date for the special meeting shall be the thirtieth day
after the date on which such demands were received.
Any shareholder of record seeking to join with other shareholders in
demanding a special meeting shall, by written notice to the Secretary, request
the Board of Directors to fix a record date to determine the shareholders
entitled to demand a special meeting. The Board of Directors shall promptly, but
in all events within 15 days after the date on which such a request is received,
<PAGE> 2
adopt a resolution fixing the record date to determine the shareholders entitled
to demand a special meeting, which record date shall not exceed 30 days from the
date on which the request was received. If no record date has been fixed by the
Board of Directors within 15 days of the date on which such a request is
received, the record date for the determination of shareholders entitled to
demand a special meeting shall be the thirtieth day after the date on which such
request was received.
Section 3. Notice of Meeting. Written notice stating the place, day and
hour of annual and special meetings of shareholders shall be given to each
shareholder, either personally or by mail to his last address of record with the
Corporation, not less than ten (10) nor more than sixty (60) days before the
date of the meeting. Notice of any special meeting of shareholders shall state
the purpose or purposes for which the meeting is called and person or persons
calling the meeting, and, if the meeting is being called pursuant to demands
delivered by the holders of at least ten percent (10%) of all the votes entitled
to be cast on any issue proposed to be considered at the proposed special
meeting, that the meeting is being so called. Notice of any meeting so called
shall be given within one month after the date the demands were delivered to the
Corporation's Secretary. Only such business shall be conducted at a special
meeting of shareholders as shall have been brought before the meeting pursuant
to the notice of meeting.
Section 4. Voting. At all meetings of shareholders, all shareholders of
record shall be entitled to one vote for each share of stock standing in their
name and may vote either in person or by proxy. Proxies shall be filed with the
Secretary of the meeting before being voted or counted for the purpose of
determining the presence of a quorum.
Section 5. Quorum. At all meetings of shareholders, a majority of the
outstanding shares of stock entitled to vote, represented in person or by proxy,
shall constitute a quorum for the transaction of business. Unless a greater vote
specifically is required by the Tennessee Business Corporation Act or the
Corporation's charter or bylaws, if a quorum is present at a meeting of the
Corporation's shareholders, a matter that may come before the meeting is adopted
if the number of votes cast in favor of the matter exceeds the number of votes
cast against the proposal. If, however, such majority shall not be present or
represented by proxy at any meeting of the shareholders, the presiding officer
or a majority of the shares so represented may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until the requisite
number of shares shall be represented so that any business may be transacted
which might have been transacted at the meeting as provided in the original
notice.
Section 6. Action by Consent. Whenever the shareholders of the
Corporation are required or permitted to take any action by vote, such action
may be taken without a meeting on written consent, setting forth the action so
taken, signed by all of the persons or entities entitled to vote thereon.
Section 7. Advance Notice of Shareholder Proposals. At any annual or
special meeting of shareholders, proposals by shareholders and persons nominated
for election as Directors by
2
<PAGE> 3
shareholders shall be considered only if advance notice thereof has been timely
given as provided herein and such proposals or nominations are otherwise proper
for consideration under applicable law and the charter and bylaws of the
Corporation. Notice of any proposal to be presented by any shareholder or of the
name of any person to be nominated by any shareholder for election as a Director
of the Corporation at any meeting of shareholders shall be delivered to the
Secretary of the Corporation at its principal executive office not less than 60
nor more than 90 days prior to the date of the meeting; provided, however, that
if the date of the meeting is first publicly announced or disclosed (in a public
filing or otherwise) less than 70 days prior to the date of the meeting, such
notice shall be given not more than ten days after such date is first so
announced or disclosed. Public notice shall be deemed to have been given more
than 70 days in advance of the annual meeting if the Corporation shall have
previously disclosed, in these bylaws or otherwise, that the annual meeting in
each year is to be held on a determinable date, unless and until the Board
determines to hold the meeting on a different date. Any shareholder who gives
notice of any such proposal shall deliver therewith the text of the proposal to
be presented and a brief written statement of the reasons why such shareholder
favors the proposal and setting forth such shareholder's name and address, the
number and class of all shares of each class of stock of the Corporation
beneficially owned by such shareholder and any material interest of such
shareholder in the proposal (other than as a shareholder). Any shareholder
desiring to nominate any person for election as a Director of the Corporation
shall deliver with such notice a statement in writing setting forth the name of
the person to be nominated, the number and class of all shares of each class of
stock of the Corporation beneficially owned by such person, the information
regarding such person required by paragraphs (a), (e) and (f) of Item 401 of
Regulation S-K adopted by the Securities and Exchange Commission (or the
corresponding provisions of any regulation subsequently adopted by the
Securities and Exchange Commission applicable to the Corporation), such person's
signed consent to serve as a Director of the Corporation if elected, such
shareholder's name and address and the number and class of all shares of each
class of stock of the Corporation beneficially owned by such shareholder. As
used herein, shares "beneficially owned" shall mean all shares as to which such
person, together with such person's affiliates and associates (as defined in
Rule 12b-2 under the Securities Exchange Act of 1934), may be deemed to
beneficially own pursuant to Rules 13d-3 and 13d-5 under the Securities Exchange
Act of 1934, as well as all shares as to which such person, together with such
person's affiliates and associates, has the right to become the beneficial owner
pursuant to any agreement or understanding, or upon the exercise of warrants,
options or rights to convert or exchange (whether such rights are exercisable
immediately or only after the passage of time or the occurrence of conditions).
The person presiding at the meeting, in addition to making any other
determinations that may be appropriate to the conduct of the meeting, shall
determine whether such notice has been duly given and shall direct that
proposals and nominees not be considered if such notice has not been given.
Section 8. Inspectors of Election; Opening and Closing the Polls. The
Board of Directors by resolution shall appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives, to act at the meetings of shareholders and make a written
report thereof. One or more persons may be designated as alternate inspectors to
replace
3
<PAGE> 4
any inspector who fails to act. If no inspector or alternate has been appointed
to act or is able to act at a meeting of shareholders, the Chairman of the
meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before discharging his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall have the
duties prescribed by law.
The Chairman of the meeting shall fix and announce at the meeting the
date and time of the opening and the closing of the polls for each matter upon
which the shareholders will vote at a meeting.
ARTICLE III
DIRECTORS
Section 1. Number and Qualifications. The business and affairs of the
Corporation shall be managed and controlled by a Board of Directors consisting
of not less than seven and not more than twelve directors as such number may be
set by the Board of Directors from time to time. Directors need not be
shareholders of the Corporation. In addition to the Directors who are elected by
the shareholders, the Board of Directors, from time to time, may appoint persons
as advisory directors, to serve such terms and perform such duties as the Board
of Directors shall determine upon appointing any person as an advisory director.
Advisory directors shall not be entitled to vote on any matter to come before
the Board of Directors. Advisory directors may be removed at any time by a vote
of the Board of Directors. The provisions of Article III, Sections 2 through 12
of these bylaws shall not apply to advisory directors.
Section 2. Nominations by Shareholders. Shareholders who wish to
nominate persons for election as Directors of the Corporation shall comply with
the requirements of Article II, Section 7 of these bylaws.
Section 3. Election and Term of Office. The Directors shall be elected
at the annual meeting of shareholders; but if any such annual meeting is not
held or if the Directors are not elected at any such annual meeting, the
Directors may be elected at any special meeting of the shareholders. Directors
shall be elected by a plurality of the votes cast. The Directors shall hold
office until the next annual meeting of shareholders and thereafter until their
respective successors have been elected and qualified.
Section 4. Meetings. Regular meetings of the Directors shall be held
quarterly and may be held without notice at such places and times as may be
determined by the Board of Directors. Special meetings of the Directors may be
called at any time by the President, or by a majority of the Directors or by the
other persons authorized to call a meeting pursuant to these bylaws on at least
one day's notice sent by any usual means of communication. Notice of any such
meeting may be waived by the person or persons entitled thereto by signing a
written waiver of notice at any time before or after the meeting is completed.
Attendance of a Director at a meeting shall
4
<PAGE> 5
constitute a waiver of notice thereof unless such attendance is for the express
purpose of objecting to such meeting. Any meeting of the Board of Directors may
be held within or without the State of Tennessee at such place as may be
determined by the person or persons calling the meeting.
Section 5. Quorum. A majority of the total number of Directors then in
office shall constitute a quorum for the transaction of business; and the vote
or action of a majority of the Directors present at any meeting at which a
quorum is had shall decide any matter that may come before the meeting and shall
be the act of the Board unless otherwise specifically required by law or by
express provision of the charter or bylaws of the Corporation.
Section 6. Action by Consent. Any action required or permitted to be
taken by the Directors of the Corporation may be taken without a meeting on
written consent, setting forth the action so taken, signed by all the Directors
entitled to vote thereon.
Section 7. Vacancies. Vacancies in the Board of Directors occurring for
any reason, including an increase in the number of Directors, resignation, or
the removal of any Director with or without cause, may be filled by vote of a
majority of the Directors then in office although less than a quorum exists; but
if the offices of a majority of the entire Board of Directors shall be vacant at
the same time, such vacancies shall be filled only by vote of the shareholders.
A director elected to fill any vacancy shall hold office until the next annual
meeting of shareholders and thereafter until his successor has been elected and
qualified.
Section 8. Removal and Resignation. Any or all of the Directors may be
removed with or without cause, at any time, by vote of the shareholders. Any
Director may resign at any time, such resignation to be made in writing and to
take effect immediately or on such later date as may be specified therein
without acceptance.
Section 9. Committees. From time to time, a majority of all Directors
in office may by resolution create a committee or committees and appoint the
members thereof for the purpose or purposes set forth in said resolution to the
extent permitted by law, which committee or committees shall have such authority
and powers as shall be specified in said resolution.
Section 10. Participation in Meetings. The members of the Board of
Directors, or any committee appointed by the Board, may participate in a meeting
of the Board or of such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to such
means shall constitute presence in person at such meeting. The Directors shall
be promptly furnished a copy of the minutes of the Board of Directors' meetings.
Section 11. Compensation. The Directors shall receive compensation or
salary for their services as Directors, said sum to be fixed by proper
resolution of the Board of Directors, and said salary and compensation may
include a fixed sum for expenses of attending the meetings of the
5
<PAGE> 6
Board of Directors. A Director may serve the Corporation in a capacity other
than that of a Director and receive compensation for services rendered in such
other capacity.
Section 12. Access to Information. Each member of the Board of
Directors shall be entitled to receive promptly upon request all information
regarding the Corporation which such director requests.
ARTICLE IV
OFFICERS
Section 1. Designation. The officers of the Corporation shall be a
Chairman Emeritus of the Board (which office shall be optional with the Board of
Directors), a Chairman of the Board, a President, one or more Division
Presidents, one or more Vice Presidents, a Secretary and a Treasurer and such
other officers, agents and employees as may from time to time be elected, chosen
or appointed by the Board of Directors. Any Vice President may be designated as
Executive Vice President or Senior Vice President or such other title as the
Board may determine. Any two or more of such offices may be held by the same
person except the offices of President and Secretary.
Section 2. Chairman Emeritus. The Chairman Emeritus of the Board shall
be an honorary and optional position. The Chairman Emeritus shall be an Advisory
director of the Corporation pursuant to Article III of these bylaws. In
addition, the Chairman Emeritus shall have such duties with regard to the
general and active management of the Corporation as may be prescribed from time
to time by the Board of Directors or by the bylaws.
Section 3. Chairman of the Board of Directors. The Chairman of the
Board of Directors shall perform only such duties as shall be prescribed by the
Board of Directors.
Section 4. President. The President shall have general supervision of
the affairs and property of the Corporation, subject to the direction of the
Board of Directors and the Chairman of the Board. He shall manage and control
the regular business of the Corporation; and he may appoint agents and employees
of the Corporation, other than officers elected or appointed by the Board,
subject to the approval of the Board. In the absence of the Chairman of the
Board, the President shall preside at any meeting of the shareholders or the
Board of Directors. He shall perform such other duties as may from time to time
be prescribed by the Board.
Section 5. Division President. The Division President or Division
Presidents shall assist the President in the management of the Corporation,
shall have general supervision of the affairs and property of that division of
the Corporation over which he is President, and shall have such other duties as
may from time to time be prescribed by the Board, the Chairman of the Board, or
President. In the absence, disqualification or incapacity of the President, the
senior Division
6
<PAGE> 7
President, if senior to the senior Vice President, shall perform the duties and
exercise the powers of the President.
Section 6. Vice President. The Vice President or Vice Presidents shall
assist the President in the management of the Corporation and shall have such
other powers and perform such other duties as may from time to time be
prescribed by the Board, or President. In the absence, disqualification or
incapacity of the President, the senior Vice President shall perform the duties
and exercise the powers of the President.
Section 7. Secretary. The Secretary shall keep the minutes of all
meetings of the shareholders and the Board of Directors in appropriate books,
and he shall attend to the giving of all notices for the Corporation. He shall
have charge of the seal and stock books of the Corporation and such other books
and papers as the Board may direct, and he shall in general perform all duties
incident to the office of Secretary of the Corporation. He shall perform such
other duties as may from time to time be prescribed by the Board, the Chairman
of the Board, or President.
Section 8. Treasurer. The Treasurer shall have the care and custody of
all funds and securities of the Corporation, and he shall in general perform all
duties incident to the office of Treasurer of the Corporation. He shall perform
such other duties as may from time to time be prescribed by the Board, the
Chairman of the Board, or President.
Section 9. Other Officers. The Board of Directors may appoint, or may
authorize the Chairman of the Board or President to appoint, assistant
secretaries and assistant treasurers and such other officers as the Board may
from time to time decide, who shall have such authority and perform such duties
as may from time to time be prescribed by the Board or designated by the
President.
Section 10. Election and Term of Office. The officers shall be elected
or appointed at the regular meeting of the Board of Directors following the
annual meeting of shareholders, provided that any vacancy or newly created
office may be filled at a special meeting or other regular meeting of the Board.
Unless otherwise determined by the Board, each officer shall hold office until
the next regular meeting of the Board following the annual meeting of
shareholders and thereafter until his successor has been elected or appointed
and qualified.
Section 11. Compensation. The Board of Directors, or one of its duly
appointed committees, shall fix the salaries of the officers of the Corporation.
The compensation of other agents and employees of the Corporation may be fixed
by the Board of Directors or by an officer or officers for whom that function
has been delegated by the Board.
7
<PAGE> 8
ARTICLE V
SHARES
Section 1. Certificates. The shares of the Corporation shall be
represented by certificates in such form as the Board of Directors may from time
to time prescribe. Such certificates shall be numbered consecutively in the
order in which they are issued, which numbering system may be separated by class
or series if there shall be more than one class or series of shares. The
certificates shall be signed by the Chairman of the Board and Secretary unless
the Board of Directors shall otherwise designate any two officers of the
Corporation for such purpose.
Section 2. Record. The name and address of all persons to whom the
shares of the Corporation are issued, the number of shares, and the date of
issue shall be entered on the books of the Corporation. It shall be the duty of
each shareholder to notify the Corporation of his address.
Section 3. Transfers. The shares of the Corporation are transferable
only on the books of the Corporation by the registered holder thereof, either in
person or by power of attorney, and upon delivery and surrender of the
certificate representing such shares properly endorsed for transfer.
Certificates exchanged or surrendered shall be canceled by the Secretary and
placed in the corporate records.
Section 4. Loss of Certificates. In case of the loss, mutilation or
destruction of a certificate representing shares of the Corporation, a duplicate
certificate may be issued on such terms as the Board of Directors shall
prescribe.
Section 5. Transfer Agent, Registrar. The Board of Directors may
appoint a transfer agent or agents and/or a registrar, and a dividend disbursing
agent for the Corporation.
ARTICLE VI
SEAL
Section 1. Authority to Adopt. The Corporation may have a seal in such
form as the Board of Directors may adopt, and the Board of Directors may from
time to time change the form of the seal of the Corporation.
Section 2. Scroll Seal. In the event the Board shall not have adopted a
seal or if it is inconvenient to use the adopted seal at any time, an authorized
signature made in the name of and on behalf of the Corporation followed by the
word "Seal" enclosed in parentheses or scroll shall be deemed the seal of the
Corporation.
8
<PAGE> 9
ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall end on the last Sunday of
October of each year, but the Board of Directors may from time to time change
the fiscal year of the Corporation.
ARTICLE VIII
DIVIDENDS, SURPLUS AND RESERVES
Section 1. Dividends. The Board of Directors may declare dividends from
the Corporation's net earnings, or from the surplus of its assets over its
liabilities, including capital, but not otherwise. The Board of Directors may
issue stock dividends, provided the Corporation has a surplus equal in value, at
a fair valuation, to such stock issued as a dividend; and provided, further,
that the surplus of the Corporation is reduced in an amount equal to the value
of the stock issued as a stock dividend.
Section 2. Surplus and Reserves. Before making any distribution of
proceeds, there may be set aside out of the net proceeds of the Corporation such
sums for maintaining any property of the Corporation, or for any other purpose,
and any profits of any year not distributed as dividends shall be deemed to have
been thus set aside until otherwise disposed of by the Board of Directors, and
the Board of Directors may abolish any such reserve in its absolute discretion.
ARTICLE IX
INDEMNITY
Any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including any action by or in the
right of the Corporation) by reason of the fact that he is or was serving as an
officer or director or employee of the Corporation or is or was serving at the
request of the Corporation as a Director or officer of the Corporation,
partnership, joint venture, trust or other enterprise, shall be indemnified by
the Corporation against expenses (including reasonable attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith for a purpose which he reasonably believed to be in the best interest of
the corporation, and, in criminal proceedings, in addition, had no reasonable
cause to believe that his conduct was unlawful, to the maximum extent permitted
by, and in the manner provided by, the Tennessee Business Corporation Act. In
the event of a settlement, however, the indemnification herein shall
9
<PAGE> 10
apply only when the Board of Directors approves such settlement and
reimbursement as being in the best interest of the Corporation. The foregoing
right of indemnification shall be in addition to and not exclusive of all rights
to which said Directors, officers or employees may be entitled.
ARTICLE X
AMENDMENTS
The shareholders of the Corporation may adopt new bylaws and may amend
or repeal any or all of these bylaws at any annual or special meeting provided,
however, that notice of intention to amend shall have been contained in the
notice of any special meeting called for that purpose; and also the Board of
Directors may adopt new bylaws and may amend or repeal these bylaws by the vote
of a majority of the entire Board, and provided further that any bylaw adopted
by the Board may be amended or repealed by the shareholders. The Board of
Directors may amend bylaws adopted by the shareholders by vote of a majority of
the entire Board provided that shareholders may from time to time specify
particular provisions of these bylaws which shall not be amended by the Board of
Directors.
10
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of this 12th day
of November, 1997, between SHONEY'S, INC., a Tennessee corporation, whose
principal place of business is located at 1727 Elm Hill Pike, Nashville,
Tennessee ("Employer"), and J. MICHAEL BODNAR, a resident of Breckenridge,
Colorado ("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).
1.2 EMPLOYMENT TERM. The term of this Agreement and the
Employment Term shall commence on November 12, 1997, and terminate on December
31, 2000, unless sooner terminated as herein provided or extended pursuant to
Section 1.3 hereof or by a subsequent amendment or extension of this Agreement
executed by both parties hereto.
1.3 EXTENSION BECAUSE OF CHANGE IN CONTROL. In the event of a
Change in Control (as hereinafter defined), the Employment Term shall
automatically be extended for two (2) calendar years beyond December 31, 2000
(or such later date as the Employment Term may have been extended pursuant to a
subsequent amendment or extension of this Agreement), on the date of the Change
in Control, at which time Employee shall be entitled to exercise the rights and
receive the benefits of this Agreement that are described in Section 4.2.1 and
Section 4.3. For purposes of this Agreement, a "Change in Control" of Employer
shall mean a change in control of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); provided,
however, that, without limitation, such a Change in Control shall be deemed to
have occurred if during the Employment Term: (a) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of Employer representing more than fifty percent
(50%) of the combined voting power of Employer's then outstanding voting
securities; or (b) all or substantially all of the assets of Employer are sold,
exchanged or otherwise transferred (other than to secure debt owed by Employer);
or (c) Employer's shareholders approve a plan of liquidation or dissolution; or
(d) individuals who at the beginning of the Employment Term constitute members
of the Board of Directors of Employer cease for any reason other than at the
request or with the concurrence of Employee to constitute a majority thereof
unless the election, or the nomination for election by Employer's shareholders,
of each new director was approved by a vote of at least a majority of the
directors then still in office who were directors at the beginning of the
Employment Term.
<PAGE> 2
2. DUTIES OF EMPLOYEE.
2.1 GENERAL DUTIES. Employee is hereby employed as the
President and Chief Executive Officer of Employer with such duties and
responsibilities as Employer's Board of Directors shall designate, which shall
be those duties and responsibilities customarily prescribed for persons in the
position of Employee. Employee 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; provided, further,
that Employer acknowledges and agrees that Employee has an ownership interest in
the food service businesses identified on Exhibit A attached hereto and that he
will retain such interests during the Employment Term.
3. COMPENSATION AND BENEFITS OF EMPLOYER.
3.1 SALARY. As compensation for his services hereunder,
Employee shall receive a base salary (the "Base Salary"), which shall be payable
in accordance with the general payroll practices of Employer, and which during
the period from November 12, 1997 through December 31, 1998, shall be in an
annual amount (prorated as appropriate) of $500,000.
During the remaining term of this Agreement, Base Salary shall be in an amount
determined by the Human Resources and Compensation Committee of Employer's Board
of Directors (the "Committee"); provided the Committee shall not decrease
Employee's Base Salary for any period within the Employment Term below $500,000
per annum.
3.2 BONUSES. Employee shall be entitled to an annual bonus,
the amount of which shall be determined by the Committee; provided, however,
that the bonus during the first year of the Employment Term shall not be less
than $300,000. Promptly following the date of this Agreement, the Committee
shall engage a nationally recognized compensation consulting firm to assist
Employee and the Committee in devising a mutually agreeable bonus plan for
senior management of Employer, including Employee. The bonus payable to Employee
during the Employment Term shall be determined in accordance with a formula to
be agreed upon by Employer and Employee based upon
<PAGE> 3
the recommendations of such compensation consultant. The parties hereto shall
use their reasonable best efforts to agree upon the bonus to be paid to Employee
hereunder within ninety (90) days of the date hereof.
3.3 RESTRICTED STOCK.
3.3.1 SHARES. Subject to all of the conditions
(including, without limitation, the time of vesting and right to receive) and
restrictions set forth in this Section 3.3.1, Employer hereby grants to Employee
an award of 120,000 shares (the "Restricted Shares") of Employer's $1.00 par
value common stock (the "Shares"). The Restricted Shares shall become vested in,
and shall be distributed to, Employee in three (3) installments on each of the
dates set forth below (each of which shall be referred to as a "Distribution
Date," with the three (3) dates being collectively referred to as the
"Distribution Dates") in the following respective amounts:
<TABLE>
<CAPTION>
DISTRIBUTION DATE NUMBER OF SHARES
----------------- ----------------
<S> <C>
December 31, 1998 40,000
December 31, 1999 40,000
December 31, 2000 40,000
-------
Total 120,000
=======
</TABLE>
Immediately following each Distribution Date, Employer shall promptly cause its
transfer agent to issue a certificate to Employee evidencing the Restricted
Shares that became distributable. The issuance of any stock certificate to
Employee shall be subject to any applicable federal, state, or local tax
withholding requirements. If, prior to a Distribution Date, Employee's
employment is terminated pursuant to Section 4.1.2 or Section 4.2.2, all rights
of Employee in any Restricted Shares awarded under this Section 3.3.1 that, as
of the date of such termination, have not become distributable to Employee shall
thereupon immediately terminate and become forfeited. If, prior to a
Distribution Date, Employee's employment is terminated pursuant to Section 4.1.1
or Section 4.2.1, all rights of Employee in any Restricted Shares awarded under
this Section 3.3.1 that, as of the date of such termination, have not become
distributable to Employee shall thereupon immediately become distributable to
Employee.
Employee shall not have any rights as a shareholder with respect to any
Restricted Shares until the issuance of a stock certificate evidencing the
Restricted Shares. The number of Restricted Shares awarded Employee under this
Section 3.3.1 shall be proportionately adjusted to reflect any stock dividend,
stock split or share combination of the Shares or any recapitalization of
Employer occurring prior to a Distribution Date. Except as provided in the
preceding sentence, no adjustment shall be made on the issuance of a stock
certificate to Employee as to any dividends or other rights for which the record
date occurred prior to a Distribution Date. The right of Employee to receive the
Restricted Shares shall not be assignable or transferable otherwise than by will
or the laws of descent and distribution.
<PAGE> 4
Upon receipt of Restricted Shares at a time when there is not in effect
under the Securities Act of 1933, as amended (the "Securities Act"), a current
registration statement relating to the Restricted Shares, Employee shall
represent and warrant in writing to Employer that the Restricted Shares are
being acquired for investment and not with a view to the distribution thereof
and shall agree to the placement of a legend on the certificate or certificates
representing the Restricted Shares evidencing the restrictions on transfer under
the Securities Act and the issuance of stop-transfer instructions by Employer to
its transfer agent with respect thereto.
No Restricted Shares shall be issued hereunder unless and until the
then applicable requirements of the Securities Act, the Tennessee Business
Corporation Act, the Tennessee Securities Act of 1980, as any of the same may be
amended, the rules and regulations of the Securities and Exchange Commission and
any other regulatory agencies and laws having jurisdiction over or applicability
to Employer, and the rules and regulations of any securities exchange on which
the Shares may be listed, shall have been fully complied with and satisfied.
Employer shall use its best efforts to cause all such requirements to be
promptly and completely satisfied. If in the opinion of its counsel, the
issuance of any Shares hereunder shall not be lawful for any reason, including
the inability of Employer to obtain from any regulatory body having jurisdiction
or authority deemed by such counsel to be necessary for such issuance, then
Employer shall not be obligated to issue any such Restricted Shares, but, in
such event, shall be obligated to provide Employee with cash or non-cash
consideration having equivalent after tax value which is acceptable to Employee
in the exercise of Employee's reasonable discretion.
3.3.2 CASH COMPONENT. Upon the issuance of a
certificate for any Restricted Shares pursuant to Section 3.3.1, Employee shall
be paid a cash bonus by Employer. The bonus payable pursuant to the preceding
sentence shall be determined by subtracting the Restricted Share Value (as
defined below) from the Restricted Share Gross Up (as defined below).
"Restricted Share Value" shall mean the fair market value of any Restricted
Shares on the date that they become distributable to Employee. "Restricted Share
Gross Up" shall mean an amount equal to the result derived by dividing: (a) the
Restricted Share Value by (b) the Tax Factor (as defined below). "Tax Factor"
shall mean the greater of: (i) sixty-four percent (64%); or (ii) the difference
between one hundred percent (100%) and the highest marginal individual income
tax rate set forth in the Internal Revenue Code of 1986, as amended, in the year
in which Employee receives the portion of the Restricted Shares with respect to
which this bonus is being calculated.
<PAGE> 5
3.4 OPTIONS TO PURCHASE STOCK. Employee shall be granted, on
the date hereof, the following options to purchase an aggregate of 1,000,000
Shares at the indicated exercise prices per share:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE
SUBJECT TO OPTION PER SHARE
----------------- --------------
<S> <C>
500,000 FMV(1)
166,667 $5.40
166,667 $6.50
166,666 $7.75
</TABLE>
Of the options granted pursuant to this Section 3.4,
twenty-five percent (25%) shall vest, on a cumulative basis, on each of December
31 of 1998, 1999, 2000, and 2001, and all such options that shall have vested
shall be exercisable for a period of 10 years from the date hereof. Except as
the terms of such options as set forth in this Section 3.4 may be inconsistent
therewith, the terms and conditions applicable to the options to be granted
pursuant to this Section 3.4 shall otherwise be those contained in the Shoney's,
Inc. 1981 Stock Option Plan, the terms and conditions of which are incorporated
herein by this reference.
3.5 RELOCATION.
3.5.1 RELOCATION EXPENSES. In connection with the
relocation of Employee from Breckenridge, Colorado to Nashville, Tennessee,
Employer shall pay and/or reimburse Employee for all reasonable expenses paid or
incurred for the following:
(a) Moving the personal effects and household goods of Employee and
Employee's family to Employee's new residence in Nashville, Tennessee, together
with any other reasonable expenses incurred by Employee in connection with
relocating to Nashville, Tennessee.
(b) Storing the personal effects and household goods of Employee and
Employee's family for a period not to extend beyond August 31, 1998.
(c) All reasonable out-of-pocket costs of relocating Employee and
Employee's family that are mutually agreed upon in advance between Employee and
the Chairperson of the Committee, it being the intent that Employee not incur
any unreimbursed cost that results directly from his relocation.
- --------
1 "FMV" means the closing price of the Shares on the grant date of the option as
reported by the New York Stock Exchange ("NYSE").
<PAGE> 6
(d) All reasonable out-of-pocket costs of Employee for travel between
Nashville, Tennessee and Breckenridge, Colorado, every other weekend from
November , 1997, until August 31, 1998, in order to visit with his family, and
the reasonable out-of-pocket costs of Employee's family for travel between
Breckenridge, Colorado and Nashville, Tennessee on each alternate weekend to
visit with Employee in Nashville, Tennessee.
3.5.2 RESIDENCE. At any time within one year after
the date of this Agreement, after having used his reasonable best efforts for a
period of not in excess of ninety (90) days to sell his personal residence in
Breckenridge, Colorado, Employee shall have the option to cause Employer to
purchase or cause to be purchased Employee's residence. The amount to be paid to
Employee for such residence shall be an amount equal to the greater of: (a)
Employee's documented cost basis in such residence; or (b) the appraised fair
market value of such residence as of the date such option is exercised by
Employee.
3.6 LIFE INSURANCE. Employer, on Employee's behalf and at
Employee's direction, shall pay the standard premiums (up to a maximum of
$35,000 per year) on a whole-life insurance policy or policies, which shall be
owned by Employee (or by Employee's irrevocable life insurance trust), and
Employee (or the trustee of Employee's irrevocable life insurance trust, as the
case may be) shall be entitled to designate the beneficiary thereof.
3.7 USE OF AUTOMOBILE. Employer shall provide to Employee, at
the option of Employee, with either the use of an automobile pursuant to
Employer's automobile policy (of make, model, and year of manufacture
commensurate with the position of Employee) or a cash car allowance of $7,100
per year. Employer shall pay all expenses of operating, maintaining and
repairing the automobile and shall procure and maintain automobile liability
insurance in respect thereof in an amount reasonably acceptable to Employee,
with such coverage insuring Employee for bodily injury and property damage.
3.8 MEDICAL BENEFITS. Employer shall provide Employee with
medical and dental insurance (which Employer may self insure) benefits in
accordance with the established benefit policies of Employer.
3.9 DISABILITY INSURANCE BENEFITS. Employer shall provide
Employee with disability insurance benefits in accordance with the established
benefit policies of Employer that provide disability insurance benefits to
Employee in an amount equal to seventy percent (70%) of Employee's annual cash
compensation (salary plus bonus).
3.10 EXPENSES. Employer shall reimburse Employee for all
reasonable and necessary business expenses of Employee incurred in the conduct
of his duties hereunder.
<PAGE> 7
Employee shall comply with all applicable policies of Employer with respect to
documentation and approval of such expenses.
3.11 VACATIONS. Employee shall be entitled to an annual paid
vacation commensurate with Employer's established vacation policy for executive
officers. The timing of paid vacations shall be scheduled in a reasonable manner
by Employee.
3.12 OTHER BENEFIT PROGRAMS. Employee shall be entitled to
participate in all employee benefit, bonus, and similar programs, including,
without limitation, programs of insurance, deferred compensation arrangements,
and all other benefits made available by Employer to senior management
personnel. During the Employment Term, so long as any additional benefit is made
available to senior management personnel of Employer, such benefit shall be
provided to Employee.
3.13 LEGAL FEES, TAX PLANNING AND RETURNS AND FINANCIAL
PLANNING. Employer shall reimburse Employee for his reasonable legal expenses
not in excess of $5,000 in connection with the negotiation of this Agreement,
and shall provide annually to Employee an allowance for the preparation of his
tax returns and for tax and financial planning services of up to $10,000.
4. TERMINATION OF EMPLOYMENT; SEVERANCE.
4.1 BY EMPLOYER.
4.1.1 TERMINATION WITHOUT CAUSE. Employer's Board of
Directors may terminate Employee's employment, with or without cause, at any
time by giving written notice of such termination to Employee, such termination
of employment to be effective on a date specified in such notice; provided,
however, that in the event of such a termination without cause, Employee shall
be entitled to receive the greater of: (a) an amount equal to the Base Salary
and bonus paid or payable under this Agreement to Employee for the twelve full
months of Employer immediately prior to the month in which the termination took
place; or (b) the amount due Employee for Base Salary during the balance of the
then current Employment Term (as extended pursuant to Section 1.3). Payments
shall be made in the case of the preceding item (a), in fifty-two (52) 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 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; or (b) the expiration of the then current
Employment Term. Bonus payments due under this Section 4.1.1 shall be
<PAGE> 8
determined in accordance with Section 3.2, except that the amount of such bonus
shall be determined based on Employer's most recently completed 12 calendar
month period.
4.1.2 TERMINATION FOR CAUSE. If Employee is
terminated for cause, Employer shall have no further obligation whatsoever to
Employee hereunder (with the exception of the obligation to pay Employee's Base
Salary and any earned bonus accrued through the date of termination of
employment), and Employee's participation in all benefit programs shall cease as
of the date of termination. For purposes of this Agreement, "cause" shall mean
any one of the following:
(i) Employee's willful failure to carry-out any material lawful
duties assigned by Employer's Board of Directors which duties
are commensurate with those of similarly situated employees;
(ii) breach of fiduciary duty to Employer (or any of Employer's
subsidiaries) involving personal profit by Employee;
(iii) conviction of Employee for any crime involving the Employer's
business, or of a felony; or of any other crime resulting in
his imprisonment;
(iv) intentional breach by Employee of any material provision of
this Agreement; or
(vi) unsatisfactory performance by Employee of the duties
designated for Employee by Employer's Board of Directors, if
such unsatisfactory performance is a result of alcohol or drug
abuse by Employee.
4.2 TERMINATION BY EMPLOYEE.
4.2.1 TERMINATION AFTER CHANGE IN CONTROL. In the
event a Change in Control occurs, Employee, at any time within ninety (90) days
after such Change in Control, may terminate his employment with Employer by
giving not less than thirty (30) days' prior written notice of such termination
to Employer. If 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 payable to Employee for the
twelve full months of Employer immediately prior to the month in which the
termination took place; or (b) the amount due Employee for Base Salary during
the balance of the then current Employment Term (as extended pursuant to Section
1.3). Payments shall be made in the case of the preceding item (a), in one
hundred and four (104) 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
<PAGE> 9
current wages and bonuses are normally payable. Employee's participation in all
benefit programs shall continue until the earlier of: (a) such time as Employee
is employed by another employer and covered or permitted to be covered by
benefit plans of another employer; or (b) the expiration of the then current
Employment Term (as extended pursuant to Section 1.3).
4.2.2 TERMINATION OTHER THAN AFTER CHANGE IN CONTROL.
Employee may terminate his employment with Employer at any time without further
obligation whatsoever by either party hereunder (with the exception of
Employer's obligation to pay Employee's Base Salary and any earned bonus accrued
through the date of termination of employment and except for the obligations and
covenants of Employee pursuant to Sections 5.1, 5.2 and 5.3, which shall survive
termination as specified therein) by giving not less than sixty (60) days' prior
written notice of such termination to Employer.
4.3 EFFECT OF TERMINATION ON STOCK OPTIONS. In the event of
any termination of this Agreement and the Employment Term pursuant to Section
4.1.2 or Section 4.2.2, all stock options held by Employee that are vested prior
to the effective date of the termination shall be exercisable in accordance with
their terms, and all stock options held by Employee that are not vested prior to
the effective date of the termination shall lapse and be void. All stock options
granted to Employee shall provide (through amendment or otherwise) that, in the
event of any termination of Employee's employment pursuant to Section 4.1.1 or
Section 4.2.1, then, in addition to any other rights of Employee hereunder, all
such options shall become fully vested and shall be exercisable in accordance
with their respective terms upon such a termination for a minimum period of
ninety (90) days immediately following the date of termination.
5. COVENANT NOT TO COMPETE; NON-DISCLOSURE; NON-SOLICITATION.
5.1 COVENANT NOT TO COMPETE. Employee acknowledges that
Employer's business is built upon the confidence of its customers, suppliers,
employees, and the general public, and that Employee will acquire confidential
knowledge that should not be divulged or used for his own benefit. Employee
covenants and agrees that during the term hereof, and in the event of any
termination of Employee's employment pursuant to Sections 4.1.2 or 4.2.2 for a
period of one year following the termination of his employment under this
Agreement, he will not, without the prior written consent of Employer, engage
in, own, manage, operate, control, or participate in any food service business
that conducts or franchises activities which are the same as or substantially
similar to the restaurant concepts and operations of Employer determined as of
the date on which Employee's employment hereunder terminated) as an employer,
employee, principal, partner, director, agent, or otherwise, directly or
indirectly, anywhere in the United States of America; provided, however, that
Employee may own, manage, operate, or control the
<PAGE> 10
food service businesses owned by Employee on the date hereof, as identified on
Exhibit A attached hereto.
Employee understands and acknowledges that his violation of
this covenant not to compete would cause irreparable harm to Employer, and
Employer would be entitled to an injunction by any court of competent
jurisdiction enjoining and restraining Employee from any employment, service, or
other act prohibited by this Agreement. Employee and Employer recognize and
acknowledge that the scope, area and time limitations contained in this
Agreement are reasonable. In addition, Employee and Employer recognize and
acknowledge that the scope, area and time limitations are properly required for
the protection of the business interests of Employer due to Employee's status
and reputation in the industry and the knowledge to be acquired by Employee
through his association with Employer's business and the public's close
identification of Employee with Employer and Employer with Employee.
The parties agree that nothing in this Agreement shall be
construed as prohibiting Employer from pursuing any other remedies available to
it for any breach or threatened breach of this covenant not to compete,
including, without limitation, the recovery of damages from Employee or any
other person or entity acting in concert with Employee. Employee also agrees
that, in the event he breaches this covenant not to compete, Employee will pay
reasonable attorneys' fees and expenses incurred by Employer in enforcing this
covenant not to compete and that the one (1) year period of time during which
Employee shall be restricted from certain activities hereunder shall be extended
for a period of time equal to any period(s) of time during which Employee
engages in any conduct that violates this Section 5.1, the purpose of this
provision being to secure for the benefit of Employer the entire period of time
being bargained for by Employer for the restriction upon Employee's activities.
Employee acknowledges and understands that, as consideration for his execution
of this Agreement and his agreement with the terms of this covenant not to
compete, Employee will receive employment by Employer'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 necessary.
5.2 NON-DISCLOSURE OF INFORMATION. Employee recognizes and
acknowledges that, as a result of his employment by Employer, he will become
familiar with and acquire knowledge of confidential information and certain
trade secrets that are valuable, special, and unique assets of Employer.
Employee agrees that any such confidential information and trade secrets are the
property of Employer. Therefore, Employee agrees that, for and during the entire
Employment Term, any such confidential information and trade secrets shall be
considered to be proprietary to Employer and kept as the private records of
Employer and will not be divulged to any firm, individual, or institution except
pursuant to and within the course and scope of
<PAGE> 11
Employee's employment hereunder. Further, upon termination of Employee's
employment, the Employment Term and/or this Agreement for any reason whatsoever,
Employee agrees that he will, for a period of two (2) years after such date,
continue to treat as private and proprietary to Employer any such confidential
information and trade secrets and will not, for a period of two years after such
date, release any such confidential information and trade secrets to any person,
firm, or institution, or use them to the detriment of Employer. The parties
agree that nothing in this Agreement shall be construed as prohibiting Employer
from pursing any remedies available to it for any breach or threatened breach of
this Section 5.2, including, without limitation, the recovery of damages from
Employee or any person or entity acting in concert with Employee.
5.3 NON-SOLICITATION. Employee recognizes and acknowledges
that, as a result of his employment by Employer, he will become familiar with
and acquire knowledge of confidential information and certain other information
regarding Employees of Employer. Therefore, Employee agrees that, during the
term hereof, and for a period of two (2) years from the date of termination of
Employee's employment, the Employment Term and/or this Agreement, whichever is
later, Employee shall not encourage, solicit or otherwise attempt to persuade
any person in the employment of Employer to end his/her employment with
Employer. The parties agree that nothing in this Agreement shall be construed as
prohibiting Employer from pursing any remedies available to it for any breach or
threatened breach of this Section 5.3, including, without limitation, the
recovery of damages from Employee or any person or entity acting in concert with
Employee. Employer shall receive injunctive relief without the necessity of
posting bond or other security, such as bond or other security being hereby
waived by Employee.
6. DEATH OR DISABILITY OF EMPLOYEE.
6.1 DEATH OF EMPLOYEE. In the event Employee dies during the
Employment Term, this Agreement and the Employment Term shall terminate upon
Employee's death. Employee's estate shall be entitled only to any Base Salary
earned but not paid plus any bonus accrued by Employer for Employee through the
date of death, plus an amount equal to the Base Salary and bonus paid or payable
on Employee's behalf for the twelve months of Employer immediately prior to the
month in which Employee's death occurred. Such payment shall be paid in lump sum
to Employee's estate within ninety (90) days after Employee's death.
6.2 DISABILITY OF EMPLOYEE. Employer has disability insurance
insuring its officers, and Employee is included under such disability insurance.
In the event of the Disability (as hereinafter defined) of Employee, this
Agreement and the Employment Term shall terminate. Upon a termination resulting
from the Disability of Employee, Employee shall be entitled to receive (i) any
Base Salary earned but not paid through the date that Employee becomes eligible
<PAGE> 12
for disability payments under such disability insurance, and (ii) an amount
equal to the Base Salary and bonus received by Employee in the last twelve
months of Employer immediately prior to the month in which such Disability of
Employee occurs 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 termination due to the Disability of Employee; provided,
however, that Employee shall not be entitled to any payments under this Section
6.2 in the event this Agreement is terminated pursuant to Section 4.1.2
regardless of whether the "cause" for which this Agreement is terminated
pursuant to Section 4.1.2 also may constitute a Disability. For purposes of this
Agreement, a "Disability" of Employee shall occur if (i) Employee suffers any
mental or physical condition that materially impairs Employee's ability to
perform the essential functions of his duties hereunder for a period of 180
consecutive days, and (ii) thereafter, Employee, within fifteen (15) days after
Employee receives written notice from Employer requesting that Employee resume
his duties hereunder, is unable or refuses to do so.
7. GENERAL PROVISIONS.
7.1 INDEMNIFICATION. Employer shall indemnify and hold
harmless Employee to the maximum extent permitted by Tennessee law with respect
to all claims, demands, actions, proceedings, investigations, damages, costs,
and expenses (including without limitation reasonable attorneys' fees) by reason
of the fact that he is or was a director or officer of Employer or any of its
subsidiaries. Further, Employer shall, to the maximum extent permitted by
Tennessee law, pay any and all expenses (including without limitation reasonable
attorneys' fees and disbursements, court costs and expert witness fees) incurred
by Employee in defending any claim, demand, action, proceeding or investigation
arising by reason of the fact that Employee is or was an officer or director of
Employer or any of its subsidiaries. In addition, Employer shall obtain and
maintain directors and officers liability insurance on behalf of Employee which
is comparable in amount and coverage to the director and officer liability
insurance maintained by similarly-situated companies. In the event it is
necessary for the Employer or its shareholders to take any action in order for
Employee to receive the maximum benefit of this provision, the Employer will
make a good faith effort to take such action and to secure the approval of its
shareholders, in the event such approval is required.
7.2 NO MITIGATION. Except as expressly provided to the
contrary herein, Employee shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by Employee as a result of
employment by another employer after Employee's termination or resignation.
<PAGE> 13
7.3 NOTICES. Any notices to be given hereunder by either party
to the other may be effected by personal delivery in writing or by mail,
registered or certified, postage prepaid with return receipt requested. Mailed
notices shall be addressed to the parties at the addresses appearing in the
introductory paragraph of this Agreement (to the attention of the Secretary in
the case of notices to Employer), but each party may change such address by
written notice in accordance with this Section 7.3. Notices delivered personally
shall be deemed communicated at the time of actual receipt; mailed notices shall
be deemed communicated as of the third day following deposit in the United
States Mail.
7.4 ENTIRE AGREEMENT. This Agreement supersedes any and all
other agreements, either oral or in writing, between the parties hereto with
respect to the employment of Employee by Employer and contains all of the
covenants and agreements between the parties with respect to such employment in
any manner whatsoever. Each party to this Agreement acknowledges that no
representations, inducements, promises, or agreements, orally or otherwise, have
been made by any party, or anyone acting on behalf of any party, which are not
embodied herein and that no other agreement shall be valid or binding unless in
writing and signed by the party against whom enforcement of such agreement is
sought. Any modification of this Agreement will be effective only if it is in
writing signed by the party against whom enforcement of such modification is
sought.
7.5 PARTIAL INVALIDITY. If any provision in this Agreement is
held by a court of competent jurisdiction to be invalid, void, or unenforceable,
the remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
7.6 LAW GOVERNING AGREEMENT. This Agreement shall be governed
by and construed in accordance with the laws of the State of Tennessee.
7.7 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 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.
<PAGE> 14
7.8 MISCELLANEOUS. Failure or delay of either party to insist
upon compliance with any provision hereof will not operate as and is not to be
construed to be a waiver or amendment of the provision or the right of the
aggrieved party to insist upon compliance with such provision or to take
remedial steps to recover damages or other relief for noncompliance. Any express
waiver of any provision of this Agreement will not operate and is not to be
construed as a waiver of any subsequent breach, irrespective of whether
occurring under similar or dissimilar circumstances. Employee acknowledges and
represents that the services to be rendered by him are unique and personal.
Accordingly, Employee may not assign any of his rights or delegate any of his
duties or obligations under this Agreement. The rights and obligations of
Employer under this Agreement shall inure to the benefit of and shall be binding
upon the successors and assigns of Employer.
[THIS SPACE LEFT BLANK INTENTIONALLY]
<PAGE> 15
IN WITNESS WHEREOF, Employee has hereunto affixed his hand and Employer
has caused this Agreement to be executed by its duly authorized officer as of
the day and year first above written.
EMPLOYEE: EMPLOYER:
--------- ---------
/s/ J. Michael Bodnar SHONEY'S, INC.
---------------------
J. Michael Bodnar
By: /s/ Carole F. Hoover
-------------------------------
Name: Carole F. Hoover
Title: Chair of Human Resources
and Compensation
Committee of the Board
of Directors
<PAGE> 1
SEVERANCE AGREEMENT AND RELEASE
This Severance Agreement and Release is made this 12th day of November,
1997, by and between W. Craig Barber ("Employee") and Shoney's, Inc., a
Tennessee corporation (the "Company").
WHEREAS, Employee and the Company are parties to that certain
Employment Agreement made as of November 1, 1996 (the "Employment Agreement").
Terms defined herein without definition shall have the meanings set forth in the
Employment Agreement;
WHEREAS, Employee has been employed by the Company for in excess of
fourteen (14) years and has rendered valuable services to the Company;
WHEREAS, Employee is employed as the Senior Executive Vice President,
Chief Administrative Officer and Chief Financial Officer of the Company; and
WHEREAS, Employee and the Company desire to enter into an agreement
regarding Employee's termination of employment with the Company and to provide
for certain compensation and benefits to the Employee in consideration for a
full release of claims.
NOW, THEREFORE, in consideration of the mutual promises herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
1. Employee resigns from employment with the Company effective November 10, 1997
(the "Effective Date") and resigns each of the offices held with the Company or
its subsidiaries as of the Effective Date.
2. The Company agrees to make severance payments to Employee in the aggregate
amount of $1,144,488. Of the $1,144,488 payable hereunder, $566,688 shall be
paid in equal weekly payments of $5,555.77 using the Company's regular payroll
periods. Of the remaining $577,800 payable hereunder, $288,900 shall be paid on
each of January 5, 1999 and January 5, 2000. All such payments will be subject
to applicable state and federal tax withholding.
3. Employee's participation in all benefit programs of the Company other than
life, medical and disability insurance shall cease as of the Effective Date.
Employee's participation in the life, medical and disability insurance programs
provided by the Company shall continue on substantially the same terms
(including the amounts paid, if any, for such benefits) as provided prior to the
Effective Date 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
Company ______ (Initial Here)
Employee ______
<PAGE> 2
regard to the extent of such coverage; (b) such time as the Company no longer
provides such benefit plans to individuals holding the position of Executive
Vice President/Division President or above; or (c) October 27, 1999.
4. All stock options issued by the Company to, and held by, Employee that have
vested on or prior to the Effective Date shall be exercisable in accordance with
their terms. Any stock options that have not vested on or prior to the Effective
Date shall lapse and be void.
5. At any time within thirty (30) days of the Effective Date, Employee may by
written notice to the Company elect to purchase the Company vehicle and mobile
phone currently provided to Employee at their respective fair value as
determined in accordance with the Company's normal practice of determining such
value.
6. Any vacation benefits earned by Employee as of the Effective Date will be
deemed completely paid as part of the severance, and no further vacation, sick
time, personal time or other paid time off will accrue during the severance
period.
7. The Company will promptly reimburse Employee for expenses incurred by
Employee in the ordinary course of his employment with the Company, in
accordance with applicable Company policy and arising on or prior to the
Effective Date. All such expenses shall be submitted to the Company on or prior
to the 60th day following the Effective Date.
8. The Company agrees to provide outplacement services to Employee for a period
of up to six (6) months from the commencement of use by Employee. Outplacement
services may be extended from month to month thereafter at the sole discretion
of the Company, but in no event beyond twelve (12) months in total duration. If
outplacement services are not commenced within ninety (90) days from the
Effective Date, or if Employee does not use his continuous "best efforts" in
utilization of the outplacement services (as determined in the sole discretion
of the Company), then outplacement services will cease and will no longer be
available to Employee. Outplacement services will be arranged solely in the
discretion of the Company and cash in lieu of outplacement services is not
available.
9. In the event Employee dies prior to the payment in full of any amounts due to
the Employee pursuant to paragraph 2 hereof, any remaining payments due to
Employee shall be paid in lump sum to his estate within thirty (30) days after
the Company is given written notice of Employee's death.
10. As conditions of the Company's performance of its obligations arising under
this Agreement, Employee agrees that he:
Company ______ (Initial Here)
Employee ______
2
<PAGE> 3
(a) shall not, without the written authorization of the Company,
disclose to any person other than the Company any confidential information of
the Company (specifically including financial, tax and customer information),
whether written or oral, received or learned by him in the course of his
employment, nor shall he make use of any such confidential information on his
own behalf or on behalf of any other person or entity, except that this
provision does not limit or restrict Employee from answering questions or
testifying truthfully if subpoenaed by a court of competent jurisdiction or
governmental agency; and
(b) shall immediately return to the Company all Company equipment,
computers, and other Company property, and any copies thereof, including but not
limited to, credit cards, keys, policy manuals, price lists, marketing materials
and plans, compensation information, business contracts, and any other
confidential information relating to processes, plans, production, methods of
doing business, or special needs of the Company, its employees or customers;
provided, that the Company shall retain possession for a period of three (3)
years from the Effective Date of Employee's memorandum and correspondence files,
copies of which shall be made available to Employee for necessary and
appropriate business use upon reasonable notice to the Company.
(c) shall not make any disparaging statements about the Company
(including its officers, directors, employees, agents, shareholders,
administrators, accountants, attorneys and other representatives), except that
this provision does not limit or restrict Employee from answering questions or
testifying truthfully if subpoenaed by a court of competent jurisdiction or
governmental agency.
11. As a further condition of the Company's performance of its obligations
arising under this Agreement, Employee covenants and agrees that, for a period
of one (1) year from the Effective Date, 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 the Company as an employer, employee, principal,
partner, director, agent, or otherwise, directly or indirectly, anywhere in the
United States of America. Notwithstanding the foregoing, the Company agrees that
Employee's participation in any food service business sold or otherwise disposed
of by the Company following the date of this Agreement shall not violate this
covenant not to compete. Employee understands and acknowledges that his
violation of this covenant not to compete would cause irreparable harm to the
Company, and the Company 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 the Company recognize and acknowledge that the area
and time limitations contained in this Agreement are reasonable. In addition,
Employee and the Company recognize and acknowledge that the area and time
limitations are properly required for the protection of the business interests
of the Company due to Employee's status and reputation in the industry and the
knowledge acquired by Employee through his association with the Company's
business and the public's close identification of
Company ______ (Initial Here)
Employee ______
3
<PAGE> 4
Employee with the Company and the Company with Employee. The parties agree that
nothing in this Agreement shall be construed as prohibiting the 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 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 attorney's fees and expenses incurred
by the Company in enforcing this covenant not to compete. 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. The Company shall receive injunctive relief without the necessity of
posting bond or other security, such bond or other security being hereby waived
by Employee.
12. In connection with the execution of this Agreement, the Company may issue a
press release announcing the subject matter hereof. The Company will provide a
copy of any such release to Employee at least 24 hours in advance of its
intended release and consult with Employee in respect of its content. Such press
release shall be in form and substance reasonably satisfactory to Employee.
13. The Company agrees that it will not, and will direct its directors and
officers not to, make any disparaging statement about the Employee, except that
this provision does not limit or restrict the Company or its employees from
answering questions or testifying truthfully if subpoenaed by a court of
competent jurisdiction or governmental agency.
14. Employee, in consideration for the agreements of the Company set forth
herein, on behalf of himself, his heirs, executors and assigns, does hereby
release the Company, its subsidiaries, affiliates and successors, and all of its
officers, directors, employees and agents, and agrees to hold them, and each of
them, harmless from any and all claims or causes of action that Employee may now
have or know about, or hereafter may learn about, arising from or during his
employment or resulting from the termination of his employment with the Company.
Employee agrees that he will not seek reinstatement or reemployment, either
directly or indirectly, with the Company, and that he will not file any claim,
charge, or lawsuit for the purpose of obtaining any monetary awards above and
beyond the amount provided for in this Agreement, including without limitation,
any claim for unemployment compensation benefits, or for any equitable relief.
Employee acknowledges that the foregoing release includes, but is not
limited to, all claims arising under any federal, state or local law, or
ordinance, or any administrative regulations prohibiting employment
discrimination and all claims based on any legal restrictions on the Company's
right to terminate its employees at will including, but not limited to, any
claim based on any actual or implied contract of employment or alleged breach of
any covenant of good faith and fair dealing. The foregoing release specifically
encompasses all claims of employment discrimination based on race, color,
religion, sex, and national origin, as provided under Title VII
Company ______ (Initial Here)
Employee ______
4
<PAGE> 5
of the Civil Rights Act of 1964, as amended, or any executive order, all claims
of discrimination based on age under the Age Discrimination in Employment Act of
1967, as amended, all claims of discrimination based on handicap or disability
under the Americans with Disabilities Act, and all claims of employment
discrimination under any state or local statute, law or ordinance.
15. The Company shall indemnify Employee to the maximum extent permitted, and in
the manner provided, by the Tennessee Business Corporation Act against expenses
(including reasonable attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including any action by or in the
right of the Company) by reason of the fact that he is or was serving as an
officer or employee of the Company or is or was serving at the request of the
Company as an officer of the Company or any partnership, joint venture, trust or
other enterprise.
16. Employee agrees that if he breaches this Agreement or if he files any claim
or lawsuit against the Company seeking equitable relief, except any lawsuit to
enforce the terms of this Agreement, all payments and benefits provided herein
shall cease except as provided by law or applicable benefit plan, and Employee
or his estate shall be required to reimburse the Company for all payments and
benefits Employee received under this Agreement prior to such time.
17. The provisions of this Agreement are severable, and if any part of it is
found to be unenforceable, the other paragraphs shall remain fully valid and
enforceable.
18. This Agreement represents the entire agreement between the parties and
supersedes the Employment Agreement and all other agreements or understandings,
written or oral, between the parties. This Agreement may not be changed except
by an instrument in writing signed by the parties.
19. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Tennessee applicable to contracts made
and to be performed therein, without giving effect to the principles thereof
relating to the conflict of laws.
20. This Agreement will not become effective until the 8th day following the
date on which Employee signs this Agreement as indicated below, and no payments
shall be due, owing or paid by the Company unless and until this Agreement
becomes effective, it being understood that Employee has seven (7) days from the
date on which he signs this Agreement to revoke such Agreement.
21. All notices and other communications provided for under or pursuant to this
Agreement shall be in writing (including facsimile communication) and addressed
as follows:
5
<PAGE> 6
If to the Company: If to the Employee:
Shoney's, Inc. W. CRAIG BARBER
Attention: Secretary 807 Stuart Lane
1727 Elm Hill Pike Brentwood, Tennessee 37027
Nashville, Tennessee 37217
facsimile number: (615) 231-2734
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first above written.
WITNESSED BY: SHONEY'S, INC.
By: /s/ Carole F. Hoover
------------------------
/s/ C. Stephen Lynn Title: Chair of Compensation
- ------------------------ Committee
Board of Directors
/s/ Polly P. Barber /s/ W. Craig Barber
- ------------------------ ------------------------
W. Craig Barber
6
<PAGE> 7
ACKNOWLEDGMENT OF RECEIPT
I acknowledge that this Severance Agreement and Release (the
"Agreement") was given to me by the Company on the date set forth below, and
that I have twenty-one (21) days from such date to decide whether to sign this
Agreement. I understand that if I elect not to sign the Agreement, I will
receive no severance pay from the Company because of the termination of my
employment. I have been advised by the Company to consult with an attorney of my
choice before signing this Agreement. I understand that by signing this
Acknowledgment, I am not agreeing to any terms of the Agreement or giving up any
rights that I may have.
DATED this 12th day of November, 1997.
/s/ W. Craig Barber
------------------------
W. Craig Barber
7
<PAGE> 1
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is
made as of this 12th day of November, 1997, between SHONEY'S, INC., a Tennessee
corporation, whose principal place of business is located at 1727 Elm Hill Pike,
Nashville, Tennessee 37210 (the "Employer"), and C. STEPHEN LYNN, a resident of
Nashville, Tennessee (the "Employee").
WHEREAS, the Employer and Employee entered into an Employment Agreement
dated as of April 11, 1995, as amended by an Addendum thereto dated as of April
11, 1995 (the "Employment Agreement"); and
WHEREAS, the parties wish to amend the Employment Agreement and to
restate the Employment Agreement as so amended.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained herein, the parties agree that the Employment Agreement is hereby
amended and restated in its entirety to read as follows:
1. TERM OF EMPLOYMENT.
1.1 Employment; Duties. Employer hereby employs Employee as
Chairman of the Board of Employer with such duties and responsibilities as
Employer's Board of Directors shall designate. In addition, Employee will render
to Employer advice and consultation from time to time as reasonably requested by
the Board of Directors of Employer. It is understood and agreed that Employee
may during the term of his employment own, manage, operate or participate in a
firm that provides venture capital financing to various portfolio companies,
including those engaged in the food service business; provided, such activities
will be consistent with Employee's commitments hereunder, Employee shall not
serve as an employee or a director of any portfolio company involved in the food
service business and such portfolio companies shall not be involved in the
family dining or fresh seafood segments of the restaurant industry. Employee
hereby accepts such employment and agrees to render such services upon the terms
and conditions hereinafter set forth. Employee hereby resigns from the offices
of President and Chief Executive Officer of Employer and resigns each of the
other offices held with the Employer or its subsidiaries.
1.2 Employment Term. Mr. Lynn shall serve as Chairman of the
Board of Employer from the date hereof through December 31, 1998 (the
"Employment Term"), unless sooner terminated as herein provided.
Employer ______ (Initial Here)
Employee ______
<PAGE> 2
2. COMPENSATION AND BENEFITS OF EMPLOYEE.
2.1 Salary. As compensation for his services hereunder,
Employee shall receive a salary of $550,000 per annum during the Employment
Term, which shall be payable in accordance with the general payroll practices of
Employer.
2.2 Additional Payments. Following the conclusion of the
Employment Term and through April 30, 1999 (the "Severance Term"), Employee
shall receive $183,333.33, which shall be payable during such period in
accordance with the general payroll practices of Employer.
2.3 Restricted Stock.
2.3.1 Shares. Subject to all of the conditions (including,
without limitation, the time of vesting and right to receive) and restrictions
set forth in this Section 2.3.1, Employer has granted to Employee an award of
50,000 shares (the "Restricted Shares") of the Employer's $1.00 par value common
stock (the "Shares"). The Restricted Shares shall become vested in, and shall be
distributed to, the Employee in three (3) installments on each of the dates set
forth below (each of which shall be referred to as a "Distribution Date," with
the three (3) dates being collectively referred to as the "Distribution Dates")
in the following respective amounts:
<TABLE>
<CAPTION>
Number of
Distribution Date Shares
----------------- ---------
<S> <C>
April 11, 1996 16,500
April 11, 1997 16,500
April 11, 1998 17,000
------
Total 50,000
======
</TABLE>
Immediately following each Distribution Date, the Employer shall promptly cause
its transfer agent to issue a certificate to the Employee evidencing the
Restricted Shares that became distributable to the Employee on the Distribution
Date. The Employer's obligation to cause the issuance of any stock certificate
to Employee shall be subject to any applicable federal, state, or local tax
withholding requirements. If, prior to a Distribution Date, the Employee's
employment is terminated pursuant to Section 3.1.2 or Section 3.2, all rights of
the Employee in any Restricted Shares awarded under this Section 2.3.1 that, as
of the date of such termination, have not become distributable to the Employee
shall thereupon immediately terminate and become forfeited. Employee shall not
have any rights as a shareholder with respect to any Restricted Shares until the
issuance of a stock certificate evidencing the Restricted Shares. The number of
Restricted Shares awarded the Employee under this Section 2.3.1 shall be
proportionately adjusted to reflect any stock dividend, stock split or share
combination of the Shares or any recapitalization of the Employer occurring
prior to a Distribution Date. Except as provided in the preceding sentence,
Employer ______ (Initial Here)
Employee ______
2
<PAGE> 3
no adjustment shall be made on the issuance of a stock certificate to the
Employee as to any dividends or other rights for which the record date occurred
prior to a Distribution Date. The right of the Employee to receive the
Restricted Shares shall not be assignable or transferable otherwise than by will
or the laws of descent and distribution. If in the opinion of its counsel, the
issuance of any Shares hereunder shall not be lawful for any reason, including
the inability of the Employer to obtain from any regulatory body having
jurisdiction or authority deemed by such counsel to be necessary for such
issuance, the Employer shall not be obligated to issue any such Restricted
Shares, but, in such event, shall be obligated to provide Employee with cash or
non-cash consideration having equivalent after tax value which is acceptable to
the Employee in the exercise of Employee's reasonable discretion. Upon receipt
of Restricted Shares at a time when there is not in effect under the Securities
Act of 1933, as amended, a current registration statement relating to the
Restricted Shares, the Employee shall represent and warrant in writing to the
Employer that the Restricted Shares are being acquired for investment and not
with a view to the distribution thereof and shall agree to the placement of a
legend on the certificate or certificates representing the Restricted Shares
evidencing the restrictions on transfer under said Act and the issuance of
stop-transfer instructions by the Employer to its transfer agent with respect
thereto. No Restricted Shares shall be issued hereunder unless and until the
then applicable requirements of the Securities Act of 1933, the Tennessee
Business Corporation Act, the Tennessee Securities Act of 1980, as any of the
same may be amended, the rules and regulations of the Securities and Exchange
Commission and any other regulatory agencies and laws having jurisdiction over
or applicability to the Employer, and the rules and regulations of any
securities exchange on which the Shares may be listed, shall have been fully
complied with and satisfied. Employer shall use its best efforts to cause all
such requirements to be promptly and completely satisfied.
2.3.2 Cash Component. Upon the issuance of a
certificate for any Restricted Shares pursuant to Section 2.3.1, Employee shall
be paid a cash bonus by the Employer. The bonus payable pursuant to the
preceding sentence shall be determined by subtracting the Restricted Share Value
from the Restricted Share Gross Up. "Restricted Share Value" shall mean the fair
market value of any Restricted Shares on the date that they become distributable
to the Employee. "Restricted Share Gross Up" shall mean an amount equal to the
result derived by dividing: (a) the Restricted Share Value by (b) the Tax
Factor. "Tax Factor" shall mean the greater of: (i) sixty-four percent (64%); or
(ii) the difference between one hundred percent (100%) and the highest marginal
individual income tax rate set forth in the Internal Revenue Code of 1986, as
amended, in the year in which the Employee receives the portion of the
Restricted Shares with respect to which this bonus is being calculated.
2.4 Other Benefit Programs. Employee shall be entitled to
continue to receive during the Employment Term and the Severance Term
substantially equivalent medical, disability and other employee benefit
programs, excluding bonus, as Employee receives on the date of this Agreement.
Employer ______ (Initial Here)
Employee ______
3
<PAGE> 4
2.5 Office Space; Secretarial Services. Promptly following the
date of this Agreement, Employee shall vacate his office at the Employer's
headquarters. The Employer will reimburse Employee during the Employment Term
and the Severance Term for accountable, out of pocket expenses incurred by
Employee for office space, furniture and equipment, not to exceed an amount
mutually agreeable to Employer and Employee, and for secretarial services
substantially comparable to those currently provided, not to exceed the
Employer's current cost for such services
2.6 Legal Fees. Employer shall reimburse Employee for his
reasonable legal expenses incurred in connection with the negotiation of this
Agreement.
3. TERMINATION OF EMPLOYMENT; SEVERANCE.
3.1 By Employer.
3.1.1 Termination Without Cause. Employer's Board of
Directors may terminate Employee's employment, with or without cause, at any
time by giving written notice of such termination to Employee, such termination
of employment to be effective on a date specified in such notice; provided,
however, that only in the event of such a termination without cause, Employee
shall be entitled to receive the sum of the amount due Employee for salary
during the balance of the Employment Term and any payments required to be made
during the Severance Term. Payments shall be made over the balance of the
Employment Term and Severance Term at the same time as current wages are
normally payable. Employee's participation in all medical insurance benefit
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; or (b) the expiration of the Severance Term.
3.1.2 Termination for Cause. If Employee is
terminated for cause, Employer shall have no further obligation whatsoever to
Employee hereunder (with the exception of the obligation to pay Employee's
salary through the date of termination of employment) and Employee's
participation in all benefit programs shall cease as of the date of termination.
For purposes of this Agreement, "cause" shall mean any one of the following:
(i) Employee's personal dishonesty;
(ii) Employee's willful misconduct;
(iii) breach of fiduciary duty to Employer
(or any of Employer's subsidiaries)
involving personal profit by Employee;
Employer ______ (Initial Here)
Employee ______
4
<PAGE> 5
(iv) conviction of Employee for any felony
or crime involving moral turpitude;
(v) material intentional breach by
Employee of any provision of this
Agreement; or
(vi) unsatisfactory performance by Employee
of the duties designated for Employee
by Employer's Board of Directors, if
such unsatisfactory performance is a
result of alcohol or drug abuse by
Employee.
3.2 Termination by Employee. Employee may terminate his
employment with Employer at any time without further obligation whatsoever by
either party hereunder (with the exception of Employer's obligation to pay
Employee's salary through the date of termination of employment and except for
the obligations and covenants of Employee pursuant to Sections 4.1. 4.2 and 4.3
and Section 6, which shall survive termination as specified therein) by giving
not less than sixty (60) nor more than ninety (90) days' prior written notice of
such termination to Employer.
3.3 Stock Options. Schedule A to this Agreement sets forth
certain information concerning the stock options held by Employee as of the date
of this Agreement. In the event of any termination of this Agreement and the
Employment Term pursuant to Section 3.1.2 or Section 3.2, all stock options held
by Employee that are vested prior to the effective date of the termination shall
be exercisable in accordance with their terms, and all stock options held by
Employee that are not vested prior to the effective date of the termination
shall lapse and be void. All stock options granted to the Employee shall provide
(through amendment or otherwise) that, in the event (a) there shall not have
occurred any termination of Employee's employment pursuant to Section 3.1.2 or
Section 3.2 or (b) there shall occur any termination of Employee's employment
pursuant to Section 3.1.1, then, in each case, in addition to any other rights
of Employee hereunder, all such options shall become fully vested as of the end
of the Severance Term and shall be immediately exercisable in accordance with
their respective terms for a period of ninety (90) days immediately following
the end of the Severance Term.
4. COVENANT NOT TO COMPETE; NON-DISCLOSURE; NON-SOLICITATION.
4.1 Covenant Not to Compete. Employee acknowledges that
Employer's business is built upon the confidence of its customers, suppliers,
employees, and the general public, and that Employee will acquire confidential
knowledge that should not be divulged or used for his own benefit. Employee
agrees during the term hereof and, in the event of any termination of Employee's
employment pursuant to Section 3.1.2 or Section 3.2, Employee covenants and
Employer ______ (Initial Here)
Employee ______
5
<PAGE> 6
agrees that, for a period of one year following the termination of his
employment under this Agreement, he will not, without the prior written consent
of the Employer, engage in, own, manage, operate, control, or participate in any
food service business that conducts or franchises activities which are the same
as or substantially similar to the restaurant concepts and operations of
Employer (determined as of the date on which Employee's employment hereunder
terminates) as an employer, employee, principal, partner, director, agent, or
otherwise, directly or indirectly, anywhere in the United States of America.
Notwithstanding the foregoing, the Employer agrees that Employee's participation
in the activities contemplated by Section 1.1 shall not violate this covenant
not to compete. Employee understands and acknowledges that his violation of this
covenant not to compete would cause irreparable harm to Employer and Employer
would be entitled to an injunction by any court of competent jurisdiction
enjoining and restraining Employee from any employment, service, or other act
prohibited by this Agreement. Employee and Employer recognize and acknowledge
that the scope, area and time limitations contained in this Agreement are
reasonable. In addition, Employee and Employer recognize and acknowledge that
the scope, area and time limitations are properly required for the protection of
the business interests of Employer due to Employee's status and reputation in
the industry and the knowledge acquired by Employee through his association with
Employer's business and the public's close identification of Employee with
Employer and Employer with Employee. The parties agree that nothing in this
Agreement shall be construed as prohibiting Employer from pursuing any other
remedies available to it for any breach or threatened breach of this covenant
not to compete, including, without limitation, the recovery of damages from
Employee or any other person or entity acting in concert with Employee. Employee
also agrees that, in the event he breaches this covenant not to compete,
Employee will pay reasonable attorneys fees and expenses incurred by Employer in
enforcing this covenant not to compete and that the one (1) year period of time
during which Employee shall be restricted from certain activities hereunder
shall be extended for a period of time equal to any period(s) of time during
which Employee engages in any conduct that violates this Section 4.1, the
purpose of this provision being to secure for the benefit of the Employer the
entire period of time being bargained for by the Employer for the restriction
upon the Employee's activities. Employee acknowledges and understands that, as
consideration for his execution of this Agreement and his agreement with the
terms of this covenant not to compete, Employee will receive employment by
Employer in accordance with this Agreement. Employer acknowledges that
Employee's execution of this Agreement and agreement with the terms of this
covenant not to compete is consideration for Employer's agreement to employ
Employee pursuant to this Agreement. If any part of this covenant not to compete
is found to be unreasonable, then it may be amended by appropriate order of a
court of competent jurisdiction to the extent deemed reasonable.
4.2 Non-disclosure of Information. Employee recognizes and
acknowledges that, as a result of his employment by Employer, he is familiar
with and has 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 ______ (Initial Here)
Employee ______
6
<PAGE> 7
Employer. Therefore, Employee agrees that, for and during the entire Employment
Term and Severance Term, any such confidential information and trade secrets
shall be considered to be proprietary to Employer and kept as the private
records of Employer and will not be divulged to any firm, individual, or
institution except pursuant to and within the course and scope of Employee's
employment hereunder. Further, upon termination of Employee's employment, the
Employment Term and/or this Agreement for any reason whatsoever, Employee agrees
that he will continue to treat as private and proprietary to Employer any such
confidential information and trade secrets and will not release any such
confidential information and trade secrets to any person, firm, or institution,
or use them to the detriment of Employer. The parties agree that nothing in this
Agreement shall be construed as prohibiting Employer from pursuing any remedies
available to it for any breach or threatened breach of this Section 4.2,
including, without limitation, the recovery of damages from Employee or any
person or entity acting in concert with Employee.
4.3 Non-solicitation. Employee recognizes and acknowledges
that, as a result of his employment by Employer, he is familiar with and has
knowledge of confidential information and certain other information regarding
the employees of the Employer. Therefore, Employee agrees that, during the term
hereof and for a period of two (2) years from the date of termination of
Employee's employment, the Employment Term and/or this Agreement, whichever is
later, Employee shall not encourage, solicit or otherwise attempt to persuade
any person in the employment of the Employer to end his/her employment with the
Employer or to violate any confidentiality, non-competition or employment
agreement that such person may have with the Employer or any policy of the
Employer. Furthermore, neither Employee nor any person acting in concert with
the Employee nor any of Employee's affiliates shall, during the term hereof and
for a period of one (1) year from the date of termination of Employee's
employment, the Employment Term and/or this Agreement, whichever is later,
employ any person who has been an employee of Employer unless that person has
ceased to be an employee of Employer for at least six (6) months. The parties
agree that nothing in this Agreement shall be construed as prohibiting Employer
from pursuing any remedies available to it for any breach or threatened breach
of this Section 4.3, including, without limitation, the recovery of damages from
Employee or any person or entity acting in concert with Employee. Employer shall
receive injunctive relief without the necessity of posting bond or other
security, such bond or other security being hereby waived by Employee.
5. DEATH OR DISABILITY OF EMPLOYEE.
5.1 Death of Employee. In the event Employee dies during the
Employment Term, this Agreement shall terminate upon Employee's death.
Employee's estate shall be entitled only to any salary earned but not paid
through the date of death.
5.2 Disability of Employee. Employer has disability
insurance insuring certain of its employees, and Employee is included under such
disability insurance. In the event Employee
Employer ______ (Initial Here)
Employee ______
7
<PAGE> 8
has a disability that materially impairs Employee's ability to perform the
essential functions of his duties hereunder for a period of ninety (90)
consecutive days, this Agreement shall terminate. Upon a termination resulting
from any such disability, Employee shall be entitled to receive any salary
earned but not paid through the date that Employee becomes eligible for
disability payments under such disability insurance.
6. RELEASE. Employee, in consideration for the agreements of Employer
set forth herein, on behalf of himself, his heirs, executors and assigns, does
hereby release Employer, its subsidiaries, affiliates and successors, and all of
its officers, directors, employees and agents, and agrees to hold them, and each
of them, harmless from any and all claims or causes of action that Employee may
now have or know about, or hereafter may learn about, arising from or during his
employment or resulting from the change in Employee's employment with Employer
effected by this Agreement. Employee agrees that he will not file any claim,
charge, or lawsuit for the purpose of obtaining any monetary awards above and
beyond the amount provided for in this Agreement or for any equitable relief.
Employee acknowledges that the foregoing release includes,
but is not limited to, all claims through the date hereof arising under any
federal, state or local law, or ordinance, or any administrative regulations
prohibiting employment discrimination and all claims based on any legal
restrictions on Employer's right to terminate its employees at will including,
but not limited to, any claim based on any actual or implied contract of
employment or alleged breach of any covenant of good faith and fair dealing. The
foregoing release specifically encompasses all claims of employment
discrimination based on race, color, religion, sex, and national origin, as
provided under Title VII of the Civil Rights Act of 1964, as amended, or any
executive order, all claims of discrimination based on age under the Age
Discrimination in Employment Act of 1967, as amended, all claims of
discrimination based on handicap or disability under the Americans with
Disabilities Act, and all claims of employment discrimination under any state or
local statute, law or ordinance.
Employee agrees that if he breaches this Agreement or if he
files any claim or lawsuit against Employer seeking equitable relief, except any
lawsuit to enforce the terms of this Agreement, all payments and benefits
provided herein shall cease except as provided by law or applicable benefit
plan, and Employee or his estate shall be required to reimburse Employer for all
payments and benefits Employee received under this Agreement prior to such time.
7. GENERAL PROVISIONS.
7.1 No Mitigation. Except as expressly provided to the
contrary herein, Employee shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any
Employer ______ (Initial Here)
Employee ______
8
<PAGE> 9
payment provided for under this Agreement be reduced by any compensation earned
by Employee as a result of employment by another employer after Employee's
termination or resignation.
7.2 Notices. Any notices to be given hereunder by either
party to the other may be effected by personal delivery in writing or by mail,
registered or certified, postage prepaid with return receipt requested. Mailed
notices shall be addressed to the parties at the addresses appearing in the
introductory paragraph of this Agreement (to the attention of the Secretary in
the case of notices to Employer), but each party may change such address by
written notice in accordance with this Section 7.1. Notices delivered personally
shall be deemed communicated at the time of actual receipt; mailed notices shall
be deemed communicated as of the third day following deposit in the United
States Mail.
7.3 Entire Agreement. This Agreement supersedes any and all
other agreements, either oral or in writing, between the parties hereto with
respect to the employment of Employee by Employer and contains all of the
covenants and agreements between the parties with respect to such employment in
any manner whatsoever. Each party to this Agreement acknowledges that no
representations, inducements, promises, or agreements, orally or otherwise, have
been made by any party, or anyone acting on behalf of any party, which are not
embodied herein and that no other agreement shall be valid or binding unless in
writing and signed by the party against whom enforcement of such agreement is
sought. Any modification of this Agreement will be effective only if it is in
writing signed by the party against whom enforcement of such modification is
sought.
7.4 Partial Invalidity. If any provision in this Agreement
is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remaining provisions shall nevertheless continue in full
force without being impaired or invalidated in any way.
7.5 Law Governing Agreement. This Agreement shall be
governed by and construed in accordance with the laws of the State of Tennessee.
7.6 Waiver of Jury Trial. Employer and Employee hereby
expressly waive any right to a trial by jury in any action or proceeding to
enforce or defend any rights under this Agreement, and agree that any such
action or proceeding shall be tried before a court and not a jury. Employee and
Employer hereby agree that any action or proceeding to enforce any claim arising
out of this Agreement shall be brought and maintained in any state or federal
court having subject matter jurisdiction and located in Nashville, Tennessee.
Employee irrevocably waives, to the fullest extent permitted by law, any
objection that he may have or hereafter have to the laying of the venue of any
such action or proceeding brought in any court located in Nashville, Tennessee,
and any claim that any such action or proceeding brought in such a court has
been brought in an inconvenient forum.
Employer ______ (Initial Here)
Employee ______
9
<PAGE> 10
7.7 Miscellaneous. Failure or delay of either party to
insist upon compliance with any provision hereof will not operate as and is not
to be construed to be a waiver or amendment of the provision or the right of the
aggrieved party to insist upon compliance with such provision or to take
remedial steps to recover damages or other relief for noncompliance. Any express
waiver of any provision of this Agreement will not operate and is not to be
construed as a waiver of any subsequent breach, irrespective of whether
occurring under similar or dissimilar circumstances. Employee acknowledges and
represents that the services to be rendered by him are unique and personal.
Accordingly, Employee may not assign any of his rights or delegate any of his
duties or obligations under this Agreement. The rights and obligations of
Employer under this Agreement shall inure to the benefit of and shall be binding
upon the successors and assigns of Employer.
Employer ______ (Initial Here)
Employee ______
10
<PAGE> 11
IN WITNESS WHEREOF, Employee has hereunto affixed his hand and Employer
has caused this Agreement to be executed by its duly authorized officer as of
the day and year first above written.
EMPLOYEE: EMPLOYER:
/s/ C. Stephen Lynn SHONEY'S, INC.
- ---------------------------------
C. STEPHEN LYNN
By: /s/ Carole F. Hoover
----------------------------------
Title: Chair of Human Resources and
-------------------------------
Compensation Committee
-----------------------------
Board of Directors
-----------------------------
11
<PAGE> 12
Schedule A
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
DATE OF OPTIONS OPTION DATE OF VESTING
GRANT GRANTED PRICE EXPIRATION SCHEDULE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
04/11/95 250,000 $10.75 04/11/05 100,000 (Vested)
50,000 on 04/11/98
50,000 on 04/11/99
50,000 on 04/11/00
- -----------------------------------------------------------------------------------------------
11/01/95 250,000 $15.25 11/01/05 100,000 (Vested)
50,000 on 11/01/98
50,000 on 11/01/99
50,000 on 11/01/00
- -----------------------------------------------------------------------------------------------
08/21/96 1,000,000 $9.625 08/21/03 1,000,000 on 08/21/02
- -----------------------------------------------------------------------------------------------
11/01/96 125,000 $7.375 11/01/06 25,000 (Vested)
25,000 on 11/01/98
25,000 on 11/01/99
25,000 on 11/01/00
25,000 on 11/01/01
- -----------------------------------------------------------------------------------------------
11/02/96 75,000 $16.75 11/02/06 15,000 (Vested)
15,000 on 11/02/98
15,000 on 11/02/99
15,000 on 11/02/00
15,000 on 11/02/01
- -----------------------------------------------------------------------------------------------
11/03/96 50,000 $18.50 11/03/06 10,000 (Vested)
10,000 on 11/03/98
10,000 on 11/03/99
10,000 on 11/03/00
10,000 on 11/03/01
- -----------------------------------------------------------------------------------------------
1,750,000
- -----------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 1
$375,000,000
CREDIT AGREEMENT
Dated as of November 28, 1997
Among
SHONEY'S, INC.
as Borrower,
THE INITIAL LENDERS, INITIAL ISSUING BANK AND
SWING LINE BANK NAMED HEREIN
as Initial Lenders, Initial Issuing Bank and Swing Line Bank,
NATIONSBANK, N.A.
as Administrative Agent
and
NATIONSBANC MONTGOMERY SECURITIES, INC.
as Syndication Agent
<PAGE> 2
T A B L E O F C O N T E N T S
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
<S> <C>
1.01. Certain Defined Terms........................................................................... 1
1.02. Computation of Time Periods..................................................................... 26
1.03. Accounting Terms................................................................................ 27
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
AND THE LETTERS OF CREDIT
2.01. The Advances.................................................................................... 27
2.02. Making the Advances............................................................................. 29
2.03. Issuance of and Drawings and Reimbursement Under Letters of Credit.............................. 32
2.04. Repayment of Advances........................................................................... 33
2.05. Termination or Reduction of the Commitments..................................................... 37
2.06. Prepayments..................................................................................... 37
2.07. Interest........................................................................................ 39
2.08. Fees............................................................................................ 40
2.09. Conversion of Advances.......................................................................... 41
2.10. Increased Costs, Etc............................................................................ 42
2.11. Payments and Computations....................................................................... 44
2.12. Taxes........................................................................................... 45
2.13. Sharing of Payments, Etc........................................................................ 47
2.14. Use of Proceeds and Issuance of Letters of Credit............................................... 48
2.15. Defaulting Lenders.............................................................................. 48
ARTICLE III
CONDITIONS OF LENDING
3.01. Conditions Precedent to Initial Extension of Credit............................................. 51
3.02. Conditions Precedent to Each Borrowing and Issuance............................................. 59
3.03. Determinations Under Section 3.01............................................................... 59
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<TABLE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
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4.01. Representations and Warranties of the Borrower.................................................. 60
ARTICLE V
COVENANTS OF THE BORROWER
5.01. Affirmative Covenants........................................................................... 68
5.02. Negative Covenants.............................................................................. 82
5.03. Reporting Requirements.......................................................................... 91
5.04. Financial Covenants............................................................................. 94
ARTICLE VI
EVENTS OF DEFAULT
6.01. Events of Default............................................................................... 96
6.02. Actions in Respect of the Letters of Credit upon Default........................................100
ARTICLE VII
THE ADMINISTRATIVE AGENT
7.01. Authorization and Action........................................................................101
7.02. Agent's Reliance, Etc...........................................................................101
7.03. NationsBank and Affiliates......................................................................102
7.04. Lender Party Credit Decision....................................................................102
7.05. Indemnification.................................................................................102
7.06. Successor Agents................................................................................104
ARTICLE VIII
MISCELLANEOUS
8.01. Amendments, Etc.................................................................................105
8.02. Notices, Etc....................................................................................106
8.03. No Waiver; Remedies.............................................................................107
8.04. Costs, Expenses.................................................................................107
</TABLE>
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<TABLE>
<S> <C>
8.05. Right of Set-off................................................................................109
8.06. Binding Effect..................................................................................109
8.07. Assignments and Participations..................................................................109
8.08. Execution in Counterparts.......................................................................112
8.09. No Liability of the Issuing Bank................................................................113
8.10. Confidentiality.................................................................................113
8.11. Jurisdiction, Etc...............................................................................113
8.12. Governing Law...................................................................................114
SECTION 8.13. Designation as Senior Indebtedness......................................................114
8.14. Waiver of Jury Trial............................................................................114
</TABLE>
SCHEDULES
Schedule I - Commitments and Applicable Lending Offices
Schedule II - Applicable Margin
Schedule 3.01(d) - Disclosed Litigation
Schedule 3.01(g)(x) - Mortgaged Properties
Schedule 3.01(g)(xviii) - States in which Local Counsel are Located
Schedule 3.01(i) - Deeds
Schedule 3.01(j) - Fixture Filings
Schedule 4.01(b) - Subsidiaries
Schedule 4.01(m) - Plans, Multiemployer Plans and Welfare Plans
Schedule 4.01(v) - Environmental Lists
Schedule 4.01(aa) - Open Years
Schedule 4.01(gg) - Existing Debt
Schedule 4.01(hh) - Surviving Debt
Schedule 4.01(ii) - Owned Real Property
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Schedule 4.01(jj) - Leased Real Property
Schedule 4.01(kk) - Investments
Schedule 5.01(n)(i) - First American Mortgaged Properties
Schedule 5.01(n)(ii) - TPI Real Property
Schedule 5.02(a) - Existing Liens
Schedule 5.02(e) - Real Property to be Sold
Schedule 5.02(n) - Partnerships
Schedule 5.04 - Operate-to-Improve Stores
EXHIBITS
Exhibit A-1 - Form of Term A Note
Exhibit A-2 - Form of Term B Note
Exhibit A-3 - Form of Working Capital Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Security Agreement
Exhibit E - Form of Intellectual Property Security Agreement
Exhibit F - Form of Mortgage
Exhibit G - Form of Subsidiary Guaranty
Exhibit H-1 - Form of Opinion of Borrower's Counsel
Exhibit H-2 - Form of Opinion of Borrower's Special New York Counsel
<PAGE> 6
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Exhibit I - Form of Opinion of Special Intellectual Property Counsel
to the Administrative Agent
Exhibit J - Form of Opinion of Local Counsel to Administrative Agent
Exhibit K - Form of Solvency Certificate
Exhibit L - Form of Consolidated Income Statement for Fiscal Month
Exhibit M - Subordination Terms
Exhibit N - Master Lease
<PAGE> 7
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of November 28, 1997 among SHONEY'S,
INC., a Tennessee corporation (the "Borrower"), the banks, financial
institutions and other institutional lenders listed on the signature pages
hereof as the Initial Lenders (the "Initial Lenders"), NATIONSBANK, N.A.
("NationsBank"), as the initial issuing bank (in such capacity, the "Initial
Issuing Bank"), FIRST AMERICAN NATIONAL BANK, as the swing line bank (in such
capacity, the "Swing Line Bank"), NATIONSBANK, as administrative agent (together
with any successor appointed pursuant to Article VII, the "Administrative
Agent") for the Lender Parties (as hereinafter defined), and NATIONSBANC
MONTGOMERY SECURITIES, INC. ("NMSI"), as arranger (in such capacity, the
"Arranger") and as syndication agent (in such capacity, the "Syndication Agent")
for the Lender Parties.
PRELIMINARY STATEMENT:
The Borrower has requested that the Lender Parties lend to it
up to $375,000,000 to refinance certain Existing Debt (as hereinafter defined)
of the Borrower and its Subsidiaries (as hereinafter defined) and to pay
transaction fees and expenses and that, from time to time, the Lender Parties
lend to the Borrower to provide working capital for the Borrower and its
Subsidiaries and issue Letters of Credit for the benefit of the Borrower. The
Lender Parties have indicated their willingness to agree to lend such amounts on
the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements contained herein, the parties hereto hereby
agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"Account Credit Amount" has the meaning specified in Section
2.01(d).
"Account Debit Amount" has the meaning specified in Section
2.01(d).
"Administrative Agent" has the meaning specified in the
recital of parties to this Agreement.
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"Administrative Agent's Account" means the account of the
Administrative Agent maintained by the Administrative Agent with
NationsBank at its office at 101 North Tryon Street, Independence
Center, 15th Floor, Charlotte, NC 28255, ABA No. 053000196, Account No.
136621-2250600, Attention: Corporate Credit Services, Ref: Shoney's.
"Advance" means a Term A Advance, a Term B Advance, a Working
Capital Advance, a Swing Line Advance or a Letter of Credit Advance.
"Affiliate" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person or is a director or officer of such Person.
For purposes of this definition, the term "control" (including the
terms "controlling," "controlled by" and "under common control with")
of a Person means the possession, direct or indirect, of the power to
vote 10% or more of the Voting Stock of such Person or to direct or
cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock, by contract or
otherwise.
"Applicable Lending Office" means, with respect to each Lender
Party, such Lender Party's Domestic Lending Office in the case of a
Prime Rate Advance and such Lender Party's Eurodollar Lending Office in
the case of a Eurodollar Rate Advance.
"Applicable Margin" means (x) prior to the date on which the
quarterly financial statements in respect of the fiscal quarter of the
Borrower ending May 10, 1998 are delivered to the Administrative Agent
pursuant to Section 5.03(c), (i) in respect of the Term A Facility and
the Working Capital Facility, 1-1/2% per annum for Prime Rate Advances
and 2-1/2% per annum for Eurodollar Rate Advances and (ii) in respect
of the Term B Facility, 2% per annum for Prime Rate Advances and 3% per
annum for Eurodollar Rate Advances and (y) thereafter a percentage per
annum determined by reference to the Leverage Ratio as set forth on
Schedule II. The Applicable Margin for each Prime Rate Advance shall be
determined by reference to the Leverage Ratio in effect from time to
time and the Applicable Margin for each Eurodollar Rate Advance shall
be determined by reference to the Leverage Ratio in effect on the first
day of each Interest Period for such Advance; provided, however, that
(A) no change in the Applicable Margin shall be effective until five
Business Days after the date on which the Administrative Agent receives
financial statements pursuant to Section 5.03(c) or (d) and a
certificate of the chief financial officer or principal financial
officer of the Borrower demonstrating such Leverage Ratio, and (B) if
the Borrower has not submitted to the Administrative Agent the
information described in clause (A) of this proviso as and when
required under Section 5.03(c) or (d), as the case may be, the
Applicable Margin shall be at Level 1
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as set forth on Schedule II for so long as such information has not
been received by the Administrative Agent.
"Appropriate Lender" means, at any time, with respect to (a)
any of the Term A, Term B or Working Capital Facilities, a Lender that
has a commitment with respect to such Facility at such time, (b) the
Letter of Credit Facility, (i) the Issuing Bank and (ii) if the other
Working Capital Lenders have made Letter of Credit Advances pursuant to
Section 2.03(c) that are outstanding at such time, each such other
Working Capital Lender and (c) the Swing Line Facility, the Swing Line
Bank.
"Arranger" has the meaning specified in the recital of parties
to this Agreement.
"Asset Impairment Charges" means all non-cash charges taken by
the Borrower and its Subsidiaries on or after October 26, 1997 in
accordance with Statement of Financial Accounting Standards No. 121.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender Party and an Eligible Assignee, and accepted
by the Administrative Agent, in accordance with Section 8.07 and in
substantially the form of Exhibit C hereto.
"Available Amount" of any Letter of Credit means, at any time,
the maximum amount available to be drawn under such Letter of Credit at
such time (assuming compliance at such time with all conditions to
drawing).
"Bank Hedge Agreement" means any interest rate Hedge Agreement
required or permitted under Article V that is entered into by and
between the Borrower and any Hedge Bank.
"Borrower" has the meaning specified in the recital of parties
to this Agreement.
"Borrower's Account" means the account of the Borrower
maintained by the Borrower with NationsBank at its office at 101 North
Tryon Street, Independence Center, 15th Floor, Charlotte, NC 28255,
Account No. 375-001-4916.
"Borrowing" means a Term A Borrowing, a Term B Borrowing, a
Working Capital Borrowing or a Swing Line Borrowing.
"Bridge Loan Credit Agreement" means the Bridge Loan Credit
Agreement dated as of May 3, 1996, as amended by Modification Agreement
No. 1 to Bridge
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Loan Credit Agreement dated as of November 24, 1996, by Modification
Agreement No. 2 to Bridge Loan Credit Agreement dated as of January 9,
1997 and by Waiver Agreement No. 1 to Bridge Loan Credit Agreement
dated as of October 21, 1997, among the Borrower, the other financial
institutions party thereto and Canadian Imperial Bank of Commerce.
"Business Day" means a day of the year on which banks are not
required or authorized by law to close in Charlotte, North Carolina or
New York, New York and, if the applicable Business Day relates to any
Eurodollar Rate Advances, on which dealings are carried on in the
London interbank market.
"Capital Expenditures" means, for any Person for any period,
the sum of (a) all expenditures made, directly or indirectly, by such
Person or any of its Subsidiaries during such period for equipment,
fixed assets, real property or improvements, or for replacements or
substitutions therefor or additions thereto, that have been or should
be, in accordance with GAAP, reflected as additions to property, plant
or equipment on a Consolidated balance sheet of such Person plus
(without duplication) (b) the aggregate principal amount of all Debt
(including Obligations under Capitalized Leases) assumed or incurred in
connection with any such expenditures. For purposes of this definition,
expenditures made for assets of the type described in clause (a) of the
immediately preceding sentence that are purchased simultaneously with
the trade-in of existing assets or with insurance proceeds shall be
included in Capital Expenditures only to the extent of the gross amount
of such purchase price less the credit granted by the seller of such
assets for the assets being traded in at such time or the amount of
such insurance proceeds, as the case may be.
"Capitalized Leases" means all leases that have been or should
be, in accordance with GAAP, recorded as capitalized leases.
"Cash Equivalents" means any of the following, to the extent
owned by the Borrower or any of its Subsidiaries free and clear of all
Liens other than Liens created under the Collateral Documents and
having a maturity of not greater than one year from the date of
acquisition thereof: (a) readily marketable direct obligations of the
Government of the United States or any agency or instrumentality
thereof or obligations unconditionally guaranteed by the full faith and
credit of the Government of the United States, (b) insured certificates
of deposit of or time deposits with any commercial bank that (i) is a
Lender Party or a member of the Federal Reserve System, (ii) issues (or
the parent of which issues) commercial paper rated as described in
clause (c), (iii) is organized under the laws of the United States or
any State thereof and (iv) has combined capital and surplus of at least
$1 billion, (c) commercial paper in an aggregate amount of no more than
$1,000,000 per issuer outstanding at any time, issued by any
corporation organized under the laws of any
<PAGE> 11
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State of the United States and rated at least "Prime-1" (or the then
equivalent grade) by Moody's Investors Service, Inc. or "A-1" (or the
then equivalent grade) by Standard & Poor's Ratings Group or (d) any
repurchase agreement entered into with either any Lender Party or any
other commercial banking institution of the nature referred to in
clause (b), secured by a fully perfected Lien in any obligation of the
type described in any of clauses (a) through (c), having a market value
at the time such repurchase agreement is entered into of not less than
100% of the repurchase obligation thereunder of such Lender Party or
other commercial banking institution.
"Cash Management Account" has the meaning specified in Section
2.01(d).
"Cash Management Documentation" has the meaning specified in
Section 2.01(d).
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to time.
"CERCLIS" means the Comprehensive Environmental Response,
Compensation and Liability Information System maintained by the U.S.
Environmental Protection Agency.
"Certificate of Merger" means that certain Certificate of
Merger of even date herewith, between Shoney's Real Estate, Inc. and
Shoney's SPV, pursuant to which Shoney's Real Estate, Inc. is to be
merged into Shoney's SPV and which is to be filed with the Secretary of
State of Delaware, in form satisfactory to the Administrative Agent.
"Collateral" means all "Collateral" referred to in the
Collateral Documents and all other property that is or is intended to
be subject to any Lien in favor of the Administrative Agent for the
benefit of the Secured Parties.
"Collateral Documents" means the Security Agreement, the
Intellectual Property Security Agreement and the Mortgages and any
other agreement that creates or purports to create a Lien in favor of
the Administrative Agent for the benefit of the Secured Parties.
"Collateral Grantor" means the Borrower and each Subsidiary
Guarantor other than TPI SPV, Shoney's SPV, Shoney's of Michigan and
Commissary Operations.
"Commissary Operations" means Commissary Operations, Inc., a
Tennessee corporation.
<PAGE> 12
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"Commitment" means a Term A Commitment, a Term B Commitment, a
Working Capital Commitment or a Letter of Credit Commitment.
"Confidential Information" means information that the Borrower
furnishes to the Administrative Agent or any Lender Party on a
confidential basis, but does not include any such information that is
or becomes generally available to the public other than as a result of
a breach by the Administrative Agent or any Lender Party of its
obligations hereunder or that is or becomes available to the
Administrative Agent or such Lender Party from a source other than the
Borrower that is not, to the best of the Administrative Agent's or such
Lender Party's knowledge, acting in violation of a confidentiality
agreement with the Borrower.
"Consolidated" refers to the consolidation of accounts in
accordance with GAAP.
"Conversion", "Convert" and "Converted" each refer to a
conversion of Advances of one Type into Advances of the other Type
pursuant to Section 2.09 or 2.10.
"Current Assets" of any Person means all assets of such Person
that would, in accordance with GAAP, be classified as current assets of
a company conducting a business the same as or similar to that of such
Person, after deducting adequate reserves in each case in which a
reserve is proper in accordance with GAAP.
"Current Liabilities" of any Person means (a) all Debt of such
Person that by its terms is payable on demand or matures within one
year after the date of creation (excluding any Debt renewable or
extendible, at the option of such Person, to a date more than one year
from such date or arising under a revolving credit or similar agreement
that obligates the lender or lenders thereunder to extend credit during
a period of more than one year from such date) and (b) all other items
(including taxes accrued as estimated) that in accordance with GAAP
would be classified as current liabilities of such Person.
"Debentures" means those certain subordinated and unsecured
debentures originally issued by TPI Enterprises, Inc. and subsequently
assumed by the Borrower pursuant to the Indenture in the original
principal amount of Fifty-One Million Five Hundred Sixty-Three Thousand
Dollars ($51,563,000), which are designated 8.25% Convertible
Subordinated Debentures due 2002.
"Debt" of any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all Obligations of
such Person for the deferred purchase price of property or services
(other than trade payables not overdue by more
<PAGE> 13
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than 60 days incurred in the ordinary course of such Person's
business), (c) all Obligations of such Person evidenced by notes,
bonds, debentures or other similar instruments, (d) all Obligations of
such Person created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender
under such agreement in the event of default are limited to
repossession or sale of such property), (e) all Obligations of such
Person as lessee under Capitalized Leases, (f) all Obligations,
contingent or otherwise, of such Person under acceptance, letter of
credit or similar facilities, (g) all Obligations of such Person to
purchase, redeem, retire, defease or otherwise make any payment in
respect of any capital stock of or other ownership or profit interest
in such Person or any other Person or any warrants, rights or options
to acquire such capital stock, valued, in the case of Redeemable
Preferred Stock, at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends, (h) all
Obligations of such Person in respect of Hedge Agreements, (i) all Debt
of others referred to in clauses (a) through (h) above or clause (j)
below guaranteed directly or indirectly in any manner by such Person,
or in effect guaranteed directly or indirectly by such Person through
an agreement (i) to pay or purchase such Debt or to advance or supply
funds for the payment or purchase of such Debt, (ii) to purchase, sell
or lease (as lessee or lessor) property, or to purchase or sell
services, primarily for the purpose of enabling the debtor to make
payment of such Debt or to assure the holder of such Debt against loss,
(iii) to supply funds to or in any other manner invest in the debtor
(including any agreement to pay for property or services irrespective
of whether such property is received or such services are rendered) or
(iv) otherwise to assure a creditor against loss, and (j) all Debt
referred to in clauses (a) through (i) above of another Person secured
by (or for which the holder of such Debt has an existing right,
contingent or otherwise, to be secured by) any Lien on property
(including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable
for the payment of such Debt.
"Debt for Borrowed Money" of any Person means all items that
in accordance with GAAP would be classified as debt on the Consolidated
balance sheet of such Person.
"Deed" shall mean a warranty deed in form sufficient under
applicable law to convey to Shoney's SPV the fee simple title to the
real property described in such Deed subject to the matters set forth
therein and otherwise satisfactory to the Lender Parties.
"Default" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
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"Defaulted Advance" means, with respect to any Lender Party at
any time, the portion of any Advance required to be made by such Lender
Party to the Borrower pursuant to Section 2.01 or 2.02 at or prior to
such time which has not been made by such Lender Party or by the
Administrative Agent for the account of such Lender Party pursuant to
Section 2.02(e) as of such time. In the event that a portion of a
Defaulted Advance shall be deemed made pursuant to Section 2.15(a), the
remaining portion of such Defaulted Advance shall be considered a
Defaulted Advance originally required to be made pursuant to Section
2.01 or 2.02 on the same date as the Defaulted Advance so deemed made
in part.
"Defaulted Amount" means, with respect to any Lender Party at
any time, any amount required to be paid by such Lender Party to the
Administrative Agent or any other Lender Party hereunder or under any
other Loan Document at or prior to such time which has not been so paid
as of such time, including, without limitation, any amount required to
be paid by such Lender Party to (a) the Swing Line Bank pursuant to
Section 2.02(b) to purchase a portion of a Swing Line Advance made by
the Swing Line Bank, (b) the Issuing Bank pursuant to Section 2.03(c)
to purchase a portion of a Letter of Credit Advance made by the Issuing
Bank, (c) the Administrative Agent pursuant to Section 2.02(e) to
reimburse the Administrative Agent for the amount of any Advance made
by the Administrative Agent for the account of such Lender Party, (d)
any other Lender Party pursuant to Section 2.13 to purchase any
participation in Advances owing to such other Lender Party and (e) the
Administrative Agent or the Issuing Bank pursuant to Section 7.05 to
reimburse the Administrative Agent or the Issuing Bank for such Lender
Party's ratable share of any amount required to be paid by the Lender
Parties to the Administrative Agent or the Issuing Bank as provided
therein. In the event that a portion of a Defaulted Amount shall be
deemed paid pursuant to Section 2.15(b), the remaining portion of such
Defaulted Amount shall be considered a Defaulted Amount originally
required to be paid hereunder or under any other Loan Document on the
same date as the Defaulted Amount so deemed paid in part.
"Defaulting Lender" means, at any time, any Lender Party that,
at such time, (a) owes a Defaulted Advance or a Defaulted Amount or (b)
shall take any action or be the subject of any action or proceeding of
a type described in Section 6.01(f).
"Disclosed Litigation" has the meaning specified in Section
3.01(d).
"Domestic Lending Office" means, with respect to any Lender
Party, the office of such Lender Party specified as its "Domestic
Lending Office" opposite its name on Schedule I hereto or in the
Assignment and Acceptance pursuant to which it became a Lender Party,
as the case may be, or such other office of such Lender Party
<PAGE> 15
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as such Lender Party may from time to time specify as its "Domestic
Lending Office" to the Borrower and the Administrative Agent.
"EBITDA" means, for any period, the sum, determined on a
Consolidated basis, of (a) net income (or net loss), plus (b) interest
expense, plus (c) income tax expense, plus (d) depreciation expense,
plus (e) amortization expense, plus (f) all non-cash losses and charges
deducted in arriving at such net income, less (g) all non-cash gains
included in arriving at such net income in each case of the Borrower
and its Subsidiaries, determined in accordance with GAAP for such
period.
"Eligible Assignee" means (a) with respect to the Revolving
Credit Facility, (i) a Lender; (ii) an Affiliate of a Lender; (iii) a
commercial bank organized under the laws of the United States, or any
State thereof, and having total assets in excess of $500,000,000; (iv)
a savings and loan association or savings bank organized under the laws
of the United States, or any State thereof, and having total assets in
excess of $500,000,000; (v) a commercial bank organized under the laws
of any other country that is a member of the OECD or has concluded
special lending arrangements with the International Monetary Fund
associated with its General Arrangements to Borrow, or a political
subdivision of any such country, and having total assets in excess of
$500,000,000, so long as such bank is acting through a branch or agency
located in the United States; (vi) the central bank of any country that
is a member of the OECD; (vii) a finance company, insurance company or
other financial institution or fund (whether a corporation,
partnership, trust or other entity) that is engaged in making,
purchasing or otherwise investing in commercial loans in the ordinary
course of its business and having total assets in excess of
$250,000,000; and (viii) any other Person approved by the
Administrative Agent and, unless a Default has occurred and is
continuing at the time any assignment is effected in accordance with
Section 8.07, the Borrower, such approval not to be unreasonably
withheld or delayed, (b) with respect to any Term Facility, (i) any
Person that is an Eligible Assignee under clause (a) of this definition
and (ii) any other Person that is a fund that regularly invests in
loans similar to the Term A Advances or Term B Advances, and (c) with
respect to the Letter of Credit Facility, a Person that is an Eligible
Assignee under subclause (iii) or (v) of clause (a) of this definition
and is approved by the Administrative Agent and, unless a Default has
occurred and is continuing at the time any assignment is effected in
accordance with Section 8.07, the Borrower, such approval not to be
unreasonably withheld or delayed; provided, however, that neither any
Loan Party nor any Affiliate of a Loan Party shall qualify as an
Eligible Assignee under this definition.
"Environmental Action" means any action, suit, demand, demand
letter, claim, notice of non-compliance or violation, notice of
liability or potential liability, investigation, proceeding, consent
order or consent agreement relating in any way to
<PAGE> 16
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any Environmental Law, any Environmental Permit or Hazardous Material
or arising from alleged injury or threat to health, safety or the
environment, including, without limitation, (a) by any governmental or
regulatory authority for enforcement, cleanup, removal, response,
remedial or other actions or damages and (b) by any governmental or
regulatory authority or third party for damages, contribution,
indemnification, cost recovery, compensation or injunctive relief.
"Environmental Law" means any federal, state, local or foreign
statute, law, ordinance, rule, regulation, code, order, writ, judgment,
injunction, decree or judicial or agency interpretation, policy or
guidance relating to pollution or protection of the environment,
health, safety or natural resources, including, without limitation,
those relating to the use, handling, transportation, treatment,
storage, disposal, release or discharge of Hazardous Materials.
"Environmental Permit" means any permit, approval,
identification number, license or other authorization required under
any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"ERISA Affiliate" means any Person that for purposes of Title
IV of ERISA is a member of the controlled group of any Loan Party, or
under common control with any Loan Party, within the meaning of Section
414 of the Internal Revenue Code.
"ERISA Event" means (a) (i) the occurrence of a reportable
event, within the meaning of Section 4043 of ERISA, with respect to any
Plan unless the 30-day notice requirement with respect to such event
has been waived by the PBGC, or (ii) the requirements of subsection (1)
of Section 4043(b) of ERISA (without regard to subsection (2) of such
Section) are met with respect to a contributing sponsor, as defined in
Section 4001(a)(13) of ERISA, of a Plan, and an event described in
paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is
reasonably expected to occur with respect to such Plan within the
following 30 days; (b) the application for a minimum funding waiver
with respect to a Plan; (c) the provision by the administrator of any
Plan of a notice of intent to terminate such Plan, pursuant to Section
4041(a)(2) of ERISA (including any such notice with respect to a plan
amendment referred to in Section 4041(e) of ERISA); (d) the cessation
of operations at a facility of any Loan Party or any ERISA Affiliate in
the circumstances described in Section 4062(e) of ERISA; (e) the
withdrawal by any Loan Party or any ERISA Affiliate from a Multiple
Employer Plan during a plan year for which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions
for imposition of a lien under Section 302(f) of ERISA shall have been
met with
<PAGE> 17
11
respect to any Plan; (g) the adoption of an amendment to a Plan
requiring the provision of security to such Plan pursuant to Section
307 of ERISA; or (h) the institution by the PBGC of proceedings to
terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence
of any event or condition described in Section 4042 of ERISA that
constitutes grounds for the termination of, or the appointment of a
trustee to administer, such Plan.
"Eurocurrency Liabilities" has the meaning specified in
Regulation D of the Board of Governors of the Federal Reserve System,
as in effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender
Party, the office of such Lender Party specified as its "Eurodollar
Lending Office" opposite its name on Schedule I hereto or in the
Assignment and Acceptance pursuant to which it became a Lender Party
(or, if no such office is specified, its Domestic Lending Office), or
such other office of such Lender Party as such Lender Party may from
time to time specify as its "Eurodollar Lending Office" to the Borrower
and the Administrative Agent.
"Eurodollar Rate" means, for any Interest Period for all
Eurodollar Rate Advances comprising part of the same Borrowing, an
interest rate per annum equal to the rate per annum obtained by
dividing (a) the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor
page) as the London interbank offered rate for deposits in U.S. dollars
at 11:00 A.M. (London time) two Business Days before the first day of
such Interest Period for a period equal to such Interest Period
(provided that, if for any reason such rate is not available, the term
"Eurodollar Rate" shall mean, for any Interest Period for all
Eurodollar Rate Advances comprising part of the same Borrowing, the
rate per annum (rounded upwards, if necessary, to the nearest 1/100 of
1%) appearing on Reuters Screen LIBO Page as the London interbank
offered rate for deposits in Dollars at approximately 11:00 A.M.
(London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period; provided,
however, if more than one rate is specified on Reuters Screen LIBO
Page, the applicable rate shall be the arithmetic mean of all such
rates) by (b) a percentage equal to 100% minus the Eurodollar Rate
Reserve Percentage for such Interest Period.
"Eurodollar Rate Advance" means an Advance that bears interest
as provided in Section 2.07(a)(ii).
"Eurodollar Rate Reserve Percentage" means, for any Interest
Period for all Eurodollar Rate Advances comprising part of the same
Borrowing, the reserve percentage applicable two Business Days before
the first day of such Interest Period
<PAGE> 18
12
under regulations issued from time to time by the Board of Governors of
the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including, without limitation, any
emergency, supplemental or other marginal reserve requirement) for a
member bank of the Federal Reserve System in New York City with respect
to liabilities or assets consisting of or including Eurocurrency
Liabilities (or with respect to any other category of liabilities that
includes deposits by reference to which the interest rate on Eurodollar
Rate Advances is determined) having a term equal to such Interest
Period.
"Events of Default" has the meaning specified in Section 6.01.
"Excess Cash Flow" means, for any period, the amount equal to
the sum of (i) Consolidated net income (or loss) of the Borrower and
its Subsidiaries for such period plus (ii) the aggregate amount of all
non-cash charges deducted in arriving at such Consolidated net income
(or loss) plus (iii) if there was a net increase in Consolidated
Current Liabilities of the Borrower and its Subsidiaries during such
period, the amount of such net increase plus (iv) if there was a net
decrease in Consolidated Current Assets (excluding Cash and Cash
Equivalents) of the Borrower and its Subsidiaries during such period,
the amount of such net decrease less (v) the aggregate amount of all
gains relating to any sale of assets added in arriving at such
Consolidated net income (or loss) less (vi) the aggregate amount of all
non-cash credits included in arriving at such Consolidated net income
(or loss) less (vii) if there was a net decrease in Consolidated
Current Liabilities of the Borrower and its Subsidiaries during such
period, the amount of such net decrease less (viii) if there was a net
increase in Consolidated Current Assets (excluding cash and Cash
Equivalents) of the Borrower and its Subsidiaries during such period,
the amount of such net increase less (ix) the aggregate amount of cash
Capital Expenditures made by the Borrower and its Subsidiaries during
such period less (x) the aggregate principal amount of all scheduled
amortization payments in respect of Debt paid by the Borrower and its
Subsidiaries during such period and the aggregate principal amount of
all Debt optionally prepaid by the Borrower and its Subsidiaries during
such period (with, in the case of revolving credit facilities, a
corresponding reduction in the commitments under such revolving credit
facilities).
"Existing Debt" has the meaning specified in Section 4.01(gg)
hereof.
"Existing Mortgage Notes" means the Debt listed as items 6, 7
and 8 on Schedule 4.01(gg).
"Existing Subsidiary" shall have the meaning set forth in the
Indenture.
<PAGE> 19
13
"Facility" means the Term A Facility, the Term B Facility, the
Working Capital Facility, the Swing Line Facility or the Letter of
Credit Facility.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day that is a
Business Day, the average of the quotations for such day for such
transactions received by the Administrative Agent from three Federal
funds brokers of recognized standing selected by it.
"First American Credit Agreement" means the Amended and
Restated Revolving Credit Agreement dated as of July 24, 1997, between
the Borrower and First American National Bank.
"Fiscal Year" means a fiscal year of the Borrower and its
Subsidiaries ending on the last Sunday in October in any calendar year.
"GAAP" has the meaning specified in Section 1.03.
"Hazardous Materials" means (a) petroleum or petroleum
products, by-products or breakdown products, radioactive materials,
asbestos-containing materials, polychlorinated biphenyls and radon gas
and (b) any other chemicals, materials or substances designated,
classified or regulated as hazardous or toxic or as a pollutant or
contaminant under any Environmental Law.
"Hedge Agreements" means interest rate swap, cap or collar
agreements, interest rate future or option contracts, currency swap
agreements, currency future or option contracts and other similar
agreements.
"Hedge Bank" means any Lender Party or any of its Affiliates
in its capacity as a party to a Bank Hedge Agreement.
"Indemnified Party" has the meaning specified in Section
8.04(b).
"Indenture" shall mean that certain Indenture dated as of July
15, 1992, as amended by that First Supplemental Indenture dated as of
September 9, 1996, between and among the Borrower (as successor to TPI
Enterprises, Inc. pursuant to the First Supplemental Indenture), TPI
and The Bank of New York as trustee, pursuant to which the Debentures
were issued.
<PAGE> 20
14
"Information Memorandum" means the Offering Memorandum dated
October 1997 used by the Arranger and the Administrative Agent in
connection with the syndication of the Commitments.
"Initial Extension of Credit" means the earlier to occur of
the initial Borrowing and the initial issuance of a Letter of Credit
hereunder.
"Initial Issuing Bank" has the meaning specified in the
recital of parties to this Agreement.
"Initial Lenders" has the meaning specified in the recital of
parties to this Agreement.
"Insufficiency" means, with respect to any Plan, the amount,
if any, of its unfunded benefit liabilities, as defined in Section
4001(a)(18) of ERISA.
"Intellectual Property Security Agreement" has the meaning
specified in Section 3.01(g)(ix).
"Interest Expense" means, as of the last day of any fiscal
quarter, cash interest expense of the Borrower and its Subsidiaries on
a Consolidated basis for the most recently ended four fiscal quarters;
provided, however, that (x) for the fiscal quarter ended February 15,
1998, Interest Expense shall be the product of cash interest expense
for such fiscal quarter times a fraction the numerator of which is 13
and the denominator of which is 4, (y) for the fiscal quarter ended May
10, 1998, Interest Expense shall be the product of cash interest
expense for the two fiscal quarters then ended times a fraction the
numerator of which is 13 and the denominator of which is 7 and (z) for
the fiscal quarter ended August 2, 1998, Interest Expense shall be the
product of cash interest expense for the three fiscal quarters then
ended times a fraction the numerator of which is 13 and the denominator
of which is 10.
"Interest Period" means, for each Eurodollar Rate Advance
comprising part of the same Borrowing, the period commencing on the
date of such Eurodollar Rate Advance or the date of the Conversion of
any Prime Rate Advance into such Eurodollar Rate Advance, and ending on
the last day of the period selected by the Borrower pursuant to the
provisions below and, thereafter, each subsequent period commencing on
the last day of the immediately preceding Interest Period and ending on
the last day of the period selected by the Borrower pursuant to the
provisions below. The duration of each such Interest Period shall be
one, two, three or six months, as the Borrower may, upon notice
received by the Administrative Agent not later than 11:00 A.M.
(Charlotte, North Carolina time) on the third Business Day prior to the
first day of such Interest Period, select; provided, however, that:
<PAGE> 21
15
(a) the Borrower may not select any Interest Period
with respect to any Eurodollar Rate Advance under a Facility
that ends after any principal repayment installment date for
such Facility unless, after giving effect to such selection,
the aggregate principal amount of Prime Rate Advances and of
Eurodollar Rate Advances having Interest Periods that end on
or prior to such principal repayment installment date for such
Facility shall be at least equal to the aggregate principal
amount of Advances under such Facility due and payable on or
prior to such date;
(b) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur on
the next succeeding Business Day, provided, however, that, if
such extension would cause the last day of such Interest
Period to occur in the next following calendar month, the last
day of such Interest Period shall occur on the next preceding
Business Day; and
(c) whenever the first day of any Interest Period
occurs on a day of an initial calendar month for which there
is no numerically corresponding day in the calendar month that
succeeds such initial calendar month by the number of months
equal to the number of months in such Interest Period, such
Interest Period shall end on the last Business Day of such
succeeding calendar month.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"Investment" in any Person means any loan or advance to such
Person, any purchase or other acquisition of any capital stock or other
ownership or profit interest, warrants, rights, options, obligations or
other securities of such Person, any capital contribution to such
Person or any other investment in such Person, including, without
limitation, any arrangement pursuant to which the investor incurs Debt
of the types referred to in clause (i) or (j) of the definition of
"Debt" in respect of such Person. The amount of any Investment shall be
the original principal or capital amount thereof less the sum of (i)
all cash returns of principal or equity thereon and (ii) in the case of
any guaranty, any reduction in the aggregate amount of liability under
such guaranty to the extent that such reduction is made strictly in
accordance with the terms of such guaranty (and, in each case, without
adjustment by reason of the financial condition of such other Person).
"Issuing Bank" means the Initial Issuing Bank and each
Eligible Assignee to which the Letter of Credit Commitment hereunder
has been assigned pursuant to Section 8.07.
<PAGE> 22
16
"L/C Cash Collateral Account" has the meaning specified in the
Security Agreement.
"L/C Related Documents" has the meaning specified in Section
2.04(e)(ii)(A).
"Lender Party" means any Lender, the Issuing Bank or the Swing
Line Bank.
"Lenders" means the Initial Lenders and each Person that shall
become a Lender hereunder pursuant to Section 8.07.
"Letter of Credit" has the meaning specified in Section
2.01(e).
"Letter of Credit Advance" means an advance made by the
Issuing Bank or any Working Capital Lender pursuant to Section 2.03(c).
"Letter of Credit Agreement" has the meaning specified in
Section 2.03(a).
"Letter of Credit Commitment" means, with respect to the
Issuing Bank at any time, the amount set forth opposite the Issuing
Bank's name on Schedule I hereto under the caption "Letter of Credit
Commitment" or, if the Issuing Bank has entered into one or more
Assignments and Acceptances, set forth for the Issuing Bank in the
Register maintained by the Administrative Agent pursuant to Section
8.07(d) as the Issuing Bank's "Letter of Credit Commitment", as such
amount may be reduced at or prior to such time pursuant to Section
2.05.
"Letter of Credit Facility" means, at any time, an amount
equal to the amount of the Issuing Bank's Letter of Credit Commitment
at such time, as such amount may be reduced at or prior to such time
pursuant to Section 2.05.
"Leverage Ratio" means, as of the end of each fiscal quarter
of the Borrower, a ratio of (i) Debt for Borrowed Money of the Borrower
and its Subsidiaries as at the end of such fiscal quarter less the sum
of cash and Cash Equivalents held by the Borrower and its Subsidiaries
at the end of such fiscal quarter to (ii) Consolidated EBITDA of the
Borrower and its Subsidiaries for the four fiscal quarter period ending
at the end of such fiscal quarter.
"Lien" means any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance
on title to real property.
<PAGE> 23
17
"Loan Documents" means (a) for purposes of this Agreement and
the Notes and any amendment or modification hereof or thereof and for
all other purposes other than for purposes of the Subsidiary Guaranty
and the Collateral Documents, (i) this Agreement, (ii) the Notes, (iii)
the Subsidiary Guaranty, (iv) the Collateral Documents and (v) each
Letter of Credit Agreement and (b) for purposes of the Subsidiary
Guaranty and the Collateral Documents, (i) this Agreement, (ii) the
Notes, (iii) the Subsidiary Guaranty, (iv) the Collateral Documents,
(v) each Letter of Credit Agreement and (vi) each Bank Hedge Agreement,
in each case as amended or otherwise modified from time to time.
"Loan Parties" means the Borrower and the Subsidiary
Guarantors.
"Margin Stock" has the meaning specified in Regulation U.
"Master Lease" means the Amended and Restated Master Lease
Agreement described in Section 3.01(k) and the Master Lease Agreement
described in Section 5.01(n)(ii).
"Material Adverse Change" means any material adverse change in
the business, condition (financial or otherwise), operations,
performance, properties or prospects of any Loan Party or any of its
Subsidiaries.
"Material Adverse Effect" means a material adverse effect on
(a) the business, condition (financial or otherwise), operations,
performance, properties or prospects of any Loan Party or any of its
Subsidiaries, (b) the rights and remedies of the Administrative Agent
or any Lender Party under any Loan Document or (c) the ability of any
Loan Party to perform its Obligations under any Loan Document to which
it is or is to be a party.
"Mortgage" has the meaning specified in Section 3.01(g)(x).
"Mortgage Policy" has the meaning specified in Section
3.01(g)(x)(B).
"Multiemployer Plan" means a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, to which any Loan Party or any ERISA
Affiliate is making or accruing an obligation to make contributions, or
has within any of the preceding five plan years made or accrued an
obligation to make contributions.
"Multiple Employer Plan" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of any Loan Party or any ERISA Affiliate and at least one
Person other than the Loan Parties and the ERISA Affiliates or (b) was
so maintained and in respect of which any Loan Party or
<PAGE> 24
18
any ERISA Affiliate could have liability under Section 4064 or 4069 of
ERISA in the event such plan has been or were to be terminated.
"NationsBank" has the meaning specified in the recital of
parties to this Agreement.
"Net Cash Proceeds" means, with respect to any sale, transfer
or other disposition (other than by lease but including by way of the
occurrence of an event that gives rise to insurance proceeds as
contemplated by Section 5.01(d)(i)) of any asset or the sale or
issuance of any Debt or capital stock or other ownership or profit
interest, any securities convertible into or exchangeable for capital
stock or other ownership or profit interest or any warrants, rights,
options or other securities to acquire capital stock or other ownership
or profit interest by any Person (excluding proceeds received pursuant
to employee stock purchase plans, director or employee option plans or
other employee benefit plans, provided that the aggregate amount of all
such proceeds excluded from the calculation of "Net Cash Proceeds" from
and after the date hereof shall not exceed $5,000,000), the aggregate
amount of cash received from time to time (whether as initial
consideration or through payment or disposition of deferred
consideration) by or on behalf of such Person in connection with such
transaction after deducting therefrom only (without duplication) (a)
reasonable and customary brokerage fees and commissions for similar
transactions, underwriting fees and discounts, legal fees, finder's
fees and other similar fees and commissions estimated to be paid in
connection with or as a result of such transaction and (b) the amount
of taxes estimated to be paid in connection with or as a result of such
transaction and (c) the amount of any Debt secured by a Lien on such
asset that, by the terms of such transaction, is required to be repaid
upon such disposition, in each case to the extent, but only to the
extent, that the amounts so deducted are, at the time of receipt of
such cash, actually paid to a Person that is not an Affiliate of such
Person or any Loan Party or any Affiliate of any Loan Party and are
properly attributable to such transaction or to the asset that is the
subject thereof; provided, however, that if any amounts described in
clauses (a) and (b) estimated to be paid in connection with or as a
result of any such transaction are not paid within one year following
the date of such transaction, the excess of such estimated amounts over
the amount of such fees, discounts, commissions and taxes paid within
such one-year period in connection with or as a result of such
transaction shall be "Net Cash Proceeds" at the end of such one-year
period; provided further that Net Cash Proceeds that are comprised of
insurance proceeds shall not include any such insurance proceeds to the
extent such insurance proceeds are applied to the replacement of the
asset or property in respect of which such insurance proceeds were
received, so long as such application is made within 12 months after
the occurrence of the event giving rise to such insurance proceeds.
<PAGE> 25
19
"NMSI" has the meaning specified in the recital of parties to
the Agreement.
"Nonratable Assignment" means an assignment by a Lender Party
pursuant to Section 8.07(a) of a portion of its rights and obligations
under this Agreement, other than an assignment of a uniform, and not a
varying percentage of all of the rights and obligations of such Lender
Party under and in respect of all of the Facilities (other than the
Letter of Credit Facility and the Swing Line Facility).
"Note" means a Term A Note, a Term B Note or a Working Capital
Note.
"Notice of Borrowing" has the meaning specified in Section
2.02(a).
"Notice of Issuance" has the meaning specified in Section
2.03(a).
"Notice of Renewal" has the meaning specified in Section
2.01(e).
"Notice of Termination" has the meaning specified in Section
2.01(e).
"NPL" means the National Priorities List under CERCLA.
"Obligation" means, with respect to any Person, any payment,
performance or other obligation of such Person of any kind, including,
without limitation, any liability of such Person on any claim, whether
or not the right of any creditor to payment in respect of such claim is
reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, disputed, undisputed, legal, equitable, secured or unsecured,
and whether or not such claim is discharged, stayed or otherwise
affected by any proceeding referred to in Section 6.01(f). Without
limiting the generality of the foregoing, the Obligations of the Loan
Parties under the Loan Documents include (a) the obligation to pay
principal, interest, Letter of Credit commissions, charges, expenses,
fees, attorneys' fees and disbursements, indemnities and other amounts
payable by any Loan Party under any Loan Document and (b) the
obligation of any Loan Party to reimburse any amount in respect of any
of the foregoing that any Lender Party, in its sole discretion, may
elect to pay or advance on behalf of such Loan Party.
"OECD" means the Organization for Economic Cooperation and
Development.
"Open Year" has the meaning specified in Section 4.01(aa).
"Operate-to-Improve Stores" means the stores listed on
Schedule 5.04.
"Other Taxes" has the meaning specified in Section 2.12(b).
<PAGE> 26
20
"PBGC" means the Pension Benefit Guaranty Corporation (or any
successor).
"Permitted Encumbrances" has the meaning specified in the
Mortgages.
"Permitted Liens" means (i) such of the following as to which
no enforcement, collection, execution, levy or foreclosure proceeding
shall have been commenced: (a) Liens for taxes, assessments and
governmental charges or levies not yet due and payable or that are
being contested in good faith and by proper proceedings and as to which
appropriate reserves are being maintained; (b) Liens (other than
materialmen's, mechanics', carriers', workmen's and repairmen's Liens)
arising in the ordinary course of business securing obligations that
are not overdue for a period of more than 180 days or being contested
in good faith and by proper proceedings and as to which appropriate
reserves are being maintained; and (c) pledges or deposits to secure
obligations under workers' compensation laws or similar legislation or
to secure public or statutory obligations; and (ii) easements, rights
of way and other encumbrances on title to real property that do not
render title to the property encumbered thereby unmarketable or
materially adversely affect the use of such property for its present
purposes.
"Person" means an individual, partnership, corporation
(including a business trust), limited liability company, joint stock
company, trust, unincorporated association, joint venture or other
entity, or a government or any political subdivision or agency thereof.
"Plan" means a Single Employer Plan or a Multiple Employer
Plan.
"Preferred Stock" means, with respect to any corporation,
capital stock issued by such corporation that is entitled to a
preference or priority over any other capital stock issued by such
corporation upon any distribution of such corporation's assets, whether
by dividend or upon liquidation.
"Prime Rate" means a fluctuating interest rate per annum in
effect from time to time, which rate per annum shall at all times be
equal to the higher of:
(a) the rate of interest announced publicly
by NationsBank, N.A. in Charlotte, North Carolina from time to
time, as NationsBank's prime rate base rate; or
(b) 1/2 of one percent per annum above the
Federal Funds Rate.
"Prime Rate Advance" means an Advance that bears interest as
provided in Section 2.07(a)(i).
<PAGE> 27
21
"Pro Rata Share" of any amount means, with respect to any
Working Capital Lender at any time, the product of such amount times a
fraction the numerator of which is the amount of such Lender's Working
Capital Commitment at such time and the denominator of which is the
Working Capital Facility at such time.
"Redeemable" means, with respect to any capital stock or other
ownership or profit interest, Debt or other right or Obligation, any
such right or Obligation that (a) the issuer has undertaken to redeem
at a fixed or determinable date or dates, whether by operation of a
sinking fund or otherwise, or upon the occurrence of a condition not
solely within the control of the issuer or (b) is redeemable at the
option of the holder.
"Redemption Price" shall have the meaning set forth in the
Indenture.
"Reducing Revolving Credit Agreement" means the Amended and
Restated Reducing Revolving Credit Agreement dated as of July 21, 1993
as amended and restated as of May 3, 1996 and amended by Modification
Agreement No. 1 to Amended and Restated Reducing Revolving Credit
Agreement dated as of October 24, 1996, Modification Agreement No. 2 to
Amended and Restated Reducing Revolving Credit Agreement dated as of
January 9, 1997, and Waiver Agreement No. 1 to Amended and Restated
Reducing Revolving Credit Agreement dated as of October 21, 1997, among
the Borrower, CIBC Inc., Canadian Imperial Bank of Commerce and the
other financial institutions party thereto.
"Register" has the meaning specified in Section 8.07(d).
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"Repurchase Price" shall have the meaning set forth in the
Indenture.
"Required Lenders" means at any time Lenders owed or holding
at least a majority in interest of the sum of (a) the aggregate
principal amount of the Advances outstanding at such time, (b) the
aggregate Available Amount of all Letters of Credit outstanding at such
time, (c) the aggregate unused Commitments under the Term A Facility
and the Term B Facility at such time and (d) the aggregate unused
Working Capital Commitments at such time; provided, however, that if
any Lender shall be a Defaulting Lender at such time, there shall be
excluded from the determination of Required Lenders at such time (A)
the aggregate principal amount of the Advances owing to such Lender (in
its capacity as a Lender) and outstanding at such time, (B) such
Lender's Pro Rata Share of the aggregate Available Amount of all
Letters of Credit issued by such Lender and outstanding at such time,
(C) the aggregate unused
<PAGE> 28
22
Term A and Term B Commitments of such Lender at such time and (D) the
Unused Working Capital Commitment of such Lender at such time. For
purposes of this definition, the aggregate principal amount of Swing
Line Advances owing to the Swing Line Bank and of Letter of Credit
Advances owing to the Issuing Bank and the Available Amount of each
Letter of Credit shall be considered to be owed to the Working Capital
Lenders ratably in accordance with their respective Working Capital
Commitments.
"Responsible Officer" means, with respect to any Loan Party or
any of its Subsidiaries, at the time any determination thereof is to be
made, each of those Persons who are the Chairman of the Board (if at
the time, an officer), President, Chief Financial Officer (regardless
of title), Treasurer, Corporate Controller (regardless of title),
Secretary or Assistant Treasurer of such Loan Party or Subsidiary.
"Restructuring Charges" means all non-cash charges taken by
the Borrower and its Subsidiaries on or after October 26, 1997 in
accordance with GAAP in respect of the closure of the
Operate-to-Improve Stores.
"Secured Parties" means the Administrative Agent, the Lender
Parties and the Hedge Banks.
"Security Agreement" has the meaning specified in Section
3.01(g)(viii).
"Shoney's of Michigan" means Shoney's of Michigan, Inc., a
Tennessee corporation.
"Shoney's SPV" means SHN Properties, LLC, a limited liability
company organized under the laws of the State of Delaware, which is a
"bankruptcy-remote" special purpose limited liability company.
"Significant Subsidiary" shall mean Commissary Operations,
Shoney's SPV, Shoney's of Michigan, TPI and TPI SPV.
"Single Employer Plan" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of any Loan Party or any ERISA Affiliate and no Person other
than the Loan Parties and the ERISA Affiliates or (b) was so maintained
and in respect of which any Loan Party or any ERISA Affiliate could
have liability under Section 4069 of ERISA in the event such plan has
been or were to be terminated.
<PAGE> 29
23
"Solvent" and "Solvency" mean, with respect to any Person on a
particular date, that on such date (a) the fair value of the property
of such Person is greater than the total amount of liabilities,
including, without limitation, contingent liabilities, of such Person,
(b) the present fair salable value of the assets of such Person is not
less than the amount that will be required to pay the probable
liability of such Person on its debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that
it will, incur debts or liabilities beyond such Person's ability to pay
or refinance such debts and liabilities as they mature and (d) such
Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's property
would constitute an unreasonably small capital. The amount of
contingent liabilities at any time shall be computed as the amount
that, in the light of all the facts and circumstances existing at such
time, represents the amount that can reasonably be expected to become
an actual or matured liability.
"Standby Letter of Credit" means any Letter of Credit issued
under the Letter of Credit Facility, other than a Trade Letter of
Credit.
"Subsidiary" of any Person means any corporation, partnership,
joint venture, limited liability company, trust or estate of which (or
in which) more than 50% of (a) the issued and outstanding capital stock
having ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether at the time
capital stock of any other class or classes of such corporation shall
or might have voting power upon the occurrence of any contingency), (b)
the interest in the capital or profits of such partnership, joint
venture or limited liability company or (c) the beneficial interest in
such trust or estate is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries.
"Subsidiary Guarantor" means TPI, TPI SPV, Shoney's SPV and
the other wholly-owned domestic Subsidiaries of the Borrower (other
than TPI Insurance Corporation).
"Subsidiary Guaranty" has the meaning specified in Section
3.01(g)(xi).
"Surviving Debt" has the meaning specified in Section
4.01(hh).
"Swing Line Advance" means an advance made by the Swing Line
Bank pursuant to Section 2.01(d).
"Swing Line Bank" has the meaning specified in the recital of
parties to this Agreement.
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24
"Swing Line Borrowing" means a borrowing consisting of a Swing
Line Advance made by the Swing Line Bank.
"Swing Line Facility" has the meaning specified in Section
2.01(d).
"Syndication Agent" has the meaning specified in the recitals
of the parties hereto.
"Taxes" has the meaning specified in Section 2.12(a).
"Term A Advance" has the meaning specified in Section 2.01(a).
"Term A Borrowing" means a borrowing consisting of
simultaneous Term A Advances of the same Type made by the Term A
Lenders.
"Term A Commitment" means, with respect to any Term A Lender
at any time, the amount set forth opposite such Lender's name on
Schedule I hereto under the caption "Term A Commitment" or, if such
Lender has entered into one or more Assignments and Acceptances, set
forth for such Lender in the Register maintained by the Administrative
Agent pursuant to Section 8.07(d) as such Lender's "Term A Commitment",
as such amount may be reduced at or prior to such time pursuant to
Section 2.05.
"Term A Facility" means, at any time, the aggregate amount of
the Term A Lenders' Term A Commitments at such time.
"Term A Lender" means any Lender that has a Term A Commitment.
"Term A Note" means a promissory note of the Borrower payable
to the order of any Term A Lender, in substantially the form of Exhibit
A-1 hereto, evidencing the indebtedness of the Borrower to such Lender
resulting from the Term A Advance made by such Lender.
"Term B Advance" has the meaning specified in Section 2.01(b).
"Term B Borrowing" means a borrowing consisting of
simultaneous Term B Advances of the same Type made by the Term B
Lenders.
"Term B Commitment" means, with respect to any Term B Lender
at any time, the amount set forth opposite such Lender's name on
Schedule I hereto under the caption "Term B Commitment" or, if such
Lender has entered into one or more Assignments and Acceptances, set
forth for such Lender in the Register maintained by
<PAGE> 31
25
the Agent pursuant to Section 8.07(d) as such Lender's "Term B
Commitment", as such amount may be reduced at or prior to such time
pursuant to Section 2.05.
"Term B Facility" means, at any time, the aggregate amount of
the Term B Lenders' Term B Commitments at such time.
"Term B Lender" means any Lender that has a Term B Commitment.
"Term B Note" means a promissory note of the Borrower payable
to the order of any Term B Lender, in substantially the form of Exhibit
A-2 hereto, evidencing the indebtedness of the Borrower to such Lender
resulting from the Term B Advance made by such Lender.
"Term Facilities" means the Term A Facility and the Term B
Facility.
"Termination Date" means the earlier of April 30, 2002 and the
date of termination in whole of the Term A Commitments, the Term B
Commitments, the Letter of Credit Commitments and the Working Capital
Commitments pursuant to Section 2.05 or 6.01.
"TPI" means TPI Restaurants, Inc., a Tennessee corporation.
"TPI SPV" means TPI Properties, Inc., a Tennessee corporation,
which is a "bankruptcy-remote" special purpose corporation.
"Trade Letter of Credit" means any Letter of Credit that is
issued under the Letter of Credit Facility for the benefit of a
supplier of inventory to the Borrower or any of its Subsidiaries to
effect payment for such inventory, the conditions to drawing under
which include the presentation to the Issuing Bank of negotiable bills
of lading, invoices and related documents sufficient, in the judgment
of the Issuing Bank, to create a valid and perfected lien on or
security interest in such inventory, bills of lading, invoices and
related documents in favor of the Issuing Bank.
"Type" refers to the distinction between Prime Rate Advances
and Eurodollar Rate Advances.
"Unused Working Capital Commitment" means, with respect to any
Working Capital Lender at any time, (a) such Lender's Working Capital
Commitment at such time minus (b) the sum of (i) the aggregate
principal amount of all Working Capital Advances and Letter of Credit
Advances made by such Lender (in its capacity as a Lender) and
outstanding at such time, plus (ii) such Lender's Pro Rata Share of (A)
the aggregate Available Amount of all Letters of Credit outstanding at
such time,
<PAGE> 32
26
(B) the aggregate principal amount of all Letter of Credit Advances
made by the Issuing Bank pursuant to Section 2.03(c) and outstanding at
such time and (C) the aggregate principal amount of all Swing Line
Advances made by the Swing Line Bank pursuant to Section 2.01(d) and
outstanding at such time.
"Variable Rate Notes" means the Debt listed in items 3, 4 and
5 of Schedule 4.01(gg).
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing similar functions) of such
Person, even if the right so to vote has been suspended by the
happening of such a contingency.
"Welfare Plan" means a welfare plan, as defined in Section
3(1) of ERISA, that is maintained for employees of any Loan Party or in
respect of which any Loan Party could have liability.
"Withdrawal Liability" has the meaning specified in Part I of
Subtitle E of Title IV of ERISA.
"Working Capital Advance" has the meaning specified in Section
2.01(c).
"Working Capital Borrowing" means a borrowing consisting of
simultaneous Working Capital Advances of the same Type made by the
Working Capital Lenders.
"Working Capital Commitment" means, with respect to any
Working Capital Lender at any time, the amount set forth opposite such
Lender's name on Schedule I hereto under the caption "Working Capital
Commitment" or, if such Lender has entered into one or more Assignments
and Acceptances, set forth for such Lender in the Register maintained
by the Administrative Agent pursuant to Section 8.07(d) as such
Lender's "Working Capital Commitment", as such amount may be reduced at
or prior to such time pursuant to Section 2.05.
"Working Capital Facility" means, at any time, the aggregate
amount of the Working Capital Lenders' Working Capital Commitments at
such time.
"Working Capital Lender" means any Lender that has a Working
Capital Commitment.
"Working Capital Note" means a promissory note of the Borrower
payable to the order of any Working Capital Lender, in substantially
the form of Exhibit A-3
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27
hereto, evidencing the aggregate indebtedness of the Borrower to such
Lender resulting from the Working Capital Advances made by such Lender.
SECTION 1.02. Computation of Time Periods. In this Agreement
in the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each mean "to but excluding".
SECTION 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles consistent with those applied in the preparation
of the financial statements referred to in Section 4.01(f) ("GAAP").
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
AND THE LETTERS OF CREDIT
SECTION 2.01. The Advances. (a) The Term A Advances. Each Term
A Lender severally agrees, on the terms and conditions hereinafter set forth, to
make a single advance (a "Term A Advance") to the Borrower on any Business Day
during the period from the date hereof until December 15, 1997 in an amount
equal to such Lender's Term A Commitment at such time. The Term A Borrowing
shall consist of Term A Advances made simultaneously by the Term A Lenders
ratably according to their Term A Commitments. Amounts borrowed under this
Section 2.01(a) and repaid or prepaid may not be reborrowed.
(b) The Term B Advances. Each Term B Lender severally agrees,
on the terms and conditions hereinafter set forth, to make a single advance (a
"Term B Advance") to the Borrower on any Business Day during the period from the
date hereof until December 15, 1997 in an amount equal to such Lender's Term B
Commitment at such time. The Term B Borrowing shall consist of Term B Advances
made simultaneously by the Term B Lenders ratably according to their Term B
Commitments. Amounts borrowed under this Section 2.01(b) and repaid or prepaid
may not be reborrowed.
(c) The Working Capital Advances. Each Working Capital Lender
severally agrees, on the terms and conditions hereinafter set forth, to make
advances (each a "Working Capital Advance") to the Borrower from time to time on
any Business Day during the period from the date hereof until the Termination
Date in an amount for each such Advance not to exceed such Lender's Unused
Working Capital Commitment at such time. Each Working Capital Borrowing shall be
in an aggregate amount of $2,000,000 or an integral multiple of $500,000 in
excess thereof (other than a Borrowing the proceeds of
<PAGE> 34
28
which shall be used solely to repay or prepay in full outstanding Swing Line
Advances or outstanding Letter of Credit Advances) and shall consist of Working
Capital Advances made simultaneously by the Working Capital Lenders ratably
according to their Working Capital Commitments. Within the limits of each
Working Capital Lender's Unused Working Capital Commitment in effect from time
to time, the Borrower may borrow under this Section 2.01(c), prepay pursuant to
Section 2.06(a) and reborrow under this Section 2.01(c).
(d) The Swing Line Advances. A swing line credit facility (the
"Swing Line Facility") in a principal amount not to exceed $15,000,000 shall be
established by the Swing Line Bank for the Borrower from the date hereof through
the Termination Date. In connection with the Swing Line Facility, the Borrower
shall maintain cash management operations with the Swing Line Bank in an account
with the Swing Line Bank (the "Cash Management Account"), and shall execute such
documentation in connection therewith as the Swing Line Bank may reasonably
require (the "Cash Management Documentation"). At the close of each Business Day
during the term of the Facilities, the Swing Line Bank shall on behalf of the
Borrower draw from the Swing Line Facility amounts sufficient to pay the
difference between (i) the aggregate amount payable in such account for all
instruments presented since the close of the prior Business Day in connection
with the Cash Management Account (the "Account Debit Amount"), and (ii) the
aggregate amount received since the close of the prior Business Day into such
Cash Management Account (the "Account Credit Amount"). Each such drawing shall
be a Swing Line Advance and in no event shall (x) the aggregate amount of Swing
Line Advances outstanding at any one time exceed the Swing Line Facility or (y)
the aggregate amount of Swing Line Advances made on any Business Day exceed the
aggregate of the Unused Working Capital Commitments of the Working Capital
Lenders at such time. To the extent the Account Credit Amount exceeds the
Account Debit Amount, such excess proceeds shall be automatically applied by the
Swing Line Bank to prepay the outstanding Swing Line Advances and, if no Swing
Line Advance is outstanding at such time, such excess proceeds shall be invested
in "overnight" investments pursuant to the cash management documentation between
the Borrower and the Swing Line Bank. Each Swing Line Advance shall be made as a
Prime Rate Advance.
(e) Letters of Credit. The Issuing Bank agrees, on the terms
and conditions hereinafter set forth, to issue letters of credit (the "Letters
of Credit") for the account of the Borrower from time to time on any Business
Day during the period from the date hereof until 60 days before April 30, 2002
(i) in an aggregate Available Amount for all Letters of Credit not to exceed at
any time the Issuing Bank's Letter of Credit Commitment at such time and (ii) in
an Available Amount for each such Letter of Credit not to exceed the lesser of
(x) the Letter of Credit Facility at such time and (y) the Unused Working
Capital Commitments of the Working Capital Lenders at such time. No Letter of
Credit shall have an expiration date (including all rights of the Borrower or
the beneficiary to require renewal) later than the earlier of 60 days before
April 30, 2002 and (A) in the case of a Standby Letter of Credit, one year after
the date of issuance thereof, but may by its terms be
<PAGE> 35
29
renewable annually upon notice (a "Notice of Renewal") from the Borrower given
to the Issuing Bank and the Administrative Agent on or prior to any date for
notice of renewal set forth in such Letter of Credit but in any event at least
three Business Days prior to the date of the proposed renewal of such Standby
Letter of Credit and upon fulfillment of the applicable conditions set forth in
Article III unless the Issuing Bank has notified the Borrower (with a copy to
the Administrative Agent) on or prior to the date for notice of termination set
forth in such Letter of Credit but in any event at least 30 Business Days prior
to the date of automatic renewal of its election not to renew such Standby
Letter of Credit (a "Notice of Termination") and (B) in the case of a Trade
Letter of Credit, 60 days after the date of issuance thereof; provided that the
terms of each Standby Letter of Credit that is automatically renewable annually
shall (x) require the Issuing Bank that issued such Standby Letter of Credit to
give the beneficiary named in such Standby Letter of Credit notice of any Notice
of Termination, (y) permit such beneficiary, upon receipt of such notice, to
draw under such Standby Letter of Credit prior to the date such Standby Letter
of Credit otherwise would have been automatically renewed and (z) not permit the
expiration date (after giving effect to any renewal) of such Standby Letter of
Credit in any event to be extended to a date later than 60 days before April 30,
2002. If either a Notice of Renewal is not given by the Borrower or a Notice of
Termination is given by the Issuing Bank pursuant to the immediately preceding
sentence, such Standby Letter of Credit shall expire on the date on which it
otherwise would have been automatically renewed; provided, however, that even in
the absence of receipt of a Notice of Renewal the Issuing Bank may in its
discretion, unless instructed to the contrary by the Administrative Agent or the
Borrower, deem that a Notice of Renewal had been timely delivered and in such
case, a Notice of Renewal shall be deemed to have been so delivered for all
purposes under this Agreement. Within the limits of the Letter of Credit
Facility, and subject to the limits referred to above, the Borrower may request
the issuance of Letters of Credit under this Section 2.01(e), repay any Letter
of Credit Advances resulting from drawings thereunder pursuant to Section
2.03(c) and request the issuance of additional Letters of Credit under this
Section 2.01(e).
SECTION 2.02. Making the Advances. (a) Except as otherwise
provided in Section 2.02(b) or 2.03 and except in respect of Advances made on
the date of the Initial Extension of Credit, in which case notice will be given
on the date of such Initial Extension of Credit, each Borrowing (other than a
Swing Line Borrowing) shall be made on notice, given not later than 11:00 A.M.
(Charlotte, North Carolina time) on the third Business Day prior to the date of
the proposed Borrowing in the case of a Borrowing consisting of Eurodollar Rate
Advances, or the first Business Day prior to the date of the proposed Borrowing
in the case of a Borrowing consisting of Base Rate Advances, by the Borrower to
the Administrative Agent, which shall give to each Appropriate Lender prompt
notice thereof by telex or telecopier. Each such notice of a Borrowing (a
"Notice of Borrowing") shall be by telephone, confirmed promptly in writing, or
by telex or telecopier, in substantially the form of Exhibit B hereto,
specifying therein the requested (i) date of such Borrowing, (ii) Facility under
which such Borrowing is to be made, (iii) Type of Advances comprising
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30
such Borrowing, (iv) aggregate amount of such Borrowing and (v) in the case of a
Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for
each such Advance. Each Appropriate Lender shall, before 11:00 A.M. (Charlotte,
North Carolina time) on the date of such Borrowing, make available for the
account of its Applicable Lending Office to the Administrative Agent at the
Administrative Agent's Account, in same day funds, such Lender's ratable portion
of such Borrowing in accordance with the respective Commitments under the
applicable Facility of such Lender and the other Appropriate Lenders. After the
Administrative Agent's receipt of such funds and upon fulfillment of the
applicable conditions set forth in Article III, the Administrative Agent will
make such funds available to the Borrower by crediting the Borrower's Account;
provided, however, that, in the case of any Working Capital Borrowing, the
Administrative Agent shall first make a portion of such funds equal to the
aggregate principal amount of any Swing Line Advances and Letter of Credit
Advances made by the Swing Line Bank or the Issuing Bank, as the case may be,
and, in the case of Letter of Credit Advances, by any other Working Capital
Lender and outstanding on the date of such Working Capital Borrowing, plus
interest accrued and unpaid thereon to and as of such date, available to the
Swing Line Bank or the Issuing Bank, as the case may be, and such other Working
Capital Lenders for repayment of such Letter of Credit Advances.
(b) Upon written demand by the Swing Line Bank (which demand
shall be given to the Administrative Agent and the Administrative Agent shall
notify each Working Capital Lender of such demand), each other Working Capital
Lender shall purchase from the Swing Line Bank, and the Swing Line Bank shall
sell and assign to each such other Working Capital Lender, such other Lender's
Pro Rata Share of the principal of such outstanding Swing Line Advance as of the
date of such demand, by making available for the account of its Applicable
Lending Office to the Administrative Agent for the account of the Swing Line
Bank, by deposit to the Administrative Agent's Account, in same day funds, an
amount equal to the portion of then outstanding principal amount of such Swing
Line Advance to be purchased by such Lender. Promptly after receipt thereof, the
Administrative Agent shall transfer such funds to the Swing Line Bank. Such
purchase by each Working Capital Lender shall be a Working Capital Advance for
all purposes of this Agreement. The Borrower hereby agrees to each such sale and
assignment. Each Working Capital Lender agrees to purchase its Pro Rata Share of
an outstanding Swing Line Advance on (i) the Business Day on which demand
therefor is made by the Swing Line Bank, provided that notice of such demand is
given not later than 11:00 A.M. (Charlotte, North Carolina) on such Business Day
or (ii) the first Business Day next succeeding such demand if notice of such
demand is given after such time. If such Lender shall pay to the Administrative
Agent such amount for the account of the Swing Line Bank on any Business Day,
such amount so paid in respect of principal shall constitute a Working Capital
Advance made by such Lender on such Business Day for purposes of this Agreement,
and the outstanding principal amount of the Swing Line Advance made by the Swing
Line Bank shall be reduced by such amount on such Business Day. Upon any such
assignment by the Swing Line Bank to any other Working Capital
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31
Lender of a portion of a Swing Line Advance, the Swing Line Bank represents and
warrants to such other Lender that the Swing Line Bank is the legal and
beneficial owner of such interest being assigned by it, but makes no other
representation or warranty and assumes no responsibility with respect to such
Swing Line Advance, the Loan Documents or any Loan Party. If and to the extent
that any Working Capital Lender shall not have so made the amount of such Swing
Line Advance available to the Administrative Agent, such Working Capital Lender
agrees to pay to the Administrative Agent forthwith on demand such amount
together with interest thereon, for each day from the date of demand by the
Swing Line Bank until the date such amount is paid to the Administrative Agent,
at the Federal Funds Rate.
(c) Anything in subsection (a) above to the contrary
notwithstanding, (i) the Borrower may not select Eurodollar Rate Advances for
the initial Borrowing hereunder or for any Borrowing if the aggregate amount of
such Borrowing is less than $2,000,000 or if the obligation of the Appropriate
Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to
Section 2.09 or Section 2.10 and (ii) the Term A Advances may not be outstanding
as part of more than 4 separate Borrowings, the Term B Advances may not be
outstanding as more than 7 separate Borrowings and Working Capital Advances made
on any date may not be outstanding as part of more than 3 separate Borrowings
(other than Working Capital Advances made due to pro-rata purchases by the
Working Capital Lenders of Swing Line Advances).
(d) Each Notice of Borrowing shall be irrevocable and binding
on the Borrower. In the case of any Borrowing that the related Notice of
Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower
shall indemnify each Appropriate Lender against any loss, cost or expense
incurred by such Lender as a result of any failure by the Loan Parties to
fulfill on or before the date specified in such Notice of Borrowing for such
Borrowing the applicable conditions set forth in Article III, including, without
limitation, any loss (including loss of anticipated profits), cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by such Lender to fund the Advance to be made by such Lender as part of
such Borrowing when such Advance, as a result of such failure, is not made on
such date.
(e) Unless the Administrative Agent shall have received notice
from an Appropriate Lender prior to the date of any Borrowing under a Facility
under which such Lender has a Commitment that such Lender will not make
available to the Administrative Agent such Lender's ratable portion of such
Borrowing, the Administrative Agent may assume that such Lender has made such
portion available to the Administrative Agent on the date of such Borrowing in
accordance with subsection (a) or (b) of this Section 2.02 and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower on such date a corresponding amount. If and to the extent that such
Lender shall not have so made such ratable portion available to the
Administrative Agent, such Lender and the Borrower severally agree to repay or
pay to the Administrative Agent forthwith on demand
<PAGE> 38
32
such corresponding amount and to pay interest thereon, for each day from the
date such amount is made available to the Borrower until the date such amount is
repaid or paid to the Administrative Agent, at (i) in the case of the Borrower,
the interest rate applicable at such time under Section 2.07 to Advances
comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds
Rate. If such Lender shall pay to the Administrative Agent such corresponding
amount, such amount so paid shall constitute such Lender's Advance as part of
such Borrowing for all purposes.
(f) The failure of any Lender to make the Advance to be made
by it as part of any Borrowing shall not relieve any other Lender of its
obligation, if any, hereunder to make its Advance on the date of such Borrowing,
but no Lender shall be responsible for the failure of any other Lender to make
the Advance to be made by such other Lender on the date of any Borrowing.
SECTION 2.03. Issuance of and Drawings and Reimbursement Under
Letters of Credit. (a) Request for Issuance. Each Letter of Credit shall be
issued upon notice, given not later than 11:00 A.M. (Charlotte, North Carolina
time) on the tenth day prior to the date of the proposed issuance of such Letter
of Credit (or such later day as the Issuing Bank shall agree), by the Borrower
to the Issuing Bank, which shall give to the Administrative Agent and each
Working Capital Lender prompt notice thereof by telex or telecopier. Each such
notice of issuance of a Letter of Credit (a "Notice of Issuance") shall be by
telephone, confirmed promptly in writing, or by telex or telecopier, specifying
therein the requested (A) date of such issuance (which shall be a Business Day),
(B) Available Amount of such Letter of Credit, (C) expiration date of such
Letter of Credit, (D) name and address of the beneficiary of such Letter of
Credit and (E) form of such Letter of Credit, and shall be accompanied by such
application and agreement for letter of credit as the Issuing Bank may specify
to the Borrower for use in connection with such requested Letter of Credit (a
"Letter of Credit Agreement"). If the requested form of such Letter of Credit is
acceptable to the Issuing Bank in its sole discretion, the Issuing Bank will,
upon fulfillment of the applicable conditions set forth in Article III, make
such Letter of Credit available to the Borrower at the Issuing Bank's office
referred to in Section 8.02 or as otherwise agreed with the Borrower in
connection with such issuance. In the event and to the extent that the
provisions of any Letter of Credit Agreement shall conflict with this Agreement,
the provisions of this Agreement shall govern.
(b) Letter of Credit Reports. The Issuing Bank shall furnish
(A) to the Administrative Agent on the first Business Day of each week a written
report summarizing issuance and expiration dates of Letters of Credit issued
during the previous week and drawings during such week under all Letters of
Credit, (B) to each Working Capital Lender on the first Business Day of each
month a written report summarizing issuance and expiration dates of Letters of
Credit issued during the preceding month and drawings during such month under
all Letters of Credit and (C) to the Administrative Agent, the Borrower
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and each Working Capital Lender on the first Business Day of each calendar
quarter a written report setting forth the average daily aggregate Available
Amount during the preceding calendar quarter of all Letters of Credit.
(c) Drawing and Reimbursement. The payment by the Issuing Bank
of a draft drawn under any Letter of Credit shall constitute for all purposes of
this Agreement the making by the Issuing Bank of a Letter of Credit Advance,
which shall be a Prime Rate Advance, in the amount of such draft. Upon written
demand by the Issuing Bank, with a copy of such demand to the Administrative
Agent, each Working Capital Lender shall purchase from the Issuing Bank, and the
Issuing Bank shall sell and assign to each such Working Capital Lender, such
Lender's Pro Rata Share of such outstanding Letter of Credit Advance as of the
date of such purchase, by making available for the account of its Applicable
Lending Office to the Administrative Agent for the account of the Issuing Bank,
by deposit to the Administrative Agent's Account, in same day funds, an amount
equal to the portion of the outstanding principal amount of such Letter of
Credit Advance to be purchased by such Lender. Promptly after receipt thereof,
the Administrative Agent shall transfer such funds to the Issuing Bank. The
Borrower hereby agrees to each such sale and assignment. Each Working Capital
Lender agrees to purchase its Pro Rata Share of an outstanding Letter of Credit
Advance on (i) the Business Day on which demand therefor is made by the Issuing
Bank, provided notice of such demand is given not later than 11:00 A.M.
(Charlotte, North Carolina time) on such Business Day or (ii) the first Business
Day next succeeding such demand if notice of such demand is given after such
time. Upon any such assignment by the Issuing Bank to any other Lender of a
portion of a Letter of Credit Advance, the Issuing Bank represents and warrants
to such other Lender that the Issuing Bank is the legal and beneficial owner of
such interest being assigned by it, free and clear of any liens, but makes no
other representation or warranty and assumes no responsibility with respect to
such Letter of Credit Advance, the Loan Documents or any Loan Party. If and to
the extent that any Working Capital Lender shall not have so made the amount of
such Letter of Credit Advance available to the Administrative Agent, such Lender
agrees to pay to the Administrative Agent forthwith on demand such amount
together with interest thereon, for each day from the date of demand by the
Issuing Bank until the date such amount is paid to the Administrative Agent, at
the Federal Funds Rate for its account or the account of the Issuing Bank, as
applicable. If such Lender shall pay to the Administrative Agent such amount for
the account of the Issuing Bank on any Business Day, such amount so paid in
respect of principal shall constitute a Letter of Credit Advance made by such
Lender on such Business Day for purposes of this Agreement, and the outstanding
principal amount of the Letter of Credit Advance made by the Issuing Bank shall
be reduced by such amount on such Business Day (it being understood that any
such payment by any Lender is without prejudice to, and does not constitute a
waiver of, any right any Lender might have or might acquire as a result of the
payment by the Issuing Bank of any draft or the reimbursement by any Lender
thereof).
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(d) Failure to Make Letter of Credit Advances. The failure of
any Lender to make the Letter of Credit Advance to be made by it on the date
specified in Section 2.03(c) shall not relieve any other Lender of its
obligation hereunder to make its Letter of Credit Advance on such date, but no
Lender shall be responsible for the failure of any other Lender to make the
Letter of Credit Advance to be made by such other Lender on such date.
SECTION 2.04. Repayment of Advances. (a) Term A Advances. The
Borrower shall repay to the Administrative Agent for the ratable account of the
Term A Lenders the aggregate outstanding principal amount of the Term A Advances
on the following dates in the amounts indicated (which amounts shall be reduced
as a result of the application of prepayments in accordance with the order of
priority set forth in Section 2.06):
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
March 15, 1998 $ 2,500,000
June 15, 1998 $ 2,500,000
September 15, 1998 $ 2,500,000
December 15, 1998 $ 2,500,000
March 15, 1999 $ 5,000,000
June 15, 1999 $ 5,000,000
September 15, 1999 $ 5,000,000
December 15, 1999 $ 5,000,000
March 15, 2000 $ 6,250,000
June 15, 2000 $ 6,250,000
September 15, 2000 $ 6,250,000
December 15, 2000 $ 6,250,000
March 15, 2001 $ 7,500,000
June 15, 2001 $ 7,500,000
September 15, 2001 $ 7,500,000
December 15, 2001 $ 7,500,000
March 15, 2002 $ 3,750,000
April 30, 2002 $11,250,000
</TABLE>
; provided, however, that the final principal installment shall be repaid on the
Termination Date and in any event shall be in an amount equal to the aggregate
principal amount of the Term A Advances outstanding on such date.
(b) Term B Advances. The Borrower shall repay to the
Administrative Agent for the ratable account of the Term B Lenders the aggregate
outstanding principal amount of the Term B Advances on the following dates in
the amounts indicated (which
<PAGE> 41
35
amounts shall be reduced as a result of the application of prepayments in
accordance with the order of priority set forth in Section 2.06):
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
March 15, 1998 $250,000
June 15, 1998 $250,000
September 15, 1998 $250,000
December 15, 1998 $250,000
March 15, 1999 $250,000
June 15, 1999 $250,000
September 15, 1999 $250,000
December 15, 1999 $250,000
March 15, 2000 $250,000
June 15, 2000 $250,000
September 15, 2000 $250,000
December 15, 2000 $250,000
March 15, 2001 $1,750,000
June 15, 2001 $1,750,000
September 15, 2001 $1,750,000
December 15, 2001 $1,750,000
March 15, 2002 $47,500,000
April 30, 2002 $142,500,000
</TABLE>
; provided, however, that the final principal installment shall be repaid on the
Termination Date and in any event shall be in an amount equal to the aggregate
principal amount of the Term B Advances outstanding on such date.
(c) Working Capital Advances. The Borrower shall repay to the
Administrative Agent for the ratable account of the Working Capital Lenders on
the Termination Date the aggregate principal amount of the Working Capital
Advances then outstanding.
(d) Swing Line Advances. In addition to periodic principal
payments made on the Swing Line Advances pursuant to the Cash Management
Documentation, the Borrower shall repay to the Administrative Agent for the
account of the Swing Line Bank on the Termination Date the aggregate principal
amount of the Swing Line Advances then outstanding.
(e) Letter of Credit Advances. (i) The Borrower shall repay to
the Administrative Agent for the ratable account of the Issuing Bank and each
other Working
<PAGE> 42
36
Capital Lender that has made a Letter of Credit Advance on the earlier of demand
and the Termination Date the outstanding principal amount of each Letter of
Credit Advance made by each of them.
(ii) The payment Obligations of the Borrower under this
Agreement, any Letter of Credit Agreement and any other agreement or instrument
relating to any Letter of Credit shall be unconditional and irrevocable, and
shall be paid strictly in accordance with the terms of this Agreement, such
Letter of Credit Agreement and such other agreement or instrument under all
circumstances, including, without limitation, the following circumstances (it
being understood that any such payment by the Borrower is without prejudice to,
and does not constitute a waiver of, any rights the Borrower might have or might
acquire as a result of the payment by the Issuing Bank of any draft or the
reimbursement by the Borrower thereof):
(A) any lack of validity or enforceability of any Loan
Document, any Letter of Credit Agreement, any Letter of Credit or any
other agreement or instrument relating thereto (all of the foregoing
being, collectively, the "L/C Related Documents");
(B) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations of the Borrower in
respect of any L/C Related Document or any other amendment or waiver of
or any consent to departure from all or any of the L/C Related
Documents;
(C) the existence of any claim, set-off, defense or other
right that the Borrower may have at any time against any beneficiary or
any transferee of a Letter of Credit (or any Persons for whom any such
beneficiary or any such transferee may be acting), the Issuing Bank or
any other Person, whether in connection with the transactions
contemplated by the L/C Related Documents or any unrelated transaction;
(D) any statement or any other document presented under a
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(E) payment by the Issuing Bank under a Letter of Credit
against presentation of a draft or certificate that does not strictly
comply with the terms of such Letter of Credit;
(F) any exchange, release or non-perfection of any Collateral
or other collateral, or any release or amendment or waiver of or consent
to departure from the Guaranty or any other guarantee, for all or any of
the Obligations of the Borrower in respect of the L/C Related Documents;
or
<PAGE> 43
37
(G) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing, including, without limitation, any
other circumstance that might otherwise constitute a defense available
to, or a discharge of, the Borrower or a guarantor.
SECTION 2.05. Termination or Reduction of the Commitments. (a)
Optional. The Borrower may, upon at least five Business Days' notice to the
Administrative Agent, terminate in whole or reduce in part (i) the unused
portions of the Term A Commitments and the Term B Commitments and (ii) the
Unused Working Capital Commitments; provided, however, that each partial
reduction of a Facility (i) shall be in an aggregate amount of $2,000,000 or an
integral multiple of $500,000 in excess thereof and (ii) shall be made ratably
among the Appropriate Lenders in accordance with their Commitments with respect
to such Facility.
(b) Mandatory. (i) On the date of the Term A Borrowing, after
giving effect to such Term A Borrowing, and from time to time thereafter upon
each repayment or prepayment of the Term A Advances, the aggregate Term A
Commitments of the Term A Lenders shall be automatically and permanently
reduced, on a pro rata basis, by an amount equal to the amount by which the
aggregate Term A Commitments immediately prior to such reduction exceed the
aggregate unpaid principal amount of the Term A Advances then outstanding.
(ii) On the date of the Term B Borrowing, after giving effect
to such Term B Borrowing, and from time to time thereafter upon each repayment
or prepayment of the Term B Advances, the aggregate Term B Commitments of the
Term B Lenders shall be automatically and permanently reduced, on a pro rata
basis, by an amount equal to the amount by which the aggregate Term B
Commitments immediately prior to such reduction exceed the aggregate unpaid
principal amount of the Term B Advances then outstanding.
(iii) The Letter of Credit Facility shall be permanently
reduced from time to time on the date of each reduction in the Working Capital
Facility by the amount, if any, by which the amount of the Letter of Credit
Facility exceeds the Working Capital Facility after giving effect to such
reduction of the Working Capital Facility.
(iv) The Swing Line Facility shall be permanently reduced from
time to time on the date of each reduction in the Working Capital Facility by
the amount, if any, by which the amount of the Swing Line Facility exceeds the
Working Capital Facility after giving effect to such reduction of the Working
Capital Facility.
SECTION 2.06. Prepayments. (a) Optional. The Borrower may,
upon at least one Business Day's notice in the case of Prime Rate Advances and
three Business Day's notice in the case of Eurodollar Rate Advances, in each
case to the Administrative Agent
<PAGE> 44
38
stating the proposed date and aggregate principal amount of the prepayment, and
if such notice is given the Borrower shall, prepay the outstanding aggregate
principal amount of the Advances comprising part of the same Borrowing in whole
or ratably in part, together with accrued interest to the date of such
prepayment on the aggregate principal amount prepaid; provided, however, that
(x) each partial prepayment shall be in an aggregate principal amount of
$2,000,000 or an integral multiple of $500,000 in excess thereof and (y) if any
prepayment of a Eurodollar Rate Advance is made on a date other than the last
day of an Interest Period for such Advance the Borrower shall also pay any
amounts owing pursuant to Section 8.04(c). Each such prepayment of the Term
Facilities shall be applied ratably to each of the Term Facilities as follows:
first, to the next two scheduled amortization payments in respect of such Term
Facility in the order of maturity; and second, to the remaining amortization
payments in respect of such Term Facility on a pro rata basis.
(b) Mandatory. (i) The Borrower shall, on the 90th day
following the end of each Fiscal Year (commencing with the 1998 Fiscal Year),
prepay an aggregate principal amount of the Advances comprising part of the same
Borrowings equal to 50% of the amount of Excess Cash Flow for such Fiscal Year.
Each such prepayment shall be applied ratably to each of the Term Facilities and
shall reduce the scheduled amortization payments thereof on a pro rata basis.
(ii) The Borrower shall, within three days following receipt
of Net Cash Proceeds by the Borrower or any of its Subsidiaries from (A) the
sale, transfer or other disposition (other than by lease) of any assets of the
Borrower or any of its Subsidiaries (other than any sale, transfer or other
disposition of assets pursuant to clause (i), (ii) or (iii) of Section 5.02(e)),
(B) the incurrence or issuance by the Borrower or any of its Subsidiaries of any
Debt (other than Debt incurred or issued pursuant to Section 5.02(b)), and (C)
the sale or issuance by the Borrower or any of its Subsidiaries of any capital
stock or other ownership or profit interest, any securities convertible into or
exchangeable for capital stock or other ownership or profit interest or any
warrants, rights or options to acquire capital stock or other ownership or
profit interest, prepay an aggregate principal amount of the Advances comprising
part of the same Borrowings equal to the amount of such Net Cash Proceeds;
provided, however, that if the aggregate amount of Net Cash Proceeds referred to
in clause (A) above not previously applied to the prepayment of the Advances is
less than $2,000,000, the Borrower may retain such Net Cash Proceeds until the
amount of all Net Cash Proceeds so retained when aggregated with all other
retained Net Cash Proceeds shall equal or exceed $2,000,000. Each such
prepayment shall be applied ratably to each of the Term Facilities and shall
reduce the scheduled amortization payments thereof on a pro rata basis.
(iii) The Borrower shall, on each Business Day, prepay an
aggregate principal amount of the Working Capital Advances comprising part of
the same Borrowings, the Letter of Credit Advances and the Swing Line Advances
equal to the amount by which
<PAGE> 45
39
(A) the sum of the aggregate principal amount of (x) the Working Capital
Advances, (y) the Letter of Credit Advances and (z) the Swing Line Advances then
outstanding plus the aggregate Available Amount of all Letters of Credit then
outstanding exceeds (B) the Working Capital Facility on such Business Day.
Prepayments of the Working Capital Facility made pursuant to this clause (iii)
shall be first, applied to prepay Letter of Credit Advances then outstanding
until such Advances are paid in full, second, applied to prepay Swing Line
Advances then outstanding until such Advances are paid in full, and third,
applied to prepay Working Capital Advances then outstanding comprising part of
the same Borrowings until such Advances are paid in full.
(iv) The Borrower shall, on each Business Day, pay to the
Administrative Agent for deposit in the L/C Cash Collateral Account an amount
sufficient to cause the aggregate amount on deposit in such Account to equal the
amount by which the aggregate Available Amount of all Letters of Credit then
outstanding exceeds the Letter of Credit Facility on such Business Day.
(v) All prepayments under this subsection (b) shall be made
together with accrued interest to the date of such prepayment on the principal
amount prepaid.
SECTION 2.07. Interest. (a) Scheduled Interest. The Borrower
shall pay interest on the unpaid principal amount of each Advance owing to each
Lender from the date of such Advance until such principal amount shall be paid
in full, at the following rates per annum:
(i) Prime Rate Advances. During such periods as such Advance
is a Prime Rate Advance, a rate per annum equal at all times to the sum
of (A) the Prime Rate in effect from time to time plus (B) the
Applicable Margin in effect from time to time, payable in arrears
(subject to the provisions of Section 2.11) on the last Business Day of
each March, June, September and December during such periods and on the
date such Prime Rate Advance shall be Converted or paid in full.
(ii) Eurodollar Rate Advances. During such periods as such
Advance is a Eurodollar Rate Advance, a rate per annum equal at all
times during each Interest Period for such Advance to the sum of (A) the
Eurodollar Rate for such Interest Period for such Advance plus (B) the
Applicable Margin in effect on the first day of such Interest Period for
such Advance, payable in arrears on the last day of such Interest Period
and, if such Interest Period has a duration of more than three months,
on each day that occurs during such Interest Period every three months
from the first day of such Interest Period and on the date such
Eurodollar Rate Advance shall be Converted or paid in full.
<PAGE> 46
40
(b) Default Interest. Upon the occurrence and during the
continuance of an Event of Default, the Borrower shall pay interest on (i) the
unpaid principal amount of each Advance owing to each Lender, payable in arrears
on the dates referred to in clause (a)(i) or (a)(ii) above and on demand, at a
rate per annum equal at all times to 2% per annum above the rate per annum
required to be paid on such Advance pursuant to clause (a)(i) or (a)(ii) above
and (ii) to the fullest extent permitted by law, the amount of any interest, fee
or other amount payable hereunder that is not paid when due, from the date such
amount shall be due until such amount shall be paid in full, payable in arrears
on the date such amount shall be paid in full and on demand, at a rate per annum
equal at all times to 2% per annum above the rate per annum required to be paid,
in the case of interest, on the Type of Advance on which such interest has
accrued pursuant to clause (a)(i) or (a)(ii) above, and, in all other cases, on
Prime Rate Advances pursuant to clause (a)(i) above.
(c) Notice of Interest Rate. Promptly after receipt of a
Notice of Borrowing pursuant to Section 2.02(a), the Administrative Agent shall
give notice to the Borrower and each Appropriate Lender of the applicable
interest rate determined by the Administrative Agent for purposes of clause
(a)(i) or (ii).
SECTION 2.08. Fees. (a) Commitment Fee. The Borrower shall pay
to the Administrative Agent for the account of the Lenders a commitment fee,
from the date hereof in the case of each Initial Lender and from the effective
date specified in the Assignment and Acceptance pursuant to which it became a
Lender in the case of each other Lender until the Termination Date, payable in
arrears on the date of the initial Borrowing hereunder, on the last Business Day
of each March, June, September and December, commencing December 31, 1997, and
on the Termination Date, equal to (i) the average daily Unused Working Capital
Commitment of such Lender plus its Pro Rata Share of the average daily
outstanding Swing Line Advances for the prior three month period (or such
shorter period for which such commitment fee is calculated) times (ii) (x) prior
to the date on which the quarterly financial statements in respect of the fiscal
quarter ending May 10, 1998 are delivered to the Administrative Agent pursuant
to Section 5.03(c), 1/2 of 1% per annum and (y) thereafter, a percentage
determined by reference to the Leverage Ratio as set forth on Schedule II;
provided, however, that any commitment fee accrued with respect to any of the
Commitments of a Defaulting Lender during the period prior to the time such
Lender became a Defaulting Lender and unpaid at such time shall not be payable
by the Borrower so long as such Lender shall be a Defaulting Lender except to
the extent that such commitment fee shall otherwise have been due and payable by
the Borrower prior to such time; and provided further that no commitment fee
shall accrue on any of the Commitments of a Defaulting Lender so long as such
Lender shall be a Defaulting Lender.
(b) Letter of Credit Fees, Etc. (i) The Borrower shall pay to
the Administrative Agent for the account of each Lender a commission, payable in
arrears on the last Business Day of each March, June, September and December,
commencing December
<PAGE> 47
41
31, 1997, and on the earliest to occur of the full drawing expiration,
termination or cancellation of any such Letter of Credit and on the Termination
Date, equal to (A) such Lender's Pro Rata Share of the average daily aggregate
Available Amount for the prior three month period (or such shorter period for
which such commission is calculated) of all Letters of Credit outstanding from
time to time times (B) the Applicable Margin per annum then in effect for
Eurodollar Rate Advances under the Working Capital Facility.
(ii) The Borrower shall pay to the Issuing Bank, for its own
account, (A) a fronting fee, payable in arrears, on the last Business Day of
each March, June, September and December, commencing December 31, 1997, and on
the Termination Date, equal to (A) the average daily aggregate Available Amount
for the prior three month period (or such shorter period for which such fronting
fee is calculated), from the date hereof until the Termination Date, times (B)
0.125% per annum, and (B) such other reasonable and customary commissions,
fronting fees, transfer fees and other fees and charges in connection with the
issuance or administration of each Letter of Credit as the Borrower and the
Issuing Bank shall agree.
(c) Administrative Agent's Fees. The Borrower shall pay to the
Administrative Agent for its own account fees set forth in the Administrative
Agent's fee letter.
SECTION 2.09. Conversion of Advances. (a) Optional. The
Borrower may on any Business Day, upon notice given to the Administrative Agent
not later than 11:00 A.M. (Charlotte, North Carolina) on the third Business Day
prior to the date of the proposed Conversion and subject to the provisions of
Sections 2.07 and 2.10, Convert all or any portion of the Advances of one Type
comprising the same Borrowing into Advances of the other Type; provided,
however, that, except as provided in Section 2.10(a), any Conversion of
Eurodollar Rate Advances into Prime Rate Advances shall be made only on the last
day of an Interest Period for such Eurodollar Rate Advances, any Conversion of
Prime Rate Advances into Eurodollar Rate Advances shall be in an amount not less
than the minimum amount specified in Section 2.02(c), no Conversion of any
Advances shall result in more separate Borrowings than permitted under Section
2.02(c) and each Conversion of Advances comprising part of the same Borrowing
under any Facility shall be made ratably among the Appropriate Lenders in
accordance with their Commitments under such Facility. Each such notice of
Conversion shall, within the restrictions specified above, specify (i) the date
of such Conversion, (ii) the Advances to be Converted and (iii) if such
Conversion is into Eurodollar Rate Advances, the duration of the initial
Interest Period for such Advances. Each notice of Conversion shall be
irrevocable and binding on the Borrower.
(b) Mandatory. (i) On the date on which the aggregate unpaid
principal amount of Eurodollar Rate Advances comprising any Borrowing shall be
reduced, by
<PAGE> 48
42
payment or prepayment or otherwise, to less than $2,000,000, such Advances shall
automatically Convert into Prime Rate Advances.
(ii) If the Borrower shall fail to select the duration of any
Interest Period for any Eurodollar Rate Advances in accordance with the
provisions contained in the definition of "Interest Period" in Section 1.01, the
Administrative Agent will forthwith so notify the Borrower and the Appropriate
Lenders, whereupon each such Eurodollar Rate Advance will automatically, on the
last day of the then existing Interest Period therefor, Convert into a Prime
Rate Advance.
(iii) Upon the occurrence and during the continuance of any
Event of Default, (x) each Eurodollar Rate Advance will automatically, on the
last day of the then existing Interest Period therefor, Convert into a Prime
Rate Advance and (y) the obligation of the Lenders to make, or to Convert
Advances into, Eurodollar Rate Advances shall be suspended.
SECTION 2.10. Increased Costs, Etc. (a) If, due to either (i)
the introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or request from any central
bank or other governmental authority (whether or not having the force of law),
there shall be any increase in the cost to any Lender Party of agreeing to make
or of making, funding or maintaining Eurodollar Rate Advances or of agreeing to
issue or of issuing or maintaining Letters of Credit or of agreeing to make or
of making or maintaining Letter of Credit Advances (excluding for purposes of
this Section 2.10 any such increased costs resulting from (i) Taxes or Other
Taxes (as to which Section 2.12 shall govern) and (ii) changes in the basis of
taxation of overall net income or overall gross income by the United States or
by the foreign jurisdiction or state under the laws of which such Lender Party
is organized or has its Applicable Lending Office or any political subdivision
thereof), then the Borrower shall from time to time, upon demand by such Lender
Party (with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender Party additional amounts
sufficient to compensate such Lender Party for such increased cost; provided,
however, that a Lender Party claiming additional amounts under this Section
2.10(a) agrees to use reasonable efforts (consistent with its internal policy
and legal and regulatory restrictions) to designate a different Applicable
Lending Office if the making of such a designation would avoid the need for, or
reduce the amount of, such increased cost that may thereafter accrue and would
not, in the reasonable judgment of such Lender Party, be otherwise
disadvantageous to such Lender Party. A certificate as to the amount of such
increased cost, submitted to the Borrower by such Lender Party, shall be
conclusive and binding for all purposes, absent manifest error. Upon receipt of
notice from a Lender Party claiming compensation pursuant to this Section
2.10(a) and so long as no Event of Default shall have occurred and be
continuing, the Borrower shall have the right, on or before the 30th day after
receipt of such notice, to Convert each Eurodollar Rate Advance under which such
<PAGE> 49
43
Lender has a Commitment into a Prime Rate Advance, subject to payment in full of
(i) all amounts necessary to compensate such Lender for such increased costs and
(ii) any amounts owing pursuant to Section 8.04(c) as a result of such
conversion.
(b) If, due to either (i) the introduction of or any change in
or in the interpretation of any law or regulation or (ii) the compliance with
any guideline or request from any central bank or other governmental authority
(whether or not having the force of law), there shall be any increase in the
amount of capital required or expected to be maintained by any Lender Party or
any corporation controlling such Lender Party as a result of or based upon the
existence of such Lender Party's commitment to lend or to issue Letters of
Credit hereunder and other commitments of such type or the issuance or
maintenance of the Letters of Credit (or similar contingent obligations), then,
upon demand by such Lender Party (with a copy of such demand to the
Administrative Agent), the Borrower shall pay to the Administrative Agent for
the account of such Lender Party, from time to time as specified by such Lender
Party, additional amounts sufficient to compensate such Lender Party in the
light of such circumstances, to the extent that such Lender Party reasonably
determines such increase in capital to be allocable to the existence of such
Lender Party's commitment to lend or to issue Letters of Credit hereunder or to
the issuance or maintenance of any Letters of Credit. A certificate as to such
amounts submitted to the Borrower by such Lender Party shall be conclusive and
binding for all purposes, absent manifest error.
(c) If, with respect to any Eurodollar Rate Advances under any
Facility, Lenders owed more than 50% of the then aggregate unpaid principal
amount thereof notify the Administrative Agent that the Eurodollar Rate for any
Interest Period for such Advances will not adequately reflect the cost to such
Lenders of making, funding or maintaining their Eurodollar Rate Advances for
such Interest Period, the Administrative Agent shall forthwith so notify the
Borrower and the Lenders, whereupon (i) each such Eurodollar Rate Advance under
any Facility will automatically, on the last day of the then existing Interest
Period therefor, Convert into a Prime Rate Advance and (ii) the obligation of
the Appropriate Lenders to make, or to Convert Advances into, Eurodollar Rate
Advances shall be suspended until the Administrative Agent shall notify the
Borrower that such Lenders have determined that the circumstances causing such
suspension no longer exist.
(d) Notwithstanding any other provision of this Agreement, if
the introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or any central bank or other governmental
authority shall assert that it is unlawful, for any Lender or its Eurodollar
Lending Office to perform its obligations hereunder to make Eurodollar Rate
Advances or to continue to fund or maintain Eurodollar Rate Advances hereunder,
then, on notice thereof and demand therefor by such Lender to the Borrower
through the Administrative Agent, (i) each Eurodollar Rate Advance made by such
Lender will automatically, upon such demand, Convert into a Prime Rate Advance,
and (ii) the obligation of such Lender to make, or to Convert Advances into,
Eurodollar Rate
<PAGE> 50
44
Advances shall be suspended until the Administrative Agent shall notify the
Borrower that such Lender has determined that the circumstances causing such
suspension no longer exist; provided, however, that, before making any such
demand, such Lender agrees to use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions) to designate a different
Eurodollar Lending Office if the making of such a designation would allow such
Lender or its Eurodollar Lending Office to continue to perform its obligations
to make Eurodollar Rate Advances or to continue to fund or maintain Eurodollar
Rate Advances and would not, in the judgment of such Lender, be otherwise
disadvantageous to such Lender.
SECTION 2.11. Payments and Computations. (a) The Borrower
shall make each payment hereunder and under the Notes, irrespective of any right
of counterclaim or set-off (except as otherwise provided in Section 2.15), not
later than 11:00 A.M. (Charlotte, North Carolina time) on the day when due in
U.S. dollars to the Administrative Agent at the Administrative Agent's Account
in same day funds. The Administrative Agent will promptly thereafter cause like
funds to be distributed (i) if such payment by the Borrower is in respect of
principal, interest, commitment fees or any other Obligation then payable
hereunder and under the Notes to more than one Lender Party, to such Lender
Parties for the account of their respective Applicable Lending Offices ratably
in accordance with the amounts of such respective Obligations then payable to
such Lender Parties and (ii) if such payment by the Borrower is in respect of
any Obligation then payable hereunder to one Lender Party, to such Lender Party
for the account of its Applicable Lending Office, in each case to be applied in
accordance with the terms of this Agreement. Upon its acceptance of an
Assignment and Acceptance and recording of the information contained therein in
the Register pursuant to Section 8.07(d), from and after the effective date of
such Assignment and Acceptance, the Administrative Agent shall make all payments
hereunder and under the Notes in respect of the interest assigned thereby to the
Lender Party assignee thereunder, and the parties to such Assignment and
Acceptance shall make all appropriate adjustments in such payments for periods
prior to such effective date directly between themselves. Periodic principal
payments will be made in respect of the Swing Line Advances as funds are
available in the Cash Management Account in accordance with Section 2.01(d). The
Swing Line Bank shall invoice the Borrower directly on a quarterly basis for
interest in respect of the Swing Line Advances.
(b) If the Administrative Agent receives funds for application
to the Obligations under the Loan Documents under circumstances for which the
Loan Documents do not specify the Advances or the Facility to which, or the
manner in which, such funds are to be applied, the Administrative Agent may, but
shall not be obligated to, elect to distribute such funds to each Lender Party
ratably in accordance with such Lender Party's proportionate share of the
principal amount of all outstanding Advances and the Available Amount of all
Letters of Credit then outstanding, in repayment or prepayment of such of the
<PAGE> 51
45
outstanding Advances or other Obligations owed to such Lender Party, and for
application to such principal installments, as the Administrative Agent shall
direct.
(c) The Borrower hereby authorizes each Lender Party, if and
to the extent payment owed to such Lender Party is not made when due hereunder
or, in the case of a Lender, under the Note held by such Lender, to charge from
time to time against any or all of the Borrower's accounts with such Lender
Party any amount so due.
(d) All computations of interest, fees and Letter of Credit
commissions shall be made by the Administrative Agent on the basis of a year of
360 days, in each case for the actual number of days (including the first day
but excluding the last day) occurring in the period for which such interest,
fees or commissions are payable. Each determination by the Administrative Agent
of an interest rate, fee or commission hereunder shall be conclusive and binding
for all purposes, absent manifest error.
(e) Whenever any payment hereunder or under the Notes shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest or commitment fee, as
the case may be; provided, however, that, if such extension would cause payment
of interest on or principal of Eurodollar Rate Advances to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.
(f) Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to any Lender
Party hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each such Lender Party
on such due date an amount equal to the amount then due such Lender Party. If
and to the extent the Borrower shall not have so made such payment in full to
the Administrative Agent, each such Lender Party shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Lender
Party together with interest thereon, for each day from the date such amount is
distributed to such Lender Party until the date such Lender Party repays such
amount to the Administrative Agent, at the Federal Funds Rate.
SECTION 2.12. Taxes. (a) Any and all payments by the Borrower
hereunder or under the Notes shall be made, in accordance with Section 2.11,
free and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Lender Party and the
Administrative Agent, taxes that are imposed on its overall net income by the
United States and taxes that are imposed on or measured by its overall net
income
<PAGE> 52
46
(and franchise taxes or excise taxes pursuant to Sections 67-4-801 through 822
of the Tennessee Code Annotated imposed in lieu thereof) by the state or foreign
jurisdiction under the laws of which such Lender Party or the Administrative
Agent (as the case may be) is organized or any political subdivision thereof
and, in the case of each Lender Party, taxes that are imposed on or measured by
its overall net income (and franchise taxes imposed [or excise taxes pursuant to
Sections 67-4-801 through 822 of the Tennessee Code Annotated] in lieu thereof)
by the state or foreign jurisdiction of such Lender Party's Applicable Lending
Office or any political subdivision thereof (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities in respect of
payments hereunder or under the Notes being hereinafter referred to as "Taxes").
If the Borrower shall be required by law to deduct any Taxes from or in respect
of any sum payable hereunder or under any Note to any Lender Party or the
Administrative Agent, (i) the sum payable shall be increased as may be necessary
so that after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.12) such Lender Party or the
Administrative Agent (as the case may be) receives an amount equal to the sum it
would have received had no such deductions been made, (ii) the Borrower shall
make such deductions and (iii) the Borrower shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance with
applicable law.
(b) In addition, the Borrower shall pay any present or future
stamp, documentary, excise, property or similar taxes, charges or levies that
arise from any payment made hereunder or under the Notes or from the execution,
delivery or registration of, performing under, or otherwise with respect to,
this Agreement or the Notes (hereinafter referred to as "Other Taxes").
(c) The Borrower shall indemnify each Lender Party and the
Administrative Agent for and hold it harmless against the full amount of Taxes
and Other Taxes, and for the full amount of taxes of any kind imposed by any
jurisdiction on amounts payable under this Section 2.12, imposed on or paid by
such Lender Party or the Administrative Agent (as the case may be) and any
liability (including penalties, additions to tax, interest and expenses) arising
therefrom or with respect thereto. This indemnification shall be made within 30
days from the date such Lender Party or the Administrative Agent (as the case
may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the
Borrower shall furnish to the Administrative Agent, at its address referred to
in Section 8.02, the original or a certified copy of a receipt evidencing such
payment. In the case of any payment hereunder or under the Notes by or on behalf
of the Borrower through an account or branch outside the United States or by or
on behalf of the Borrower by a payor that is not a United States person, if the
Borrower determines that no Taxes are payable in respect thereof, the Borrower
shall furnish, or shall cause such payor to furnish, to the Administrative
Agent, at such address, an opinion of counsel acceptable to the Administrative
<PAGE> 53
47
Agent stating that such payment is exempt from Taxes. For purposes of this
subsection (d) and subsection (e), the terms "United States" and "United States
person" shall have the meanings specified in Section 7701 of the Internal
Revenue Code.
(e) Each Lender Party organized under the laws of a
jurisdiction outside the United States shall, on or prior to the date of its
execution and delivery of this Agreement in the case of each Initial Lender or
Initial Issuing Bank, as the case may be, and on the date of the Assignment and
Acceptance pursuant to which it becomes a Lender Party in the case of each other
Lender Party, and from time to time thereafter as requested in writing by the
Borrower (but only so long thereafter as such Lender Party remains lawfully able
to do so), provide each of the Administrative Agent and the Borrower with two
original Internal Revenue Service forms 1001 or 4224 or (in the case of a Lender
Party that has certified in writing to the Administrative Agent that it is not a
"bank" as defined in Section 881(c)(3)(A) of the Internal Revenue Code) form W-8
(and, if such Lender Party delivers a form W-8, a certificate representing that
such Lender Party is not a "bank" for purposes of Section 881(c) of the Internal
Revenue Code, is not a 10-percent shareholder (within the meaning of Section
871(h)(3)(B) of the Internal Revenue Code) of the Borrower and is not a
controlled foreign corporation related to the Borrower (within the meaning of
Section 864(d)(4) of the Internal Revenue Code), as appropriate, or any
successor or other form prescribed by the Internal Revenue Service, certifying
that such Lender Party is exempt from or entitled to a reduced rate of United
States withholding tax on payments pursuant to this Agreement or the Notes or,
in the case of a Lender Party providing a form W-8, certifying that such Lender
Party is a foreign corporation, partnership, estate or trust. If the forms
provided by a Lender Party at the time such Lender Party first becomes a party
to this Agreement indicates a United States interest withholding tax rate in
excess of zero, withholding tax at such rate shall be considered excluded from
Taxes unless and until such Lender Party provides the appropriate form
certifying that a lesser rate applies, whereupon withholding tax at such lesser
rate only shall be considered excluded from Taxes for periods governed by such
form; provided, however, that, if at the date of the Assignment and Acceptance
pursuant to which a Lender Party becomes a party to this Agreement, the Lender
Party assignor was entitled to payments under subsection (a) in respect of
United States withholding tax with respect to interest paid at such date, then,
to such extent, the term Taxes shall include (in addition to withholding taxes
that may be imposed in the future or other amounts otherwise includable in
Taxes) United States withholding tax, if any, applicable with respect to the
Lender Party assignee on such date. If any form or document referred to in this
subsection (e) requires the disclosure of information, other than information
necessary to compute the tax payable and information required on the date hereof
by Internal Revenue Service form 1001, 4224 or W-8 (or the related certificate
described above), that the Lender Party reasonably considers to be confidential,
the Lender Party shall give notice thereof to the Borrower and shall not be
obligated to include in such form or document such confidential information.
<PAGE> 54
48
(f) For any period with respect to which a Lender Party has
failed to provide the Borrower with the appropriate form described in subsection
(e) above (other than if such failure is due to a change in law occurring after
the date on which a form originally was required to be provided or if such form
otherwise is not required under subsection (e) above), such Lender Party shall
not be entitled to indemnification under subsection (a) or (c) with respect to
Taxes imposed by the United States by reason of such failure; provided, however,
that should a Lender Party become subject to Taxes because of its failure to
deliver a form required hereunder, the Borrower shall take such steps as such
Lender Party shall reasonably request to assist such Lender Party to recover
such Taxes.
(g) Nothing herein contained shall be construed to require
that the Borrower pay any mortgage tax under the laws of the State of Oklahoma.
(h) Without prejudice to the survival of any other agreement
of the Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 2.12 shall survive the repayment of the Advances and
the other obligations under the Loan Documents and the termination of the
Commitments hereunder.
SECTION 2.13. Sharing of Payments, Etc. If any Lender Party
shall obtain at any time any payment (whether voluntary, involuntary, through
the exercise of any right of set-off, or otherwise) (other than pursuant to
Section 2.10, 2.12, 8.04 or 8.07 hereof and other than in respect of payments
made in respect of the Swing Line Advances pursuant to the Cash Management
Documentation) (a) on account of Obligations due and payable to such Lender
Party hereunder and under the Notes at such time in excess of its ratable share
(according to the proportion of (i) the amount of such Obligations due and
payable to such Lender Party at such time to (ii) the aggregate amount of the
Obligations due and payable to all Lender Parties hereunder and under the Notes
at such time) of payments on account of the Obligations due and payable to all
Lender Parties hereunder and under the Notes at such time obtained by all the
Lender Parties at such time or (b) on account of Obligations owing (but not due
and payable) to such Lender Party hereunder and under the Notes at such time in
excess of its ratable share (according to the proportion of (i) the amount of
such Obligations owing to such Lender Party at such time to (ii) the aggregate
amount of the Obligations owing (but not due and payable) to all Lender Parties
hereunder and under the Notes at such time) of payments on account of the
Obligations owing (but not due and payable) to all Lender Parties hereunder and
under the Notes at such time obtained by all of the Lender Parties at such time,
such Lender Party shall forthwith purchase from the other Lender Parties such
participations in the Obligations due and payable or owing to them, as the case
may be, as shall be necessary to cause such purchasing Lender Party to share the
excess payment ratably with each of them; provided, however, that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Lender Party, such purchase from each other Lender Party shall be rescinded and
such other Lender Party shall repay to the purchasing Lender Party the purchase
price to the extent of such Lender Party's ratable
<PAGE> 55
49
share (according to the proportion of (i) the purchase price paid to such Lender
Party to (ii) the aggregate purchase price paid to all Lender Parties) of such
recovery together with an amount equal to such Lender Party's ratable share
(according to the proportion of (i) the amount of such other Lender Party's
required repayment to (ii) the total amount so recovered from the purchasing
Lender Party) of any interest or other amount paid or payable by the purchasing
Lender Party in respect of the total amount so recovered. The Borrower agrees
that any Lender Party so purchasing a participation from another Lender Party
pursuant to this Section 2.13 may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of set-off) with respect
to such participation as fully as if such Lender Party were the direct creditor
of the Borrower in the amount of such participation.
SECTION 2.14. Use of Proceeds and Issuance of Letters of
Credit. The proceeds of the Advances and issuances of Letters of Credit shall be
available (and the Borrower agrees that it shall use such proceeds and Letters
of Credit) solely to pay transaction fees and expenses, refinance certain
Existing Debt, provide funds for general corporate purposes, and provide working
capital for the Borrower and its Subsidiaries.
SECTION 2.15. Defaulting Lenders. (a) In the event that, at
any one time, (i) any Lender Party shall be a Defaulting Lender, (ii) such
Defaulting Lender shall owe a Defaulted Advance to the Borrower and (iii) the
Borrower shall be required to make any payment hereunder or under any other Loan
Document to or for the account of such Defaulting Lender, then the Borrower may,
so long as no Default shall occur or be continuing at such time and to the
fullest extent permitted by applicable law, set off and otherwise apply the
Obligation of the Borrower to make such payment to or for the account of such
Defaulting Lender against the obligation of such Defaulting Lender to make such
Defaulted Advance. In the event that, on any date, the Borrower shall so set off
and otherwise apply its obligation to make any such payment against the
obligation of such Defaulting Lender to make any such Defaulted Advance on or
prior to such date, the amount so set off and otherwise applied by the Borrower
shall constitute for all purposes of this Agreement and the other Loan Documents
an Advance by such Defaulting Lender made on the date of set-off or application
by the Borrower under the Facility pursuant to which such Defaulted Advance was
originally required to have been made pursuant to Section 2.01. Such Advance
shall be a Prime Rate Advance and shall be considered, for all purposes of this
Agreement, to comprise part of the Borrowing in connection with which such
Defaulted Advance was originally required to have been made pursuant to Section
2.01, even if the other Advances comprising such Borrowing shall be Eurodollar
Rate Advances on the date such Advance is deemed to be made pursuant to this
subsection (a). The Borrower shall notify the Administrative Agent at any time
the Borrower exercises its right of set-off pursuant to this subsection (a) and
shall set forth in such notice (A) the name of the Defaulting Lender and the
Defaulted Advance required to be made by such Defaulting Lender and (B) the
amount set off and otherwise applied in respect of such Defaulted Advance
pursuant to this subsection (a). Any portion of such payment otherwise required
to
<PAGE> 56
50
be made by the Borrower to or for the account of such Defaulting Lender which is
paid by the Borrower, after giving effect to the amount set off and otherwise
applied by the Borrower pursuant to this subsection (a), shall be applied by the
Administrative Agent as specified in subsection (b) or (c) of this Section 2.15.
(b) In the event that, at any one time, (i) any Lender Party
shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted
Amount to the Administrative Agent or any of the other Lender Parties and (iii)
the Borrower shall make any payment hereunder or under any other Loan Document
to the Administrative Agent for the account of such Defaulting Lender, then the
Administrative Agent may, on its behalf or on behalf of such other Lender
Parties and to the fullest extent permitted by applicable law, apply at such
time the amount so paid by the Borrower to or for the account of such Defaulting
Lender to the payment of each such Defaulted Amount to the extent required to
pay such Defaulted Amount. In the event that the Administrative Agent shall so
apply any such amount to the payment of any such Defaulted Amount on any date,
the amount so applied by the Administrative Agent shall constitute for all
purposes of this Agreement and the other Loan Documents payment, to such extent,
of such Defaulted Amount on such date. Any such amount so applied by the
Administrative Agent shall be retained by the Administrative Agent or
distributed by the Administrative Agent to such other Lender Parties, ratably in
accordance with the respective portions of such Defaulted Amounts payable at
such time to the Administrative Agent and such other Lender Parties and, if the
amount of such payment made by the Borrower shall at such time be insufficient
to pay all Defaulted Amounts owing at such time to the Administrative Agent and
the other Lender Parties, in the following order of priority:
(i) first, to the Administrative Agent for any Defaulted
Amount then owing to the Administrative Agent; and
(ii) second, to any other Lender Parties for any Defaulted
Amounts then owing to such other Lender Parties, ratably in accordance
with such respective Defaulted Amounts then owing to such other Lender
Parties.
Any portion of such amount paid by the Borrower for the account of such
Defaulting Lender remaining, after giving effect to the amount applied by the
Administrative Agent pursuant to this subsection (b), shall be applied by the
Administrative Agent as specified in subsection (c) of this Section 2.15.
(c) In the event that, at any one time, (i) any Lender Party
shall be a Defaulting Lender, (ii) such Defaulting Lender shall not owe a
Defaulted Advance or a Defaulted Amount and (iii) the Borrower, the
Administrative Agent or any other Lender Party shall be required to pay or
distribute any amount hereunder or under any other Loan Document to or for the
account of such Defaulting Lender, then the Borrower or such other
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51
Lender Party shall pay such amount to the Administrative Agent to be held by the
Administrative Agent, to the fullest extent permitted by applicable law, in
escrow or the Administrative Agent shall, to the fullest extent permitted by
applicable law, hold in escrow such amount otherwise held by it. Any funds held
by the Administrative Agent in escrow under this subsection (c) shall be
deposited by the Administrative Agent in an account with NationsBank, in the
name and under the control of the Administrative Agent, but subject to the
provisions of this subsection (c). The terms applicable to such account,
including the rate of interest payable with respect to the credit balance of
such account from time to time, shall be NationsBank's standard terms applicable
to escrow accounts maintained with it. Any interest credited to such account
from time to time shall be held by the Administrative Agent in escrow under, and
applied by the Administrative Agent from time to time in accordance with the
provisions of, this subsection (c). The Administrative Agent shall, to the
fullest extent permitted by applicable law, apply all funds so held in escrow
from time to time to the extent necessary to make any Advances required to be
made by such Defaulting Lender and to pay any amount payable by such Defaulting
Lender hereunder and under the other Loan Documents to the Administrative Agent
or any other Lender Party, as and when such Advances or amounts are required to
be made or paid and, if the amount so held in escrow shall at any time be
insufficient to make and pay all such Advances and amounts required to be made
or paid at such time, in the following order of priority:
(i) first, to the Administrative Agent for any amount then due
and payable by such Defaulting Lender to the Administrative Agent
hereunder;
(ii) second, to any other Lender Parties for any amount then
due and payable by such Defaulting Lender to such other Lender Parties
hereunder, ratably in accordance with such respective amounts then due
and payable to such other Lender Parties; and
(iii) third, to the Borrower for any Advance then required to
be made by such Defaulting Lender pursuant to a Commitment of such
Defaulting Lender.
In the event that any Lender Party that is a Defaulting Lender shall, at any
time, cease to be a Defaulting Lender, any funds held by the Administrative
Agent in escrow at such time with respect to such Lender Party shall be
distributed by the Administrative Agent to such Lender Party and applied by such
Lender Party to the Obligations owing to such Lender Party at such time under
this Agreement and the other Loan Documents ratably in accordance with the
respective amounts of such Obligations outstanding at such time.
(d) The rights and remedies against a Defaulting Lender under
this Section 2.15 are in addition to other rights and remedies that the Borrower
may have against such Defaulting Lender with respect to any Defaulted Advance
and that the Administrative
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52
Agent or any Lender Party may have against such Defaulting Lender with respect
to any Defaulted Amount.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Initial Extension of
Credit. The obligation of each Lender to make an Advance or of the Issuing Bank
to issue a Letter of Credit on the occasion of the Initial Extension of Credit
hereunder is subject to the satisfaction of the following conditions precedent
before or concurrently with the Initial Extension of Credit:
(a) The Lender Parties shall be satisfied with the corporate
or partnership (as applicable) and legal structure and capitalization of
each Loan Party and each of its Subsidiaries (including, without
limitation, Shoney's SPV and the TPI SPV), including the terms and
conditions of the charter, bylaws and each class of capital stock of
each Loan Party and each such Subsidiary and of each agreement or
instrument relating to such structure or capitalization.
(b) The Lender Parties shall (i) be satisfied that all
Existing Debt (including, without limitation, Debt in respect of the
Reducing Revolving Credit Agreement, the Bridge Loan Credit Agreement,
the First American Credit Agreement and the Existing Mortgage Notes),
other than the Surviving Debt, has been prepaid, redeemed or defeased in
full or otherwise satisfied and extinguished and that all such Surviving
Debt shall be on terms and conditions satisfactory to the Lender Parties
, (ii) have received duly executed and, if applicable, acknowledged,
satisfactions, releases and terminations in form sufficient under
applicable law to release, terminate and discharge all Liens securing
Existing Debt other than Surviving Debt and (iii) be satisfied with all
arrangements made in connection with the Variable Rate Notes and the
related letters of credit (including, without limitation, all escrow
arrangements made in respect of drawings under such letters of credit).
(c) Before giving effect to the transactions contemplated by
this Agreement, there shall have occurred no Material Adverse Change
since October 27, 1996.
(d) There shall exist no action, suit, investigation,
litigation or proceeding affecting any Loan Party or any of its
Subsidiaries pending or threatened before any court, governmental agency
or arbitrator that (i) would be reasonably likely to have a Material
Adverse Effect other than the matters described on Schedule 3.01(d) (the
<PAGE> 59
53
"Disclosed Litigation") or (ii) purports to affect the legality,
validity or enforceability of this Agreement, any Note, any other Loan
Document, any Deed or the Certificate of Merger or the consummation of
the transactions contemplated hereby or thereby, and there shall have
been no adverse change in the status, or financial effect on, any Loan
Party or any of its Subsidiaries, of the Disclosed Litigation from that
described on Schedule 3.01(d).
(e) The Lender Parties shall have completed a due diligence
investigation of the Borrower and its Subsidiaries in scope, and with
results, satisfactory to the Lender Parties, and nothing shall have come
to the attention of the Lender Parties during the course of such due
diligence investigation to lead them to believe that the Information
Memorandum was or has become misleading, incorrect or incomplete in any
material respect; without limiting the generality of the foregoing, the
Lender Parties shall have been given such access to the management,
records, books of account, contracts and properties of the Borrower and
its Subsidiaries as they shall have requested.
(f) The Borrower shall have paid all accrued fees of the
Administrative Agent and the Lender Parties and all accrued and invoiced
expenses of the Administrative Agent and the Lender Parties (including
the accrued and invoiced fees and expenses of counsel to the
Administrative Agent, special intellectual property counsel to the
Administrative Agent and local counsel to the Administrative Agent).
(g) The Administrative Agent shall have received on or before
the day of the Initial Extension of Credit the following, each dated
such day (unless otherwise specified), in form and substance
satisfactory to the Administrative Agent (unless otherwise specified)
and (except for the Notes) in sufficient copies for each Lender Party:
(i) The Notes payable to the order of the Lenders.
(ii) Certified copies of the resolutions of the Board
of Directors of the Borrower and each other Loan Party
approving this Agreement, the Notes and each other Loan
Document to which it is or is to be a party, and of all
documents evidencing other necessary corporate action and
governmental and other third party approvals and consents, if
any, with respect to this Agreement, the Notes and each other
Loan Document.
(iii) A copy of the charter of the Borrower and each
other Loan Party and each amendment thereto, certified (as of
a date reasonably near the date of the Initial Extension of
Credit) by the Secretary of State (or other
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54
appropriate officer) of the jurisdiction of its incorporation
as being a true and correct copy thereof.
(iv) A copy of a certificate of the Secretary of
State (or other appropriate officer) of the jurisdiction of
its incorporation, dated reasonably near the date of the
Initial Extension of Credit, certifying that (A) the Borrower
and each other Loan Party (other than Shoney's Investments,
Inc.) have paid all franchise taxes due prior to the date of
such certificate and (B) the Borrower and each other Loan
Party are duly incorporated and in good standing under the
laws of the jurisdiction of its incorporation.
(v) A copy of a certificate of the Secretary of State
(or other appropriate officer) of each jurisdiction in which
the Borrower and each other Loan Party transacts business,
dated reasonably near the date of the Initial Extension of
Credit, stating that the Borrower and each other Loan Party
are duly qualified and in good standing as foreign
corporations in such State and have filed all annual reports
required to be filed to the date of such certificate.
(vi) A certificate of the Borrower and each other
Loan Party, signed on behalf of the Borrower and such other
Loan Party by its President or a Vice President and its
Secretary or any Assistant Secretary, dated the date of the
Initial Extension of Credit (the statements made in which
certificate shall be true on and as of the date of the Initial
Extension of Credit), certifying as to (A) the absence of any
amendments to the charter of the Borrower or such other Loan
Party since the date of the Secretary of State's certificate
referred to in Section 3.01(g)(iii), (B) a true and correct
copy of the bylaws of the Borrower and such other Loan Party
as in effect on the date of the Initial Extension of Credit,
(C) the due incorporation or formation and good standing of
the Borrower and such other Loan Party as a corporation
organized under the laws of the jurisdiction of its
incorporation or formation, and the absence of any proceeding
for the dissolution or liquidation of the Borrower or such
other Loan Party, (D) the truth of the representations and
warranties contained in the Loan Documents as though made on
and as of the date of the Initial Extension of Credit and (E)
the absence of any event occurring and continuing, or
resulting from the Initial Extension of Credit, that
constitutes a Default.
(vii) A certificate of the Secretary or an Assistant
Secretary of the Borrower and each other Loan Party certifying
the names and true signatures of the officers of the Borrower
and such other Loan Party authorized to sign this Agreement,
the Notes and each other Loan Document to which they are or
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55
are to be parties and the other documents to be delivered
hereunder and thereunder.
(viii) A security agreement in substantially the form
of Exhibit D (together with each other security agreement
delivered pursuant to Section 5.01(l), in each case as
amended, supplemented or otherwise modified from time to time
in accordance with its terms, the "Security Agreement"), duly
executed by the Borrower and each other Collateral Grantor
together with:
(A) certificates representing the Pledged
Shares referred to therein accompanied by undated
stock powers executed in blank and instruments
evidencing the Pledged Debt referred to therein
indorsed in blank,
(B) executed copies of proper financing
statements, to be filed under the Uniform Commercial
Code of all jurisdictions that the Administrative
Agent may deem necessary or desirable in order to
perfect and protect the first priority liens and
security interests created under the Security
Agreement, covering the Collateral described in the
Security Agreement,
(C) completed requests for information,
dated on or before the date of the Initial Extension
of Credit, listing all effective financing statements
filed as of the date of such requests in the
jurisdictions referred to in clause (B) above that
name the Borrower or any other Collateral Grantor as
debtor, together with copies of such other financing
statements,
(D) evidence of the insurance required by
the terms of this Agreement,
(E) copies of the Assigned Agreements
referred to in the Security Agreement, and
(F) evidence that all other action that the
Administrative Agent may deem necessary or desirable
in order to perfect and protect the first priority
liens and security interests created under the
Security Agreement has been taken or that the
necessary steps for such action have been taken.
(ix) An intellectual property security agreement in
substantially the form of Exhibit I (together with each other
intellectual property security
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56
agreement delivered pursuant to Section 5.01(l), in each case
as amended, supplemented or otherwise modified from time to
time in accordance with its terms, the "Intellectual Property
Security Agreement"), duly executed by the Borrower and each
other Collateral Grantor together with evidence that all
action that the Administrative Agent may deem necessary or
desirable in order to perfect and protect the first priority
liens and security interests created under the Intellectual
Property Security Agreement has been taken or that the
necessary steps for such action have been taken.
(x) Deeds of trust, trust deeds and mortgages in
substantially the form of Exhibit F and covering the
properties listed on Schedule 3.01(g)(x) (together with each
other mortgage delivered pursuant to Section 5.01(l), (n) and
(q), in each case as amended, supplemented or otherwise
modified from time to time in accordance with their terms, the
"Mortgages"), duly executed by the Borrower, together with:
(A) fully paid American Land Title
Association Lender's Extended Coverage title
insurance policies or in lieu thereof binding
commitments therefor (the "Mortgage Policies") in
form and substance, with endorsements and in amount,
acceptable to the Administrative Agent, issued,
coinsured and reinsured by title insurers acceptable
to the Administrative Agent, insuring the Mortgages
to be valid first and subsisting Liens on the
properties listed on Schedule 3.01(g)(x), free and
clear of all defects (including, but not limited to,
mechanics' and materialmen's Liens) and encumbrances,
excepting only Permitted Encumbrances, and providing
for such other affirmative insurance (including
endorsements for future advances under the Loan
Documents and for mechanics' and materialmen's Liens)
and such coinsurance and direct access reinsurance as
the Administrative Agent may deem necessary or
desirable,
(B) American Land Title Association form
surveys for each of the properties listed on Schedule
3.01(g)(x), dated no more than 60 days before the day
of the Initial Extension of Credit, certified to the
Administrative Agent and the issuer of the Mortgage
Policies in a manner satisfactory to the
Administrative Agent by a land surveyor duly
registered and licensed in the States in which the
property described in such surveys is located and
acceptable to the Administrative Agent, in form and
substance satisfactory to the Administrative Agent.
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(C) an appraisal of each of the properties
indicated on Schedule 4.01(ii), which appraisals
shall be from Marshall & Stevens or any other Person
acceptable to the Lender Parties and otherwise in
form and substance satisfactory to the Lender
Parties,
(D) evidence of the insurance required by
the terms of this Agreement, and
(E) evidence that all other action that the
Administrative Agent may deem necessary or desirable
in order to create valid first and subsisting Liens
on the properties listed on Schedule 3.01(g)(x) has
been taken or that the necessary steps for such
action have been taken.
(xi) A subsidiary guaranty in substantially the form
of Exhibit G (as amended, supplemented or otherwise modified
from time to time in accordance with its terms, the
"Subsidiary Guaranty"), duly executed by each Subsidiary
Guarantor.
(xii) Such financial, business and other information
regarding each Loan Party and its Subsidiaries as the Lender
Parties shall have requested, including, without limitation,
the Consolidated balance sheet as at August 3, 1997 for the
Borrower and its Subsidiaries, information as to possible
contingent liabilities, tax matters, environmental matters,
obligations under Plans, Multiemployer Plans and Welfare
Plans, collective bargaining agreements and other arrangements
with employees, audited annual financial statements dated
October 27, 1996, interim financial statements dated the end
of the most recent fiscal quarter for which financial
statements are available (or, in the event the Lender Parties'
due diligence review reveals material changes since such
financial statements, as of a later date within 45 days of the
day of the Initial Extension of Credit) and forecasts prepared
by management of the Borrower in form and substance
satisfactory to the Lender Parties, of balance sheets, income
statements and cash flow statements on a fiscal quarterly
basis for the Fiscal Year in which the Initial Extension of
Credit occurs and on an annual basis for each Fiscal Year
thereafter until the Termination Date.
(xiii) Certificates substantially in the form of
Exhibit K, attesting to the Solvency of the Borrower and each
Significant Subsidiary (other than TPI SPV) after giving
effect to the transactions contemplated hereby, from its
president, treasurer, controller, chief financial officer or
principal financial officer.
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(xiv) (A) Environmental data base searches, with
results acceptable to the Administrative Agent, with respect
to the properties indicated on Schedule 4.01(ii) (other than
the properties described in clause (C) of this Section
3.01(g)(xiv)), (B) completed ASTM Environmental Site
Assessment Transaction Screen Questionnaires, with results
acceptable to the Administrative Agent, with respect to the
properties listed on Schedule 3.01(g)(x) and (C) Phase I site
assessment reports prepared by Law Engineering, with results
acceptable to the Administrative Agent, with respect to the
four distribution facilities owned by Commissary Operations,
Inc.
(xv) A letter, in form and substance satisfactory to
the Administrative Agent, from the Borrower to Ernst & Young,
its independent certified public accountants, advising such
accountants that the Administrative Agent and the Lender
Parties have been authorized to exercise (in the presence of a
representative of the Borrower) all rights of the Borrower to
require such accountants to disclose any and all financial
statements and any other information of any kind that they may
have with respect to the Borrower and its Subsidiaries and
directing such accountants to comply with any reasonable
request of the Administrative Agent for such information.
(xvi) Evidence of insurance naming the Administrative
Agent as an additional insured party with such responsible and
reputable insurance companies or associations, and in such
amounts and covering such risks, as is satisfactory to the
Lender Parties, including, without limitation, business
interruption insurance.
(xvii) A favorable opinion of (A) Tuke Yopp &
Sweeney, counsel for the Borrower, in substantially the form
of Exhibit H-1 hereto and as to such other matters as any
Lender Party through the Administrative Agent may reasonably
request, (B) Dewey Ballantine, special New York counsel for
the Borrower, in substantially the form of Exhibit H-2 hereto
and as to such other matters as any Lender Party through the
Administrative Agent may reasonably request.
(xviii) Favorable opinions of local counsel in the
States listed on Schedule 3.01(g)(xviii), in substantially the
form of Exhibit J hereto and as to such other matters as any
Lender Party through the Administrative Agent may reasonably
request.
(xix) A favorable opinion of Pennie & Edmonds,
special intellectual property counsel to the Administrative
Agent in substantially the form of
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59
Exhibit I hereto and as to such other matters as any Lender
Party through the Administrative Agent may reasonably request.
(xx) A favorable opinion of Shearman & Sterling,
counsel for the Administrative Agent, in form and substance
satisfactory to the Administrative Agent.
(h) (A) The Certificate of Merger shall have been filed with
the Secretary of State of Delaware, (B) such merger shall be effective, (C) all
fees, charges, taxes and impositions payable in connection with such merger
shall have been paid in full and (D) certified copies of the Certificate of
Merger shall have been delivered to the Administrative Agent in number and form
sufficient to record in all jurisdictions in which Shoney's Real Estate, Inc.
holds title to real property and to transfer all such real property to Shoney's
SPV.
(i) The Administrative Agent shall have received executed and
recordable Deeds with respect to all real property listed on Schedule 3.01(i),
together with all (1) transfer tax or similar returns or filings required to be
filed in connection with the recording of the Deeds, appropriately completed and
executed and (2) an amount sufficient to pay all transfer taxes, stamp taxes, or
similar taxes and all documentary, filing and recording fees, charges, and
expenses.
(j) The Administrative Agent shall have received executed and
recordable UCC Fixture Filings in form and substance satisfactory to the Lender
Parties sufficient to grant to the Administrative Agent a first priority
security interest in all fixtures attached to all real property listed on
Schedule 3.01(j).
(k) The Borrower and Shoney's SPV shall have entered into that
certain Amended and Restated Master Lease Agreement in respect of all real
property owned by Shoney's SPV or to be conveyed to Shoney's SPV pursuant to
this Agreement, in the form attached hereto as Exhibit N.
(l) The Swing Line Bank shall have received the Cash
Management Documentation in form and substance reasonably satisfactory to the
Swing Line Bank.
SECTION 3.02. Conditions Precedent to Each Borrowing and
Issuance. The obligation of each Appropriate Lender to make an Advance (other
than a Letter of Credit Advance made by the Issuing Bank or a Working Capital
Lender pursuant to Section 2.03(c) and a Working Capital Advance made by a
Working Capital Lender pursuant to Section 2.02(b)) on the occasion of each
Borrowing (including the Initial Extension of Credit), and the obligation of the
Issuing Bank to issue a Letter of Credit (including the initial issuance) or
renew a Letter of Credit and the right of the Borrower to request the
<PAGE> 66
60
issuance or a renewal of a Letter of Credit, shall be subject to the further
conditions precedent that on the date of such Borrowing or issuance or renewal
(a) the following statements shall be true (and each of the giving of the
applicable Notice of Borrowing, Notice of Issuance or Notice of Renewal and the
acceptance by the Borrower of the proceeds of such Borrowing or of such Letter
of Credit or the renewal of such Letter of Credit shall constitute a
representation and warranty by the Borrower that both on the date of such notice
and on the date of such Borrowing or issuance or renewal such statements are
true):
(i) the representations and warranties contained in each Loan
Document are correct in all material respects on and as of such date,
before and after giving effect to such Borrowing or issuance or renewal
and to the application of the proceeds therefrom, as though made on and
as of such date, other than any such representations or warranties that,
by their terms, refer to a specific date other than the date of such
Borrowing or issuance or renewal, in which case as of such specific
date; and
(ii) no event has occurred and is continuing, or would result
from such Borrowing or issuance or renewal or from the application of
the proceeds therefrom, that constitutes a Default;
and (b) the Administrative Agent shall have received such other approvals,
opinions or documents as any Appropriate Lender through the Administrative Agent
may reasonably request.
SECTION 3.03. Determinations Under Section 3.01. For purposes
of determining compliance with the conditions specified in Section 3.01, each
Lender Party shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lender Parties unless an
officer of the Administrative Agent responsible for the transactions
contemplated by the Loan Documents shall have received notice from such Lender
Party prior to the Initial Extension of Credit specifying its objection thereto
and if the Initial Extension of Credit consists of a Borrowing, such Lender
Party shall not have made available to the Administrative Agent such Lender
Party's ratable portion of such Borrowing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows:
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61
(a) Each Loan Party (i) is a corporation or limited liability
company, as applicable, duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
formation, as applicable, (ii) is duly qualified and in good standing as
a foreign corporation or limited liability company, as applicable, in
each other jurisdiction in which it owns or leases property or in which
the conduct of its business requires it to so qualify or be licensed
except where the failure to so qualify or be licensed is not reasonably
likely to have a Material Adverse Effect and (iii) has all requisite
corporate power and authority (including, without limitation, all
governmental licenses, permits and other approvals) to own or lease and
operate its properties and to carry on its business as now conducted and
as proposed to be conducted.
(b) Set forth on Schedule 4.01(b) hereto is a complete and
accurate list of all Subsidiaries of each Loan Party, showing as of the
date hereof (as to each such Subsidiary) the jurisdiction of its
incorporation or formation, as applicable, the number of shares of each
class of capital stock authorized, and the number outstanding, on the
date hereof and the percentage of the outstanding shares of each such
class owned (directly or indirectly) by such Loan Party and the number
of shares covered by all outstanding options, warrants, rights of
conversion or purchase and similar rights at the date hereof. All of the
outstanding capital stock of all of such Subsidiaries has been validly
issued, is fully paid and non-assessable and is owned by such Loan Party
or one or more of its Subsidiaries free and clear of all Liens, except
those permitted by or created under the Loan Documents.
(c) The execution, delivery and performance by each Loan Party
of this Agreement, the Notes, each other Loan Document, each Deed, each
Master Lease and the Certificate of Merger to which it is or is to be a
party, and the consummation of the transactions contemplated hereby, are
within such Loan Party's corporate powers, have been duly authorized by
all necessary corporate action, and do not (i) contravene such Loan
Party's charter, bylaws, certificate of formation or operating
agreement, as applicable, (ii) violate any law (including, without
limitation, the Securities Exchange Act of 1934 and the Racketeer
Influenced and Corrupt Organizations Chapter of the Organized Crime
Control Act of 1970), rule, regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System),
order, writ, judgment, injunction, decree, determination or award
imposed upon or applicable to such Loan Party, (iii) conflict with or
result in the breach of, or constitute a default under, any contract,
loan agreement, indenture, mortgage, deed of trust, lease or other
instrument binding on or affecting any Loan Party, any of its
Subsidiaries or any of their properties or (iv) except for the Liens
created under the Loan Documents, result in or require the creation or
imposition of any Lien upon or with respect to any of the properties of
any Loan Party or any of its Subsidiaries. No Loan Party or any of its
Subsidiaries is in violation of any such law, rule, regulation, order,
writ, judgment,
<PAGE> 68
62
injunction, decree, determination or award or in breach of any such
contract, loan agreement, indenture, mortgage, deed of trust, lease or
other instrument, the violation or breach of which is reasonably likely,
either individually or in the aggregate, to have a Material Adverse
Effect.
(d) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
or any other third party is required for (i) the due execution,
delivery, recordation, filing or performance by any Loan Party of this
Agreement, the Notes, any other Loan Document, any Deed, each Master
Lease or the Certificate of Merger to which it is or is to be a party,
or for the consummation of the transactions contemplated hereby, (ii)
the grant by any Loan Party of the Liens granted by it pursuant to the
Collateral Documents, (iii) the perfection or maintenance of the Liens
created by the Collateral Documents (including the first priority nature
thereof) or (iv) the exercise by the Administrative Agent or any Lender
Party of its rights under the Loan Documents or the remedies in respect
of the Collateral pursuant to the Collateral Documents, except for (A)
authorizations, approvals, actions, notices and filings which have been
duly obtained, taken, given or made and are in full force and effect and
(B) the filing and recording of certain of the Collateral Documents as
described herein.
(e) This Agreement has been, and each of the Notes, each other
Loan Document, each Deed, each Master Lease and the Certificate of
Merger when delivered hereunder will have been, duly executed and
delivered by each Loan Party party thereto. This Agreement is, and each
of the Notes, each other Loan Document, each Deed, each Master Lease and
the Certificate of Merger when delivered hereunder will be, the legal,
valid and binding obligation of each Loan Party party thereto,
enforceable against such Loan Party in accordance with its terms
subject, as to enforcement only, to bankruptcy, insolvency,
reorganization, moratoriums or similar laws at the time in effect
affecting the enforceability of the rights of creditors generally.
(f) The Consolidated balance sheet of the Borrower and its
Subsidiaries as at October 27, 1996, and the related Consolidated
statement of income and Consolidated statement of cash flows of the
Borrower and its Subsidiaries for the fiscal year then ended,
accompanied by an opinion of Ernst & Young, independent public
accountants, and the Consolidated balance sheet of the Borrower and its
Subsidiaries as of August 3, 1997, and the related Consolidated
statement of income and Consolidated statement of cash flows of the
Borrower and its Subsidiaries for the 40 weeks then ended, duly
certified by the chief financial officer or the principal financial
officer of the Borrower, copies of which have been furnished to the
Administrative Agent, fairly present, subject, in the case of said
balance sheet as of August 3, 1997, and said statements of income and
cash flows for the 40 weeks then ended, to year-end audit
<PAGE> 69
63
adjustments, the Consolidated financial condition of the Borrower and
its Subsidiaries as at such dates and the Consolidated results of
operations of the Borrower and its Subsidiaries for the periods ended on
such dates, all in accordance with generally accepted accounting
principles applied on a consistent basis, and since October 27, 1996,
there has been no Material Adverse Change.
(g) The Consolidated forecasted balance sheets, income
statements and cash flows statements of the Borrower and its
Subsidiaries delivered to the Lender Parties pursuant to Section
3.01(g)(xiii) or 5.03(e) were prepared in good faith on the basis of the
assumptions stated therein, which assumptions were reasonable in the
light of conditions existing at the time of delivery of such forecasts,
and represented, at the time of delivery, the Borrower's reasonable best
estimate of its expected future financial performance based upon the
assumptions set forth in such forecast.
(h) Except as modified or supplemented in this Agreement or
the other Loan Documents, neither the Information Memorandum nor any
other information, exhibit or report furnished by any Loan Party to the
Administrative Agent or any Lender Party in connection with the
negotiation of the Loan Documents or pursuant to the terms of the Loan
Documents contained any untrue statement of a material fact or omitted
to state a material fact necessary to make the statements made therein
not misleading.
(i) There is no action, suit, investigation, litigation or
proceeding affecting any Loan Party or any of its Subsidiaries,
including any Environmental Action, pending or threatened before any
court, governmental agency or arbitrator that (i) would be reasonably
likely to have a Material Adverse Effect (other than the Disclosed
Litigation) or (ii) purports to affect the legality, validity or
enforceability of this Agreement, any Note, any other Loan Document, any
Deed or the Certificate of Merger or the consummation of the
transactions contemplated hereby, and there has been no adverse change
in the status, or financial effect on any Loan Party or any of its
Subsidiaries, of the Disclosed Litigation from that described on
Schedule 3.01(d).
(j) No proceeds of any Advance or drawings under any Letter of
Credit will be used to acquire any equity security of a class that is
registered pursuant to Section 12 of the Securities Exchange Act of
1934.
(k) The Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying Margin Stock, and no
proceeds of any Advance or drawings under any Letter of Credit will be
used to purchase or carry any Margin Stock or to extend credit to others
for the purpose of purchasing or carrying any Margin Stock.
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(l) Following application of the proceeds of each Advance or
drawing under each Letter of Credit, not more than 25 percent of the
value of the assets (either of the Borrower only or of the Borrower and
its Subsidiaries on a Consolidated basis) subject to the provisions of
Section 5.02(a) or 5.02(e) or subject to any restriction contained in
any agreement or instrument between the Borrower and any Lender Party or
any Affiliate of any Lender Party relating to Debt and within the scope
of Section 6.01(e) will be Margin Stock.
(m) Set forth on Schedule 4.01(m) hereto is a complete and
accurate list of all Plans, Multiemployer Plans and Welfare Plans.
(n) No ERISA Event has occurred or is reasonably expected to
occur with respect to any Plan that has resulted in or is reasonably
expected to result in a material liability of any Loan Party or any
ERISA Affiliate.
(o) As of the last annual actuarial valuation date, the funded
current liability percentage, as defined in Section 302(d)(8) of ERISA,
of each Plan exceeds 90% and there has been no material adverse change
in the funding status of any such Plan since such date.
(p) Schedule B (Actuarial Information), if applicable, to the
most recent annual report (Form 5500 Series) for each Plan, copies of
which have been filed with the Internal Revenue Service, is complete and
accurate and fairly presents the funding status of such Plan, and since
the date of such Schedule B there has been no material adverse change in
such funding status.
(q) Neither any Loan Party nor any ERISA Affiliate has
incurred or is reasonably expected to incur any Withdrawal Liability to
any Multiemployer Plan.
(r) Neither any Loan Party nor any ERISA Affiliate has been
notified by the sponsor of a Multiemployer Plan that such Multiemployer
Plan is in reorganization or has been terminated, within the meaning of
Title IV of ERISA, and no such Multiemployer Plan is reasonably expected
to be in reorganization or to be terminated, within the meaning of Title
IV of ERISA.
(s) Except as set forth in the financial statements referred
to in this Section 4.01 and in Section 5.03, the Loan Parties and their
respective Subsidiaries have no material liability with respect to
"expected post retirement benefit obligations" within the meaning of
Statement of Financial Accounting Standards No. 106.
(t) Neither the business nor the properties of any Loan Party
or any of its Subsidiaries are affected by any fire, explosion,
accident, strike, lockout or other labor
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65
dispute, drought, storm, hail, earthquake, embargo, act of God or of the
public enemy or other casualty (whether or not covered by insurance)
that would be reasonably likely to have a Material Adverse Effect.
(u) The operations and properties of each Loan Party and each
of its Subsidiaries comply in all material respects with all applicable
Environmental Laws and Environmental Permits, all past non-compliance
with such Environmental Laws and Environmental Permits has been resolved
without material ongoing obligations or costs, and no circumstances
exist that would be reasonably likely to (i) form the basis of an
Environmental Action against any Loan Party or any of its Subsidiaries
or any of their properties that could have a Material Adverse Effect or
(ii) cause any such property to be subject to any material restrictions
on ownership, occupancy, use or transferability under any Environmental
Law.
(v) None of the properties currently or, to the knowledge of
the Loan Parties and their Subsidiaries, formerly, owned or operated by
any Loan Party or any of its Subsidiaries is listed or proposed for
listing on the NPL or on the CERCLIS or any analogous foreign, state or
local list or, to the knowledge of the Loan Parties and their
Subsidiaries, is adjacent to any such property, except for the
properties that are listed on Schedule 4.01(v); there are no and, to the
knowledge of the Loan Parties and their Subsidiaries, never have been,
any underground or aboveground storage tanks or any surface
impoundments, septic tanks, pits, sumps or lagoons in which Hazardous
Materials are being or have been treated, stored or disposed on any
property currently or, to the knowledge of the Loan Parties and their
Subsidiaries, formerly, owned or operated by any Loan Party or any of
its Subsidiaries, in each case, the presence of which would be
reasonably expected to have a Material Adverse Effect; there is no
asbestos or asbestos-containing material on any property currently owned
or operated by any Loan Party or any of its Subsidiaries in a form or
condition which violates, or gives rise to liability under,
Environmental Laws; and Hazardous Materials have not been released,
discharged or disposed of on any property currently or, to the knowledge
of the Loan Parties and their Subsidiaries, formerly, owned or operated
by any Loan Party or any of its Subsidiaries, in each case, the release,
discharge or disposal of which would be reasonably expected to have a
Material Adverse Effect.
(w) Except for monitoring wells, neither any Loan Party nor
any of its Subsidiaries is undertaking, and has not completed, either
individually or together with other potentially responsible parties, any
investigation or assessment or remedial or response action relating to
any actual or threatened release, discharge or disposal of Hazardous
Materials at any site, location or operation, either voluntarily or
pursuant to the order of any governmental or regulatory authority or the
requirements of any Environmental Law; and all Hazardous Materials
generated, used, treated, handled or stored at, or transported to or
from, any property currently or, to the knowledge of the
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66
Loan Parties and their Subsidiaries, formerly, owned or operated by any
Loan Party or any of its Subsidiaries have been disposed of in a manner
not reasonably expected to have a Material Adverse Effect.
(x) Neither any Loan Party nor any of its Subsidiaries is a
party to any indenture, loan or credit agreement or any lease or other
agreement or instrument or subject to any charter or corporate
restriction that would be reasonably likely to have a Material Adverse
Effect.
(y) The provisions of the Collateral Documents executed by the
Loan Parties are effective to create, in favor of the Lenders, legal,
valid and enforceable security interests in all right, title and
interest of the Loan Parties in any and all of the collateral described
therein, securing the Notes and all other Obligations from time to time
outstanding under the Loan Documents, and each of such Collateral
Documents, upon the due filing of UCC-1 Financing Statements and
Mortgages, the taking of possession of the Security Collateral as
provided in the Security Agreement and the due filing of the
Intellectual Property Security Agreement with the United States Patent
and Trademark Office and the United States Copyright Office, shall
create a fully perfected security interest in all right, title and
interest of the Loan Parties in such collateral, superior in right to
any liens, existing or future, which the Loan Parties or any creditors
of or purchasers from, or any other Person, may have against such
collateral or interests therein, except to the extent, if any, otherwise
provided herein. Upon the due filing of UCC-1 financing statements and
Mortgages and the due filing of the Intellectual Property Security
Agreement with the United States Patent and Trademark Office and the
United States Copyright Office, all filings and other actions necessary
or desirable to perfect and protect such security interests will have
been duly taken. The Loan Parties are the legal and beneficial owners of
the Collateral free and clear of any Lien, except for the liens and
security interests created or permitted under the Loan Documents.
(z) Each Loan Party and each of its Subsidiaries and
Affiliates (other than Shoney's of Canada, Inc.) has filed, has caused
to be filed or has been included in all tax returns (Federal, state,
local and foreign) required to be filed and has paid all taxes shown
thereon to be due, together with applicable interest and penalties
except any such taxes or charges which are being contested in good faith
by appropriate proceedings and for which adequate reserves are being
maintained and certain de minimis amounts due by Shoney's of Canada,
Inc.
(aa) Set forth on Schedule 4.01(aa) hereto is a complete and
accurate list, as of the date hereof, of each taxable year of each Loan
Party and each of its Subsidiaries and Affiliates for which Federal
income tax returns have been filed and for which the
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expiration of the applicable statute of limitations for assessment or
collection has not occurred by reason of extension or otherwise (an
"Open Year").
(bb) There are no adjustments to the Federal income tax
liability of each Loan Party and each of its Subsidiaries and Affiliates
proposed by the Internal Revenue Service with respect to Open Years. No
issues have been raised by the Internal Revenue Service in respect of
Open Years that, in the aggregate, would be reasonably likely to have a
Material Adverse Effect.
(cc) The aggregate unpaid amount, as of the date hereof, of
adjustments to the state, local and foreign tax liability of each Loan
Party and its Subsidiaries and Affiliates proposed by all state, local
and foreign taxing authorities (other than amounts arising from
adjustments to Federal income tax returns) does not exceed $250,000. No
issues have been raised by such taxing authorities that, in the
aggregate, would be reasonably likely to have a Material Adverse Effect.
(dd) No "ownership change" as defined in Section 382(g) of the
Internal Revenue Code, and no event that would result in the application
of the "separate return limitation year" or "consolidated return change
of ownership" limitations under the Federal income tax consolidated
return regulations, has occurred with respect to the Borrower since
October 27, 1996.
(ee) Neither any Loan Party nor any of its Subsidiaries is an
"investment company," or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company," as such terms are
defined in the Investment Company Act of 1940, as amended.
(ff) The Borrower and each Significant Subsidiary is,
individually and together with its Subsidiaries, Solvent.
(gg) Set forth on Schedule 4.01(gg) hereto is a complete and
accurate list of all Debt of the Borrower and its Subsidiaries (other
than Debt of a Loan Party to another Loan Party) existing as of the date
hereof (the "Existing Debt"), showing as of the date hereof the
principal amount outstanding thereunder.
(hh) Set forth on Schedule 4.01(hh) hereto is a complete and
accurate list of all Debt of the Borrower and its Subsidiaries (other
than Debt of a Loan Party to another Loan Party) which will remain
outstanding after application of the proceeds from the Initial Advances
(the "Surviving Debt"), showing as of the date hereof the principal
amount outstanding thereunder, the maturity date thereof and the
amortization schedule therefor.
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(ii) Set forth on Schedule 4.01(ii) hereto is a complete and
accurate list of all real property owned by any Loan Party or any of its
Subsidiaries, showing as of the date hereof the street address, state,
record owner and, if appraised by Marshall & Stevens, the appraised
value thereof. Each Loan Party or such Subsidiary (other than TPI) has
good, marketable and insurable fee simple title to the real property
identified as being owned by it on Schedule 4.01(ii), free and clear of
all Liens, other than Liens created or permitted by the Loan Documents.
TPI has, prior to the 90th day following the date of the Initial
Extension of Credit, good and marketable fee simple title to the real
property identified as being owned by TPI on Schedule 4.01(ii). On or
prior to the 90th day following the date of the Initial Extension of
Credit, TPI or TPI SPV will have good, marketable and insurable fee
simple title to the real property identified as being owned by TPI on
Schedule 4.01(ii), free and clear of all Liens, other than Liens created
or permitted by the Loan Documents. Except for limitations,
restrictions, easements, burdens, rights or other encumbrances on
properties with an aggregate value not in excess of $10,000,000, no real
property owned by any Loan Party (other than, in respect of the first 90
days following the date of the Initial Extension of Credit, TPI) is
subject to any (A) purchase option, reverter or other limitation,
restriction, interest, burden, right or other encumbrance by which such
real property or any portion thereof may be required to be forfeited,
defeased, surrendered or conveyed or (B) any other limitation,
restriction, easement, burden, right or other encumbrance, in either
case which would or may materially adversely affect the ability of the
Loan Party which currently owns (or which, upon consummation of the
conveyances, by merger or otherwise, herein contemplated, will own) such
real property to continue to use such real property as used on the date
hereof. No Loan Party (other than, in respect of the first 90 days
following the date of the Initial Extension of Credit, TPI) is aware of
any action to enforce any limitation, restriction, easement, burden,
right or other encumbrance pertaining to real property owned or to be
owned by such Loan Party which would or may materially adversely affect
the ability of the Loan Party which currently owns (or which, upon
consummation of the conveyances, by merger or otherwise, herein
contemplated, will own) such real property to continue to use such real
property as used on the date hereof.
(jj) Set forth on Schedule 4.01(jj) hereto is a complete and
accurate list of all leases of real property (other than office leases
and storage facility leases) to which any Loan Party or any of its
Subsidiaries is the lessee, showing as of the date hereof the address,
lessee and annual rental cost thereof.
(kk) Set forth on Schedule 4.01(kk) hereto is a complete and
accurate list of all Investments held by any Loan Party or any of its
Subsidiaries, showing as of the date hereof the amount, obligor or
issuer and maturity, if any, thereof.
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(ll) Schedules II and III, collectively, to the Intellectual
Property Security Agreement contain a complete and accurate list of all
patents, trademarks, trade names, service marks and copyrights, and all
applications therefor and licenses thereof (other than to franchisees),
of each Loan Party or any of its Subsidiaries, showing as of the date
hereof (i) in the case of registrations therefor, the jurisdiction in
which registered, the registration number, the date of registration and
the expiration date and (ii) in the case of pending applications
therefor, the jurisdiction in which filed, the application number and
the date of filing.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any Advance
shall remain unpaid, any Letter of Credit shall be outstanding or any Lender
Party shall have any Commitment hereunder, the Borrower will:
(a) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, in all material respects, with all applicable
laws, rules, regulations and orders, such compliance to include, without
limitation, compliance with ERISA and the Racketeer Influenced and
Corrupt Organizations Chapter of the Organized Crime Control Act of
1970.
(b) Payment of Taxes, Etc. Pay and discharge, and cause each
of its Subsidiaries to pay and discharge, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges or
levies imposed upon it or upon its property and (ii) all lawful claims
that, if unpaid, might by law become a Lien upon its property; provided,
however, that neither the Borrower nor any of its Subsidiaries shall be
required to pay or discharge any such tax, assessment, charge or claim
that is being contested in good faith and by proper proceedings and as
to which appropriate reserves are being maintained, unless and until any
Lien resulting therefrom attaches to its property and becomes
enforceable against its other creditors.
(c) Compliance with Environmental Laws. Comply, and cause each
of its Subsidiaries and all lessees and other Persons operating or
occupying its properties to comply with all applicable Environmental
Laws and Environmental Permits except in the cases where the failure to
so comply is not reasonably likely to have a Material Adverse Effect;
obtain and renew and cause each of its Subsidiaries to obtain and renew
all Environmental Permits necessary for its operations and properties;
and conduct, and cause each of its Subsidiaries to conduct, any
investigation, study, sampling and testing, and undertake any cleanup,
removal, remedial or other action
<PAGE> 76
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necessary to remove and clean up all Hazardous Materials from any of its
properties, in accordance with the requirements of all Environmental
Laws; provided, however, that neither the Borrower nor any of its
Subsidiaries shall be required to undertake any such cleanup, removal,
remedial or other action to the extent that its obligation to do so is
being contested in good faith and by proper proceedings and appropriate
reserves are being maintained with respect to such circumstances.
(d) Maintenance of Insurance. (i) Maintain, and cause each of
its Subsidiaries to maintain (A) casualty insurance insuring all
buildings, structures and improvements owned or leased by the Borrower
or any Subsidiary (including, without limitation, all Improvements (as
defined under each Mortgage) now or hereafter constituting a part of the
Mortgaged Property (as defined under each Mortgage)) against damage by
fire and the other hazards covered by a standard all-risk, extended
coverage insurance policy for the full insurable value thereof (which,
unless the Administrative Agent shall otherwise agree in writing, shall
mean the full repair and replacement value thereof without reduction for
depreciation or co-insurance), (B) business interruption or rental
insurance in an amount adequate to cover continuing expenses during any
period of repairs or restoration which amount shall at least be equal to
twelve month's anticipated gross income from each of such premises, and
(C) Commercial General Liability Insurance in respect of the operation
of the all such properties as may from time to time be specified by the
Administrative Agent, but in no event less than $1,000,000 combined
single limit and $75,000,000 umbrella or excess coverage. In addition,
the Administrative Agent may require the Borrower and each of its
Subsidiaries to carry such other insurance on such properties in such
amounts as may from time to time reasonably be required by institutional
lenders, against insurable casualties including, without limitation, the
following types of insurance: flood (including surface waters) if any
such property is located in an area identified by the Secretary of
Housing and Urban Development or any other official having jurisdiction
as having special flood hazards and in which flood insurance has been
made available under the National Flood Insurance Act of 1968 and the
Flood Disaster Protection Act of 1973 (as the foregoing may be modified
or amended and any successor acts thereto), in an amount at least equal
to the full repair and replacement value of such property or the maximum
limit of coverage available under said Act in respect thereof, whichever
is less; automobile; Builder's Risk; sinkhole; earthquake; boiler and
machinery; all in amounts adequate to cover repair and replacement
expenses; and contingent liability in connection with any loss arising
from the fact that any improvement is deemed to be non-conforming
property, which at the time are commonly insured against in the case of
mortgaged property similarly situated, due regard being given to the
site and the type of the building, and the construction, location,
utilities and occupancy or any replacements or substitutions therefor.
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(ii) All liability insurance policies required pursuant to
clause (i) of this Section 5.01(d) in respect of any Mortgaged Property
(as defined in the Mortgages) shall name the Administrative Agent as an
additional insured thereunder, and all other insurance policies in
respect of any property encumbered by a Mortgage, to the extent
reasonably possible, or otherwise maintained by the Borrower and/or any
of its Subsidiaries shall name the Administrative Agent as the mortgagee
under New York long form non-contributory endorsements. All insurance
policies and endorsements required to be maintained under this Section
5.01(d) shall be fully paid or paid pursuant to an installment program
offered to the Borrower and/or any of its Subsidiaries by the insurer or
its broker/agent, provided that the installments are paid on or before
the due date thereof so that all required insurance coverage is
maintained without interruption. All such insurance policies required to
be maintained by the Borrower and/or any of its Subsidiaries shall
contain such provisions and expiration dates, and be in such form and
issued by such insurance companies qualified and licensed to do business
in the jurisdiction in which its insurable property is located, as may
be reasonably acceptable to the Administrative Agent. All insurance
companies issuing insurance required pursuant to clause (i) of this
Section 5.01(d) for property on behalf of the Borrower and/or any of its
Subsidiaries shall have a Best Insurance Guide Rating of A-/XIII or
better. Any coverage required to be maintained pursuant to clause (i) of
this Section may be maintained under a blanket insurance policy provided
such policy otherwise satisfies the requirements of this Section. Each
such policy required to be maintained by the Borrower and/or any of its
Subsidiaries shall provide that such policy may not be cancelled or
materially changed except upon not less than thirty (30) days' prior
written notice to the Administrative Agent of the intention of
non-renewal, cancellation or material change and that no act or thing
done by the Borrower and/or any of its Subsidiaries shall invalidate the
policy as against the Administrative Agent. In the event the Borrower
and/or any of its Subsidiaries fails to maintain insurance in compliance
with clause (i) of this Section 5.01(d) or, in the event that a notice
of non-renewal, cancellation or material change is given to the
Administrative Agent, as aforesaid, and within ten (10) days after the
delivery of such notice the Borrower and/or its applicable Subsidiary
shall fail to deliver to the Administrative Agent evidence of the
purchase of a substitute policy of insurance or a renewal of the
existing policy of insurance, the Administrative Agent may, after ten
(10) days' notice to the Borrower and/or its applicable Subsidiary (or,
if the policy in question shall sooner expire or be terminated, on or
after the day before the date of such expiration or termination) but
shall not be obligated to, obtain such insurance and pay the premium
therefor and the Borrower and/or its applicable Subsidiary shall, on
demand, reimburse the Administrative Agent for all sums, advances and
reasonable expenses incurred in connection therewith, together with
interest thereon at the rate of interest applicable under Section
2.07(b) upon the occurrence of an Event of Default (the "Default Rate")
from the date such amounts are advanced until the same are paid to the
Administrative Agent.
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72
(iii) Neither the Borrower nor any of its Subsidiaries shall
carry separate or additional insurance concurrent in form or
contributing, in the event of loss, with that required by clause (i) of
this Section 5.01(d) hereunder unless endorsed in favor of the
Administrative Agent as additional insured or mortgagee, as applicable,
and otherwise acceptable to the Administrative Agent in all respects.
(iv) In the event of foreclosure of any Mortgage or other
transfer of title or assignment of the premises encumbered thereby in
extinguishment, in whole or in part, of the Obligations secured thereby,
all right, title and interest of the Borrower and any of its
Subsidiaries in and to all policies of insurance required under clause
(i) of this Section 5.01(d) or otherwise then in force with respect to
such premises and all proceeds payable thereunder and unearned premiums
thereon shall immediately vest in the purchaser or other transferee of
such premises.
(v) The Borrower covenants that it has delivered to the
Administrative Agent, and shall, from time to time as may be requested
by the Administrative Agent, deliver to the Administrative Agent, the
policies of insurance (or, if such policies are not yet available,
unconditional binders to issue the same), or certificates thereof, that
may be requested by the Administrative Agent to confirm that the
insurance required under the terms of the Loan Documents is in place and
in full force and effect.
(vi) The Borrower shall, at its own expense, maintain and
cause each of its Subsidiaries, at their own expense, to maintain,
insurance with respect to the Equipment (as defined in the Security
Agreement) pledged by the Borrower and each such Subsidiary under the
Security Agreement in such amounts, against such risks, in such form and
with such insurers, as shall be satisfactory to the Administrative Agent
from time to time. Each policy for liability insurance shall provide for
all losses to be paid on behalf of the Administrative Agent and the
Borrower or the Subsidiary of the Borrower pledging such Equipment, as
applicable, as their interests may appear, and each policy for property
damage insurance shall provide for all losses (except for losses of less
than $200,000 per occurrence) to be paid directly to the Administrative
Agent. Each such policy shall in addition (i) name the Borrower or its
Subsidiary that owns the Equipment covered thereunder and the
Administrative Agent as insured parties thereunder (without any
representation or warranty by or obligation upon the Administrative
Agent) as their interests may appear, (ii) contain the agreement by the
insurer that any loss thereunder shall be payable to the Administrative
Agent notwithstanding any action, inaction or breach of representation
or warranty by the Borrower or such Subsidiary of the Borrower, as
applicable, (iii) provide that there shall be no recourse against the
Administrative Agent for payment of premiums or other amounts with
respect thereto and (iv) provide that at least 10 days' prior written
notice of cancellation or of lapse shall be given to the Administrative
Agent by the insurer. The Borrower shall and shall cause each of its
Subsidiaries, if so requested by
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73
the Administrative Agent, to deliver to the Administrative Agent
original or duplicate policies of such insurance and, as often as the
Administrative Agent may reasonably request, a report of a reputable
insurance broker with respect to such insurance. Further, at the request
of the Administrative Agent, the Borrower shall, and shall cause each of
its Subsidiaries to duly exercise and deliver instruments of assignment
of such insurance policies to comply with the requirements of Section 9
of the Security Agreement and cause the insurers to acknowledge notice
of such assignment.
(vii) Reimbursement under any liability insurance maintained
by the Borrower or any of its Subsidiaries pursuant to clause (vi) of
this Section 5.01(d) may be paid directly to the Person who shall have
incurred liability covered by such insurance. In case of any loss
involving damage to Equipment when clause (viii) of this Section 5.01(d)
is not applicable, the Borrower shall, and shall cause each of its
Subsidiaries to make or cause to be made the necessary repairs to or
replacements of the Equipment that it owns, and any proceeds of
insurance maintained by the Borrower or such Subsidiary of the Borrower,
as applicable, pursuant to clause (vi) of this Section 5.01(d) shall be
paid to the Borrower or such Subsidiary of the Borrower, as applicable,
as reimbursement for the costs of such repairs or replacements.
(viii) Upon the occurrence and during the continuance of any
Event of Default or the actual or constructive total loss (in excess of
$200,000 per occurrence) of any Equipment pledged by the Borrower or
such Subsidiary of the Borrower, as applicable, under the Security
Agreement, all insurance payments in respect of such Equipment shall be
paid to and applied by the Administrative Agent as specified in Section
20(b) of the Security Agreement.
(e) Preservation of Corporate Existence, Etc. Preserve and
maintain, and cause each of its Subsidiaries to preserve and maintain,
its existence, legal structure, legal name, rights (charter and
statutory), permits, licenses, approvals, privileges and franchises;
provided, however, that the Borrower and its Subsidiaries may consummate
any merger or consolidation permitted under Section 5.02(d); provided
further, that neither the Borrower nor any of its Subsidiaries shall be
required to preserve any right, permit, license, approval, privilege or
franchise if the board of directors of the Borrower or such Subsidiary
or equivalent governing body shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the
Borrower or such Subsidiary, as the case may be, and that the loss
thereof does not have a Material Adverse Effect.
(f) Visitation Rights. At any reasonable time and from time to
time, permit the Administrative Agent or any of the Lender Parties or
any agents or representatives thereof, to examine and make copies of and
abstracts from the records and books of account of, and visit the
properties of, the Borrower and any of its
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Subsidiaries, and to discuss the affairs, finances and accounts of the
Borrower and any of its Subsidiaries with any of their officers and in
the presence of the Borrower or its Subsidiaries, with their independent
certified public accountants; provided, however, that any such
visitation by any Lender Party or any agent or representative thereof
shall be done in coordination with the Administrative Agent.
(g) Preparation of Environmental Reports. Upon the occurrence
and during the continuance of an Event of Default or upon the occurrence
of an event which gives the Lender Parties a reasonable basis for
concern as to environmental matters, then at the request of the
Administrative Agent from time to time, provide to the Lender Parties
within 60 days after such request, at the expense of the Borrower, an
environmental site assessment report for any of its or its Subsidiaries
properties described in such request, prepared by an environmental
consulting firm acceptable to the Administrative Agent, indicating the
presence or absence of Hazardous Materials and the estimated cost of any
compliance, removal or remedial action in connection with any Hazardous
Materials on such properties; without limiting the generality of the
foregoing, if the Administrative Agent determines at any time that a
material risk exists that any such report will not be provided within
the time referred to above, the Administrative Agent may retain an
environmental consulting firm to prepare such report at the expense of
the Borrower, and the Borrower hereby grants and agrees to cause any
Subsidiary that owns any property described in such request to grant at
the time of such request, to the Administrative Agent, the Lender
Parties, such firm and any agents or representatives thereof an
irrevocable non-exclusive license, subject to the rights of tenants, to
enter onto their respective properties to undertake such an assessment.
(h) Keeping of Books. Keep, and cause each of its Subsidiaries
to keep, proper books of record and account, in which full and correct
entries shall be made of all financial transactions and the assets and
business of the Borrower and each such Subsidiary in accordance with
generally accepted accounting principles in effect from time to time.
(i) Maintenance of Properties, Etc. Maintain and preserve, and
cause each of its Subsidiaries to maintain and preserve, all of its
properties that are used or useful in the conduct of its business in
good working order and condition, ordinary wear and tear excepted.
(j) Compliance with Terms of Leaseholds. Make all payments and
otherwise perform all obligations in respect of all leases of real
property to which the Borrower or any of its Subsidiaries is a party,
keep such leases in full force and effect and not allow such leases to
lapse or be terminated or any rights to renew such leases to be
forfeited or cancelled, notify the Administrative Agent of any default
by any
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party with respect to such leases and cooperate with the Administrative
Agent in all respects to cure any such default, and cause each of its
Subsidiaries to do so except, in any case, where the failure to do so,
either individually or in the aggregate, would not be reasonably likely
to have a Material Adverse Effect.
(k) Transactions with Affiliates. Conduct, and cause each of
its Subsidiaries to conduct, all transactions otherwise permitted under
the Loan Documents with any of their Affiliates on terms that are fair
and reasonable and no less favorable to the Borrower or such Subsidiary
than it would obtain in a comparable arm's-length transaction with a
Person not an Affiliate; provided, however, that nothing in this Section
5.01(k) shall prevent the transfer of assets from TPI to TPI SPV or from
the Borrower to Shoney's SPV.
(l) Covenant to Give Security. Upon the request of the
Administrative Agent following the occurrence and during the continuance
of an Event of Default, and at the expense of the Borrower, (i) within
10 days after such request, furnish to the Administrative Agent a
description of the real and personal properties of the Borrower and its
Subsidiaries in detail reasonably satisfactory to the Administrative
Agent, (ii) within 15 Business Days after such request, duly execute and
deliver to the Administrative Agent mortgages, pledges, assignments and
other security agreements, as specified by and in form and substance
reasonably satisfactory to the Administrative Agent, securing payment of
all the Obligations of the Borrower under the Loan Documents and
constituting Liens on all such properties, (iii) within 30 days after
such request, take whatever action (including, without limitation, the
recording of mortgages, the filing of Uniform Commercial Code financing
statements, the giving of notices and the endorsement of notices on
title documents) may be necessary or advisable in the opinion of the
Administrative Agent to vest in the Administrative Agent (or in any
representative of the Administrative Agent designated by it) valid and
subsisting Liens on the properties purported to be subject to the
security agreements delivered pursuant to this Section 5.01(l),
enforceable against all third parties in accordance with their terms,
(iv) within 60 days after such request, deliver to the Administrative
Agent a signed copy of a favorable opinion, addressed to the
Administrative Agent, of counsel for the Borrower reasonably acceptable
to the Administrative Agent as to the matters contained in clauses (i),
(ii) and (iii) above, as to such security agreements being legal, valid
and binding obligations of the Borrower and its Subsidiaries enforceable
in accordance with their terms and as to such other matters as the
Administrative Agent may reasonably request, (v) as promptly as
practicable after such request, deliver to the Administrative Agent
surveys meeting the criteria specified in Section 3.01(g)(x)(C) and
Mortgage Policies as to each parcel of real property subject to such
request and (vi) at any time and from time to time, promptly execute and
deliver any and all further instruments and documents and take
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all such other action as the Administrative Agent may deem desirable in
obtaining the full benefits of, or in preserving the Liens of, such
security agreements.
(m) Interest Rate Hedging. Within 60 days following the
Closing Date, enter into and maintain at all times thereafter, interest
rate Hedge Agreements with Persons acceptable to the Administrative
Agent, covering a notional amount of not less than $50,000,000 and
providing for such Persons to make payments thereunder for a period of
no less than 2 years to the extent of increases in interest rates based
on LIBOR.
(n) Transfer of Real Property. (i) Within 45 days following
the date of the Initial Extension of Credit, (1) either (A) transfer all
of the real property listed on Schedule 5.01(n)(i) to Shoney's SPV on
terms reasonably satisfactory to the Administrative Agent and deliver to
the Administrative Agent signed copies of favorable opinions addressed
to the Lender Parties, of counsel reasonably acceptable to the
Administrative Agent in substantially the form of Exhibit J as to the
right, title and interest of Shoney's SPV in such real property (or
confirming the opinion delivered by such counsel pursuant to Section
3.01(g)(xviii)) or (B) place Mortgages on such real property and provide
the items described in clauses (A) through (F) of Section 3.01(g)(x),
(2) deliver to the Administrative Agent evidence satisfactory to the
Administrative Agent that all satisfactions, releases and terminations
necessary to release any Liens on such real properties (other than Liens
created by the Loan Documents) shall have been filed in the appropriate
filing offices and (3) record all UCC Fixture Filings with respect to
such real properties as the Administrative Agent may reasonably request
and pay as and when due all transfer taxes, stamp taxes or similar taxes
and all documentary filing and recording fees, charges and expenses due
in connection with such filing.
(ii) Within 90 days following the date of the Initial
Extension of Credit, (A) either (1) transfer all of the real property
listed on Part II of Schedule 5.01(n)(ii) to Shoney's SPV on terms
reasonably satisfactory to the Administrative Agent or (2) place
Mortgages on such real property and provide the items described in
clauses (A) through (F) of Section 3.01(g)(x) and (B) cause TPI (1)
either (x) to transfer all of the real property listed on Part I of
Schedule 5.01(n)(ii) to TPI SPV on terms reasonably satisfactory to the
Administrative Agent and deliver to the Administrative Agent (I) signed
copies of favorable opinions, addressed to the Lender Parties, of
counsel reasonably acceptable to the Administrative Agent in
substantially the form of Exhibit J as to the right, title and interest
of TPI SPV in such real property (or confirming the opinion delivered by
such counsel pursuant to Section 3.01(xviii)) and (II) a memorandum of
law prepared by counsel for the Borrower reasonably acceptable to the
Administrative Agent as to the due diligence performed by such counsel
in connection with such transfer or (y) to place Mortgages on such real
property and provide the
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items described in clauses (A) through (F) of Section 3.01(g)(x), (2) to
deliver to the Administrative Agent a certificate substantially in the
form of Exhibit K, attesting to the Solvency of TPI SPV after giving
effect to the transactions contemplated in clause (1) above, from its
chief financial officer or principal financial officer, (3) to record
all UCC Fixture Filings with respect to the real property listed on
Schedule 5.01(n)(ii) as the Administrative Agent may reasonably request
and to pay as and when due all transfer taxes, stamp taxes or similar
taxes and all documentary, filing and recording fees, charges and
expenses due in connection with such filing, (4) to deliver to the
Administrative Agent a voting trust agreement in form and substance
reasonably satisfactory to the Administrative Agent with respect to the
capital stock of TPI SPV and (5) to enter into a Master Lease Agreement
with TPI SPV in respect of all real property owned by TPI SPV or to be
conveyed to TPI SPV pursuant to this Agreement, in substantially the
form attached hereto as Exhibit N.
(o) Shoney SPV's Separate Limited Liability Company Existence.
(i) Do, and shall cause Shoney's SPV to do, all things necessary to
maintain the limited liability company existence of Shoney's SPV
separate and apart from the Borrower, any division thereof and any
Affiliate thereof and (ii) without limiting the foregoing provisions of
clause (i), cause Shoney's SPV to:
(A) conduct its affairs strictly in accordance with
its certificate of formation and operating agreement and
observe all necessary, appropriate and customary corporate
formalities, including, but not limited to, holding meetings
of its board of directors and its members as required by the
certificate of formation and operating agreement of Shoney's
SPV, maintaining a separate and current minute book and
passing all resolutions or consents necessary to authorize
actions taken or to be taken;
(B) not suffer any limitation on the authority of its
members to conduct its business and affairs in accordance with
their independent business judgment, or authorize or suffer
any Person other than its members to act on Shoney's SPV's
behalf with respect to matters (other than matters customarily
delegated to others under powers of attorney) for which a
limited liability company's own members would customarily be
responsible;
(C) maintain a separate telephone number from those
of the Borrower, or any Affiliate of the Borrower;
(D) allocate all overhead expense (including, without
limitation, telephone and other utility charges and legal,
auditing and other professional services) for items shared
between it and the Borrower, any other Affiliate of the
Borrower, or any other Person on the basis of actual use to
the extent
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practicable and, to the extent such allocation is not
practicable, on a basis reasonably related to actual use;
(E) the Borrower shall maintain on its books and
records separate accounts for Shoney's SPV, including without
limitation, payroll and intercompany transaction accounts,
separate and apart from those of the Borrower and each other
Affiliate of the Borrower or of any other Person to reflect
the financial statements of Shoney's SPV separate and apart
from the financial statements of the Borrower, any other
Affiliate of the Borrower or any other Person (other than as
they may be presented or consolidated on a consolidated
basis), and Shoney's SPV shall have its own letterhead;
(F) prepare financial statements for Shoney's SPV and
insure that any audited consolidated financial statements of
the Borrower or any of their other Affiliates that include
Shoney's SPV have notes clearly stating that Shoney's SPV is a
limited liability company (operated as a subsidiary and not as
a division) and that its assets will be available first and
foremost to satisfy the claims of its own creditors;
(G) unless the separate ownership of such funds or
assets are properly reflected on the financial statements of
the applicable Loan Parties, not commingle funds or other
assets of Shoney's SPV with those of the Borrower, any other
Affiliate of the Borrower or any other Person;
(H) maintain its assets in such a manner that it will
not be difficult or costly to segregate, ascertain or
otherwise identify the individual assets of Shoney's SPV,
separate from those of the Borrower, any other Affiliate of
the Borrower or any other Person;
(I) not permit the Borrower, any other Affiliate of
the Borrower or any other Person to pay any of the operating
expenses of Shoney's SPV except for payments to be reimbursed
in the ordinary course of business;
(J) maintain an arm's length relationship with the
Borrower and each other Affiliate of the Borrower and not hold
itself out, and will use its best efforts to prevent the
Borrower or any other Affiliate of the Borrower from holding
itself out, as ultimately responsible for the debts of
Shoney's SPV or the decisions or actions respecting the daily
business and affairs of Shoney's SPV;
(K) require that all of its full-time employees, if
any, identify themselves as such and not as employees of the
Borrower, any other Affiliate
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of the Borrower or any other Person (including, without
limitation, by means of providing appropriate employees with
business or identification cards identifying such employees as
its employees); and
(L) maintain capitalization adequate for the conduct
of its business and account for and manage its own liabilities
separate from those of any other Person, including payment of
all payroll and administrative expenses and taxes from its own
assets.
(p) TPI SPV's Separate Corporate Existence. (i) From and after
the date of the transfer of real property to TPI SPV in accordance with
Section 5.01(n), do, and shall cause TPI SPV to do, all things necessary
to maintain the corporate existence of TPI SPV separate and apart from
the Borrower, any division thereof and any Affiliate thereof and (ii)
without limiting the foregoing provisions of clause (i), cause TPI SPV
to:
(A) conduct its affairs strictly in accordance with
its articles of incorporation and observe all necessary,
appropriate and customary corporate formalities, including,
but not limited to, holding meetings of its board of directors
and its shareholders as required by the charter and by-laws of
TPI SPV, maintaining a separate and current minute book and
passing all resolutions or consents necessary to authorize
actions taken or to be taken;
(B) not suffer any limitation on the authority of its
directors and officers to conduct its business and affairs in
accordance with their independent business judgment, or
authorize or suffer any person other than its officers and
directors to act on TPI SPV's behalf with respect to matters
(other than matters customarily delegated to others under
powers of attorney) for which a corporation's own officers and
directors would customarily be responsible;
(C) maintain a separate telephone number from those
of the Borrower, or any Affiliate of the Borrower;
(D) allocate all overhead expense (including, without
limitation, telephone and other utility charges and legal,
auditing and other professional services) for items shared
between it and the Borrower, any other Affiliate of the
Borrower, or any other Person on the basis of actual use to
the extent practicable and, to the extent such allocation is
not practicable, on a basis reasonably related to actual use;
(E) the Borrower shall maintain on its books and
records separate accounts for TPI SPV, including without
limitation, payroll and intercompany
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transaction accounts, separate and apart from those of the
Borrower and each other Affiliate of the Borrower or of any
other Person to reflect the financial statements of TPI SPV
separate and apart from the financial statements of the
Borrower, any other Affiliate of the Borrower or any other
Person (other than as they may be presented or consolidated on
a consolidated basis), and TPI SPV shall have its own
letterhead;
(F) prepare financial statements for TPI SPV and
insure that any audited consolidated financial statements of
the Borrower or any of their other Affiliates that include TPI
SPV have notes clearly stating that TPI SPV is a corporate
entity (operated as a subsidiary and not as a division) and
that its assets will be available first and foremost to
satisfy the claims of its own creditors;
(G) unless the separate ownership of such funds or
assets are properly reflected in the financial statements of
the applicable Loan Parties, not commingle funds or other
assets of TPI SPV with those of the Borrower, any other
Affiliate of the Borrower or any other Person;
(H) maintain its assets in such a manner that it will
not be difficult or costly to segregate, ascertain or
otherwise identify the individual assets of TPI SPV, separate
from those of the Borrower, any other Affiliate of the
Borrower or any other Person;
(I) not permit the Borrower, any other Affiliate of
the Borrower or any other Person to pay any of the operating
expenses of TPI SPV except for payments to be reimbursed in
the ordinary course of business;
(J) maintain an arm's length relationship with the
Borrower and each other Affiliate of the Borrower and not hold
itself out, and will use its best efforts to prevent the
Borrower or any other Affiliate of the Borrower from holding
itself out, as ultimately responsible for the debts of TPI SPV
or the decisions or actions respecting the daily business and
affairs of TPI SPV;
(K) require that all of its full-time employees, if
any, identify themselves as such and not as employees of the
Borrower, any other Affiliate of the Borrower or any other
Person (including, without limitation, by means of providing
appropriate employees with business or identification cards
identifying such employees as its employees); and
(L) maintain capitalization adequate for the conduct
of its business and account for and manage its own
liabilities separate from those of any other
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Person, including payment of all payroll and administrative
expenses and taxes from its own assets.
(q) Schedule 5.02(e) Properties. In the event that any
property listed on Schedule 5.02(e) shall not have been sold within
twenty-four months following the date hereof, at the request of the
Administrative Agent from time to time thereafter and at the expense of
the Borrower, within 30 days after the date of such request, deliver to
the Administrative Agent Mortgages covering such of the properties
listed on such Schedule that have not been sold within such twenty-four
month period as the Administrative Agent may request, duly executed by
the Borrower, together with:
(i) evidence that counterparts of such Mortgages have
been duly recorded on or before the end of such 30 day period
in all filing or recording offices that the Administrative
Agent may reasonably deem necessary in order to create a valid
first and subsisting Lien on the property described therein in
favor of the Secured Parties and that all filing and recording
taxes and fees have been paid,
(ii) fully paid Mortgage Policies in form and
substance, with endorsements and in amounts acceptable to the
Administrative Agent, issued, coinsured and reinsured by title
insurers acceptable to the Administrative Agent, insuring such
Mortgages to be valid first and subsisting Liens on the
property described therein, free and clear of all defects
(including, but not limited to, mechanics' and materialmen's
Liens) and encumbrances, excepting only Permitted
Encumbrances, and providing for such other affirmative
insurance (including endorsements for future advances under
the Loan Documents and for mechanics' and materialmen's Liens)
and such coinsurance and direct access reinsurance as the
Administrative Agent may deem necessary or desirable,
(iii) American Land Title Association form surveys
for each of such properties delivered to the Administrative
Agent on or prior to the end of such 30 day period in respect
of such property, certified to the Administrative Agent and
the issuer of the Mortgage Policies in a manner satisfactory
to the Administrative Agent by a land surveyor duly registered
and licensed in the States in which the property described in
such surveys is located and acceptable to the Administrative
Agent, showing all buildings and other improvements, any
off-site improvements, the location of any easements, parking
spaces, rights of way, building set-back lines and other
dimensional regulations and the absence of encroachments,
either by such improvements or on to such property, and other
defects, other than encroachments and other defects acceptable
to the Administrative Agent,
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(iv) an appraisal (if reasonably requested by the
Administrative Agent) of each of the properties described in
such Mortgages which appraisals shall be from Marshall &
Stevens or another Person acceptable to the Lender Parties and
otherwise in form and substance satisfactory to the Lender
Parties,
(v) evidence of the insurance required by the terms
of this Agreement, and
(vi) evidence that all other action that the
Administrative Agent may deem necessary in order to create a
valid first and subsisting Lien on the property described in
such Mortgages has been taken.
(r) Deeds. The Borrower shall at the Borrower's expense (i) promptly
cause all Deeds required to be delivered under this Agreement as a condition to
the Initial Extension of Credit to be recorded in the appropriate offices and
jurisdictions so as to convey to Shoney's SPV all real property required to be
conveyed to it under this Agreement, (ii) cause to be timely completed and filed
all transfer tax or similar returns or filings required to be filed in
connection with the recording of the Deeds, (iii) pay as and when due all
transfer taxes, stamp taxes, or similar taxes and all documentary, filing and
recording fees, charges, and expenses due in connection with such recording and
(iv) promptly provide the Administrative Agent with all recording information
and satisfactory evidence that all filings and payments required to be filed and
paid in connection with the recording of the Deeds have been filed and paid.
(s) UCC Fixture Filings. The Borrower shall at the Borrower's expense
(i) promptly cause all UCC Fixture Filings required to be delivered under this
Agreement as a condition to the Initial Extension of Credit to be recorded in
the appropriate offices and jurisdictions, (ii) cause to be timely completed and
filed all transfer tax or similar returns or filings required to be filed in
connection with the filing of such UCC Fixture Filings, (iii) pay as and when
due all transfer taxes, stamp taxes, or similar taxes and all documentary,
filing and recording fees, charges, and expenses due in connection with such
filing and (iv) promptly provide the Administrative Agent with all recording
information and satisfactory evidence that all filings and payments required to
be filed and paid in connection with the filing of the UCC Fixture Filings have
been filed and paid.
(t) Certificate of Merger. The Borrower shall at the Borrower's expense
(i) promptly cause a certified copy of the Certificate of Merger in recordable
form to be recorded (where required) in each jurisdiction in which Shoney's Real
Estate, Inc. owned real property immediately prior to the consummation of the
merger contemplated in the Certificate of Merger (and, to the extent that the
recording of the Certificate of Merger shall not be sufficient under applicable
law in any jurisdiction to convey to Shoney's SPV the real property of Shoney's
Real Estate, Inc. located in such jurisdiction, shall promptly cause a
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83
Deed for each such property to be recorded in such jurisdiction), (ii) cause to
be timely completed and filed all transfer tax or similar returns or filings
required to be filed in connection with the recording of the Certificate of
Merger (and/or Deed, as the case may be), (iii) pay as and when due all transfer
taxes, stamp taxes, or similar taxes and all documentary, filing and recording
fees, charges, and expenses due in connection with such recording and (iv)
promptly provide the Administrative Agent with all recording information and
satisfactory evidence that all filings and payments required to be filed and
paid in connection with the recording of the Certificate of Merger (and/or
Deeds, as the case may be) have been filed and paid.
(u) Satisfactions, Releases and Terminations. The Borrower shall at the
Borrower's expense (i) promptly cause all satisfactions, releases and
terminations required to be delivered by Borrower pursuant to this Agreement as
a condition to the Initial Extension of Credit to be recorded in each
jurisdiction required in order to release all Liens securing all Existing Debt
other than the Liens securing Surviving Debt and (ii) shall promptly provide the
Administrative Agent with all recording information and satisfactory evidence
that all such satisfactions, releases and terminations filings have been filed.
(v) Termination of Financing Statements. Upon the request of the
Administrative Agent, and at the expense of the Borrower, within 30 days after
such request, furnish to the Administrative Agent proper termination statements
on Form UCC-3 covering such financing statements as the Administrative Agent may
reasonably request that were listed in the complete requests for information
referred to in Section 3.01(g)(viii)(C).
SECTION 5.02. Negative Covenants. Subject to Section 5.02(r),
so long as any Advance shall remain unpaid, any Letter of Credit shall be
outstanding or any Lender Party shall have any Commitment hereunder, the
Borrower will not, at any time:
(a) Liens, Etc. Create, incur, assume or suffer to exist, or
permit any of its Subsidiaries to create, incur, assume or suffer to
exist, any Lien on or with respect to any of its properties of any
character (including, without limitation, accounts) whether now owned or
hereafter acquired, or sign or file or suffer to exist, or permit any of
its Subsidiaries to sign or file or suffer to exist, under the Uniform
Commercial Code of any jurisdiction, a financing statement that names
the Borrower or any of its Subsidiaries as debtor, or sign or suffer to
exist, or permit any of its Subsidiaries to sign or suffer to exist, any
security agreement authorizing any secured party thereunder to file such
financing statement, or assign, or permit any of its Subsidiaries to
assign, any accounts or other right to receive income, excluding,
however, from the operation of the foregoing restrictions the following:
(i) Liens created under the Loan Documents;
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84
(ii) Permitted Liens;
(iii) Liens securing the Surviving Debt or any other
Debt described in Section 5.02(b)(iv)(E) and other Liens
existing on the date hereof and described on Schedule 5.02(a)
hereto;
(iv) purchase money Liens upon or in real property or
equipment acquired or held by the Borrower or any of its
Subsidiaries to secure the purchase price of such property or
equipment or to secure Debt incurred solely for the purpose of
financing the acquisition, construction or improvement of any
such property or equipment to be subject to such Liens, or
Liens existing on any such property or equipment at the time
of acquisition (other than any such Liens created in
contemplation of such acquisition that do not secure the
purchase price), or extensions, renewals or replacements of
any of the foregoing for the same or a lesser amount;
provided, however, that no such Lien shall extend to or cover
any property other than the property or equipment being
acquired, constructed or improved, and no such extension,
renewal or replacement shall extend to or cover any property
not theretofore subject to the Lien being extended, renewed or
replaced; and provided further that the aggregate principal
amount of the Debt secured by Liens permitted by this clause
(iv) at the time of acquisition, construction or improvement
of the property or equipment subject thereto shall not exceed
100% the cost of such property or equipment, construction or
improvement or of the then fair value thereof, whichever shall
be less and that any such Debt shall be subject to the limits
set forth in Section 5.02(b)(iv)(B);
(v) Liens arising in connection with Capitalized
Leases permitted under Section 5.02(b)(iii)(C); provided that
no such Lien shall extend to or cover any Collateral or assets
other than the assets subject to such Capitalized Leases;
(vi) other Liens securing Debt outstanding in an
aggregate principal amount not to exceed $5,000,000, provided
that no such Lien shall extend to or cover any Collateral;
(vii) the replacement, extension or renewal of any
Lien permitted by clause (iii) above upon or in the same
property theretofore subject thereto or the replacement,
extension or renewal (without increase in the amount or change
in any direct or contingent obligor) of the Debt secured
thereby;
(viii) judgment liens securing amounts not in excess
of $1,000,000 in existence less than thirty days after the
entry thereof or with respect to which
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85
execution has been stayed or with respect to which the
appropriate insurance carrier has agreed in writing that there
is full coverage (subject to a customary deductible not in
excess of $1,000,000) by insurance;
(ix) the license for the use of the "Shoney's Inn"
service mark granted to ShoLodge, Inc. by the Borrower
pursuant to the License Agreement dated October 25, 1991;
(x) materialmen's, mechanic's, carriers', workmen's
and repairmen's Liens, provided that the Borrower or the
applicable Subsidiary is contesting in good faith and at its
own expense the validity or applicability of any such Lien by
an appropriate legal proceeding which proceeding must operate
to prevent the sale or forfeiture of the real property or any
part thereof encumbered by such Lien; provided further that
during the pendency of such contest, the Borrower or the
applicable Subsidiary shall cause security satisfactory to
Administrative Agent to be provided, assuring the discharge of
the Borrower's or the applicable Subsidiary's obligations that
are the subject of such contest and of any additional interest
charge, penalty or expense arising from or incurred as a
result of such contest; and
(xi) Liens arising in respect of the escrow
arrangements entered into in connection with the defeasance of
the Variable Rate Notes and the drawings under the related
letters of credit.
(b) Debt. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist,
any Debt other than:
(i) in the case of the Borrower, Debt in respect of
Hedge Agreements designed to hedge against fluctuations in
interest rates incurred in the ordinary course of business and
consistent with prudent business practice in an aggregate
notional amount not to exceed $100,000,000 at any time
outstanding;
(ii) in the case of the Borrower, Debt owed to a
wholly-owned Subsidiary of the Borrower, provided that (x)
such Debt is subordinated to any Debt of the Borrower under
the Loan Documents on the terms and conditions set forth in
Exhibit M and (y) if such Debt is owed to a Collateral Grantor
and is evidenced by a promissory note, such promissory note
shall be pledged in favor of the Secured Parties pursuant to
the terms of the Security Agreement;
(iii) in the case of any of the Subsidiaries of the
Borrower (other than Shoney's SPV, TPI SPV and TPI Insurance
Corporation), Debt owed to
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86
the Borrower or to a wholly-owned Subsidiary of the Borrower
(provided, that Debt owed by Shoney's of Canada, Inc., shall
not exceed an aggregate principal amount equal to the excess
of (A) $500,000 over (B) the aggregate amount of Investments
made by the Borrower and its Subsidiaries in Shoney's of
Canada, Inc. pursuant to Section 5.02(f)(i)(B) at any time
outstanding); provided that (x) such Debt is subordinated to
any Debt of such Subsidiary under the Loan Documents on the
terms and conditions set forth in Exhibit M and (y) if such
Debt is owed to a Collateral Grantor and is evidenced by a
promissory note, such Promissory Note shall be pledged in
favor of the Secured Parties pursuant to the terms of the
Security Agreement; and
(iv) in the case of the Borrower and any of
its Subsidiaries (other than Shoney's SPV, TPI SPV and TPI
Insurance Corporation),
(A) Debt under the Loan Documents,
(B) Debt secured by Liens permitted by
Section 5.02(a)(iv) not to exceed in the aggregate
$3,000,000 at any time outstanding,
(C) (i) Capitalized Leases (other than those
permitted by clause (E) below) not to exceed in the
aggregate $15,000,000 at any time outstanding and
(ii) in the case of Capitalized Leases to which any
Subsidiary of the Borrower is a party, Debt of the
Borrower of the type described in clause (i) of the
definition of "Debt" guaranteeing the Obligations of
such Subsidiary under such Capitalized Leases,
(D) unsecured Debt incurred in the ordinary
course of business for the deferred purchase price of
property or services, maturing within one year from
the date created, and aggregating, on a Consolidated
basis, not more than $5,000,000 at any one time
outstanding,
(E) the Surviving Debt, and any Debt
extending the maturity of, or refunding or
refinancing, in whole or in part, any Surviving Debt,
provided that the terms of any such extending,
refunding or refinancing Debt, and of any agreement
entered into and of any instrument issued in
connection therewith, are otherwise permitted by the
Loan Documents and provided further that the
principal amount of such Surviving Debt shall not be
increased above the principal amount thereof
outstanding immediately prior to such extension,
refunding or refinancing, and the direct and
contingent obligors therefor shall not be
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87
changed, as a result of or in connection with such
extension, refunding or refinancing, and
(F) indorsement of negotiable instruments
for deposit or collection or similar transactions in
the ordinary course of business.
(c) Lease Obligations. (i) Create, incur, assume or suffer to
exist, or permit any of its Subsidiaries to create, incur, assume or
suffer to exist, any obligations as lessee for the rental or hire of
real or personal property of any kind under leases or agreements to
lease (excluding Capitalized Leases) having an original term of one year
or more that would cause the direct and contingent liabilities of the
Borrower and its Subsidiaries, on a Consolidated basis, in respect of
all such obligations to exceed $20,000,000 payable in any period of 12
consecutive months or (ii) amend, modify or assign, or permit any
Subsidiary to amend, modify or assign, either of the Master Leases other
than any amendment or modification of either Master Lease that is solely
for the purpose of subjecting (in the ordinary course of business)
additional real property to such Master Lease or terminating (in the
ordinary course of business) the provisions of such Master Lease as they
relate to a specific piece of real property.
(d) Mergers, Etc. Merge into or consolidate with any Person or
permit any Person to merge into it, or permit any of its Subsidiaries to
do so, except that (i) any Subsidiary of the Borrower (other than
Shoney's SPV and TPI SPV) may merge into or consolidate with any other
Subsidiary of the Borrower provided that, in the case of any such merger
or consolidation, the Person formed by such merger or consolidation
shall be a wholly-owned Subsidiary of the Borrower, and (ii) any of the
Borrower's Subsidiaries may merge into the Borrower.
(e) Sales, Etc. of Assets. Sell, lease, transfer or otherwise
dispose of, or permit any of its Subsidiaries to sell, lease, transfer
or otherwise dispose of, any assets, or grant any option or other right
to purchase, lease or otherwise acquire any assets, except:
(i) sales of Inventory in the ordinary course of its
business,
(ii) (A) the transfer of real property by the
Borrower to Shoney's SPV or by TPI to TPI SPV and (B) the
lease of the real property owned by Shoney's SPV to the
Borrower or the lease of the real property owned by TPI SPV to
TPI, in each case pursuant to the applicable Master Lease,
(iii) in a transaction authorized by subsection (d)
of this Section,
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88
(iv) sales of assets for cash and for fair value (as
determined by the Borrower's board of directors) in an
aggregate amount not to exceed $10,000,000 in any Fiscal Year,
(v) the sales, leases or subleases of one or more of
the real properties described on Schedule 5.02(e), the
equipment used therein and any tradenames, trademarks or
copyrights related thereto so long as such tradenames,
trademarks or copyrights relate to the "Pargo's" concept or
the "Fifth Quarter" concept, for cash and for fair value (as
determined by the Borrower's board of directors or officers of
the Borrower designated by the Borrower's board of directors),
(vi) so long as no Default shall occur and be
continuing, the grant of any option or other right to purchase
any asset in a transaction which would be permitted under the
provisions of clauses (iv) and (v) above,
(vii) leases to current or future franchisees of the
Borrower on terms consistent with prudent business practice,
(viii) the sale for cash of Insurex Agency, Inc. and
Insurex Benefits Administrators, Inc. and any tradenames or
trademarks related thereto, and
(ix) leases or subleases of properties with an
aggregate value (which value shall be the appraised value, if
appraised, or cost) not to exceed $10,000,000 (excluding
properties currently being leased or subleased), in each case
on terms consistent with prudent business practice,
provided that in the case of sales of assets pursuant to clauses (iv)
and (v) above, the Borrower shall, (except as provided in Section
2.06(b)(ii)) within three Business Days following receipt by the
Borrower or any of its Subsidiaries of the Net Cash Proceeds from such
sale, prepay the Advances pursuant to, and in the amount and order of
priority set forth in, Section 2.06(b)(ii), as specified therein.
(f) Investments in Other Persons. Make or hold, or permit any
of its Subsidiaries to make or hold, any Investment in any Person other
than:
(i) (A) Investments by the Borrower and its
Subsidiaries in their Subsidiaries (other than any foreign
Subsidiary) and (B) Investments by the Borrower and its
Subsidiaries in Shoney's of Canada, Inc. in an aggregate
amount invested from the date hereof not to exceed an amount
equal to the excess of (1) $500,000 over (2) the aggregate
amount of intercompany Debt owed by Shoney's of Canada, Inc.
and outstanding at such time, provided that,
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with respect to Investments in any newly acquired or created
wholly-owned domestic Subsidiary, such Subsidiary (x) shall
become an additional grantor pursuant to the terms of the
Security Agreement and shall become a Subsidiary Guarantor
pursuant to the terms of the Subsidiary Guaranty and (y) shall
engage in a business similar to that engaged in by the
Borrower and its Subsidiaries on the date hereof;
(ii) loans and advances to employees in the ordinary
course of the business of the Borrower and its Subsidiaries as
presently conducted in an aggregate principal amount not to
exceed $300,000 at any time outstanding;
(iii) Investments by the Borrower in Shoney's SPV and
by TPI in TPI SPV consisting of the transfer of real property;
(iv) Investments by the Borrower and its Subsidiaries
in Cash Equivalents;
(v) Investments by the Borrower in Hedge Agreements
permitted under Section 5.02(b)(i)(A);
(vi) Investments consisting of intercompany Debt
permitted under Section 5.02(b)(ii) and (b)(iii);
(vii) Investments existing on the date hereof and
described on Schedule 4.01(kk) hereto; and
(viii) other Investments in an aggregate amount
invested not to exceed $2,000,000; provided that with respect
to Investments made under this clause (viii): (1) any newly
acquired or created Subsidiary of the Borrower or any of its
Subsidiaries shall be a wholly-owned domestic Subsidiary
thereof; (2) immediately before and after giving effect
thereto, no Default shall have occurred and be continuing or
would result therefrom; (3) any business acquired or invested
in pursuant to this clause (vii) shall be in a similar line of
business as the business of the Borrower or any of its
Subsidiaries; and (4) such Subsidiary shall become an
additional grantor pursuant to the terms of the Security
Agreement and shall become a Subsidiary Guarantor pursuant to
the terms of the Subsidiary Guaranty.
(g) Dividends, Etc. Declare or pay any dividends, purchase,
redeem, retire, defease or otherwise acquire for value any of its
capital stock or any warrants, rights or options to acquire such
capital stock, now or hereafter outstanding, return any capital to its
stockholders as such, make any distribution of assets, capital stock,
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warrants, rights, options, obligations or securities to its stockholders
as such or issue or sell any capital stock or any warrants, rights or
options to acquire such capital stock, or permit any of its Subsidiaries
to do any of the foregoing or permit any of its Subsidiaries to
purchase, redeem, retire, defease or otherwise acquire for value any
capital stock of the Borrower or any warrants, rights or options to
acquire such capital stock or to issue or sell any capital stock or any
warrants, rights or options to acquire such capital stock, except that,
so long as no Default shall have occurred and be continuing at the time
of any action described in clauses (i) through (iii) below or would
result therefrom, (i) the Borrower may (A) declare and pay dividends and
distributions payable only in common stock of the Borrower and (B)
except to the extent the Net Cash Proceeds thereof are required to be
applied to the prepayment of the Advances pursuant to Section 2.06(b),
purchase, redeem, retire, defease or otherwise acquire shares of its
capital stock with the proceeds received from the issue of new shares of
its capital stock with equal or inferior voting powers, designations,
preferences and rights, (ii) any Subsidiary of the Borrower may (A)
declare and pay cash dividends to the Borrower and (B) declare and pay
cash dividends to any other wholly-owned Subsidiary of the Borrower of
which it is a Subsidiary, and (iii) the Borrower may issue (A) rights or
options to acquire capital stock of the Borrower pursuant to employee
stock purchase plans, director or employee option plans and other
employee benefit plans and (B) common stock upon the exercise of options
issued under, or pursuant to, employee stock purchase plans, director or
employee option plans and other employee benefit plans.
(h) Change in Nature of Business. Make, or permit any of its
Subsidiaries to make, any material change in the nature of its business
as carried on at the date hereof.
(i) Charter Amendments. Amend, or permit any of its
Subsidiaries to amend, its certificate of incorporation or bylaws if
such amendment would have a Material Adverse Effect.
(j) Accounting Changes. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in (i) accounting policies or
reporting practices, except as required or permitted by generally
accepted accounting principles or (ii) the Fiscal Year.
(k) Prepayments, Etc. of Debt. (i) Prepay, redeem, purchase,
convert, defease or otherwise satisfy prior to the scheduled maturity
thereof in any manner, or make any payment of, any Debt, other than (A)
the prepayment of the Advances in accordance with the terms of this
Agreement, (B) regularly scheduled or required repayments or redemptions
of Surviving Debt or other Debt permitted hereby, (C) the conversion of
Subordinated Debt in accordance with its terms, (D) the defeasance of
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the Variable Rate Notes and (E) the prepayment or redemption of Debt
under the Industrial Revenue Bonds listed on Schedule 4.01(hh) in an
aggregate principal amount so prepaid or redeemed not to exceed the sum
of (x) the Net Cash Proceeds from the sale, transfer or other
disposition of assets pledged to secure such Debt plus (y) $2,600,000
plus (z) any restricted funds received in connection with the payment of
any such Debt, or (ii) amend, modify or change in any manner any term or
condition of any Surviving Debt or Subordinated Debt, or permit any of
its Subsidiaries to do any of the foregoing other than to prepay any
Debt payable to the Borrower.
(l) Ownership Change. Take, or permit any of its Subsidiaries
to take, any action that would result in an "ownership change" (as
defined in Section 382 of the Internal Revenue Code) with respect to the
Borrower or any of its Subsidiaries or the application of the "separate
return limitation year" or "consolidated return change of ownership"
limitations under the Federal income tax consolidated return regulations
with respect to the Borrower or any of its Subsidiaries.
(m) Negative Pledge. Enter into or suffer to exist, or permit
any of its Subsidiaries to enter into or suffer to exist, any agreement
prohibiting or conditioning the creation or assumption of any Lien upon
any of its property or assets other than (i) in favor of the Secured
Parties or (ii) in connection with (A) any Surviving Debt or (B) any
Debt permitted by Section 5.02(b)(iv)(B) hereof.
(n) Partnerships, Etc. Except for the partnerships listed in
Schedule 5.02(n), become a general partner in any general or limited
partnership or joint venture, or permit any of its Subsidiaries to do
so, other than any Subsidiary the sole assets of which consist of its
interest in such partnership or joint venture.
(o) Speculative Transactions. Engage, or permit any of its
Subsidiaries to engage, in any transaction involving commodity options
or futures contracts or any similar speculative transactions (including,
without limitation, take-or-pay contracts, except for Hedge Agreements
permitted under Section 5.02(b).
(p) Capital Expenditures. Make, or permit any of its
Subsidiaries to make, any Capital Expenditures that would cause the
aggregate of all such Capital Expenditures made by the Borrower and its
Subsidiaries in any Fiscal Year to exceed $35,000,000 plus the lesser of
50% of the Excess Cash Flow for the prior Fiscal Year or $5,000,000.
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(q) Franchise Agreements. Will not permit, at any time, any of
its Subsidiaries to, (a) terminate or alter any of the material terms
and conditions of any of the franchise agreements pursuant to which the
Borrower or any such Subsidiary is the franchisor in such a way so as to
(i) prohibit the assignment by the franchisor (by way of collateral
security) of all of its rights and benefits in the franchise agreements
or (ii) significantly reduce the aggregate royalty fees or advertising
fees payable by the franchisees and (b) enter into any franchise
agreements which would not permit the assignment by the franchisor (by
way of collateral security) of all of its rights and benefits in such
franchise agreements or which would contain fee arrangements which are
materially less beneficial, in the aggregate, to the Borrower and its
Subsidiaries than the fee arrangements contained in existing franchise
agreements of the Borrower and its Subsidiaries.
(r) Existing Subsidiary Restrictions. None of the foregoing
covenants in this Section 5.02 shall restrict the transfer of funds by
an Existing Subsidiary to the Borrower sufficient to satisfy when due
all payment obligations of the Borrower or TPI in respect of the
Debentures, including, without limitation, the payment of principal,
premium, if any, interest or the Repurchase Price or the Redemption
Price, so long as at the time of such transfer, the payment of such
obligations in respect of the Debentures is permitted to be made under
Article XIV of the Indenture.
SECTION 5.03. Reporting Requirements. So long as any Advance
shall remain unpaid, any Letter of Credit shall be outstanding or any Lender
Party shall have any Commitment hereunder, the Borrower will furnish to the
Lender Parties and the Administrative Agent.
(a) Notice of Default or Material Adverse Effect. Within two
Business Days after the occurrence of each Default or any event,
development or occurrence reasonably likely to have a Material Adverse
Effect continuing on the date of such statement, a statement of the
chief financial officer or principal financial officer of the Borrower
setting forth details of such Default or such event, development or
occurrence and the action that the Borrower has taken and proposes to
take with respect thereto.
(b) Monthly Financials. Within 30 days after the end of each
fiscal accounting period, a statement of income of the Borrower and its
Subsidiaries as of the end of such fiscal accounting period in
substantially the form of Exhibit L and duly certified by the chief
financial officer or principal financial officer of the Borrower.
(c) Quarterly Financials. Within 45 days after the end of each
of the first three fiscal quarters of each Fiscal Year, Consolidated
balance sheets of the Borrower and its Subsidiaries as of the end of
such fiscal quarter and Consolidated statements of
<PAGE> 99
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income and cash flow of the Borrower and its Subsidiaries for the period
commencing at the end of the previous fiscal quarter and ending with the
end of such fiscal quarter and Consolidated statements of income and
cash flow of the Borrower and its Subsidiaries for the period commencing
at the end of the previous Fiscal Year and ending with the end of such
fiscal quarter, setting forth in each case in comparative form the
corresponding figures for the corresponding period of the preceding
Fiscal Year, all in reasonable detail and duly certified (subject to
year-end audit adjustments) by the corporate controller or chief
financial officer or principal financial officer of the Borrower as
having been prepared in accordance with GAAP, together with (i) a
certificate of said officer stating that no Default has occurred and is
continuing or, if a Default has occurred and is continuing, a statement
as to the nature thereof and the action that the Borrower has taken and
proposes to take with respect thereto and (ii) a schedule in form
satisfactory to the Administrative Agent of the computations used by the
Borrower in determining compliance with the covenants contained in
Sections 5.04(a) through (d), provided that in the event of any change
in GAAP used in the preparation of such financial statements, the
Borrower shall also provide, if necessary for the determination of
compliance with Section 5.04, a statement of reconciliation conforming
such financial statements to GAAP.
(d) Annual Financials. Within 90 days after the end of each
Fiscal Year, a copy of the annual report for such year for the Borrower
and its Subsidiaries, including therein the Consolidated balance sheet
of the Borrower and its Subsidiaries as of the end of such Fiscal Year
and Consolidated statements of income and cash flow of the Borrower and
its Subsidiaries for such Fiscal Year, accompanied by an opinion
acceptable to the Required Lenders of Ernst & Young or other independent
public accountants of recognized standing acceptable to the
Administrative Agent, together with (i) a certificate of such accounting
firm to the Lender Parties stating that in the course of the regular
audit of the business of the Borrower and its Subsidiaries, which audit
was conducted by such accounting firm in accordance with generally
accepted auditing standards, such accounting firm has obtained no
knowledge that a Default of a financial nature under Section 5.02(a),
5.02(b), 5.02(f), 5.02(p) or 5.04 has occurred and is continuing, or if,
in the opinion of such accounting firm, a Default of a financial nature
under Section 5.02(a), 5.02(b), 5.02(f), 5.02(p) or 5.04 has occurred
and is continuing, a statement as to the nature thereof, (ii) a schedule
in form satisfactory to the Administrative Agent of the computations
used by such accountants in determining, as of the end of such Fiscal
Year, compliance with the covenants contained in Sections 5.04(a)
through (d), provided that in the event of any change in GAAP used in
the preparation of such financial statements, the Borrower shall also
provide, if necessary for the determination of compliance with Section
5.04, a statement of reconciliation conforming such financial statements
to GAAP and (iii) a certificate of the corporate controller, chief
financial officer or principal financial officer of the Borrower stating
that no Default has occurred and is continuing or, if a Default has
<PAGE> 100
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occurred and is continuing, a statement as to the nature thereof and the
action that the Borrower has taken and proposes to take with respect
thereto.
(e) Annual Forecasts. As soon as available and in any event no
later than 30 days after the end of each Fiscal Year, forecasts prepared
by management of the Borrower, in form satisfactory to the
Administrative Agent, of balance sheets, income statements and cash flow
statements on a quarterly basis for the Fiscal Year following such
Fiscal Year then ended and on an annual basis for each Fiscal Year
thereafter until the Termination Date.
(f) ERISA Events and ERISA Reports. Promptly and in any event
within 10 days after any Loan Party or any ERISA Affiliate knows or has
reason to know that any ERISA Event has occurred, a statement of the
chief financial officer or principal financial officer of the Borrower
describing such ERISA Event and the action, if any, that such Loan Party
or such ERISA Affiliate has taken and proposes to take with respect
thereto and (ii) on the date any records, documents or other information
must be furnished to the PBGC with respect to any Plan pursuant to
Section 4010 of ERISA, a copy of such records, documents and
information.
(g) Plan Terminations. Promptly and in any event within two
Business Days after receipt thereof by any Loan Party or any ERISA
Affiliate, copies of each notice from the PBGC stating its intention to
terminate any Plan or to have a trustee appointed to administer any
Plan.
(h) Litigation. Promptly after the commencement thereof,
notice of all actions, suits, investigations, litigation and proceedings
before any court or governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, affecting any Loan Party
or any of its Subsidiaries of the type described in Section 4.01(i), and
promptly after the occurrence thereof, notice of any adverse change in
the status or the financial effect on any Loan Party or any of its
Subsidiaries of the Disclosed Litigation from that described on Schedule
3.01(d). For purposes of this subclause (h), any litigation,
arbitration, or governmental investigation or proceeding which involves
a damage claim of $1,500,000 or less need not be the subject of any such
notice unless it is one of a series of claims arising out of the same
set of facts or circumstances which, in the aggregate, exceed
$10,000,000.
(i) Securities Reports. Promptly after the sending or filing
thereof, copies of all proxy statements, financial statements and
reports that any Loan Party or any of its Subsidiaries sends to its
stockholders, and copies of all regular, periodic and special reports,
and all registration statements, that any Loan Party or any of its
Subsidiaries files with the Securities and Exchange Commission or any
governmental authority that
<PAGE> 101
95
may be substituted therefor, or with any national securities exchange,
in each case excluding the exhibits thereto unless requested by the
Administrative Agent.
(j) Creditor Reports. Promptly after the furnishing thereof,
copies of any statement or report furnished to any other holder of the
securities of any Loan Party or of any of its Subsidiaries pursuant to
the terms of any indenture, loan or credit or similar agreement and not
otherwise required to be furnished to the Lender Parties or the
Administrative Agent pursuant to any other clause of this Section 5.03.
(k) Agreement Notices. Promptly upon receipt thereof, copies
of all notices, requests and other documents received by any Loan Party
or any of its Subsidiaries under or pursuant to any indenture, loan or
credit or similar agreement regarding or related to any breach or
default by any party thereto or any other event, in each case that could
materially impair the value of the interests or the rights of any Loan
Party or otherwise have a Material Adverse Effect.
(l) Revenue Agent Reports. Within 30 days after receipt,
copies of all Revenue Agent Reports (Internal Revenue Service Form 886),
or other written proposals of the Internal Revenue Service, that
propose, determine or otherwise set forth positive adjustments to the
Federal income tax liability of the affiliated group (within the meaning
of Section 1504(a)(1) of the Internal Revenue Code) of which the
Borrower is a member aggregating $2,000,000 or more.
(m) Environmental Conditions. Promptly after the assertion or
occurrence thereof, notice of any Environmental Action against or of any
noncompliance by any Loan Party or any of its Subsidiaries with any
Environmental Law or Environmental Permit that (i) could reasonably be
expected to have a Material Adverse Effect or (ii) cause any property
described in the Mortgages to be subject to any restrictions which would
interfere with its normal use or operation.
(n) Real Property. As soon as available and in any event
within 90 days after the end of each Fiscal Year, a report supplementing
Schedules 4.01(ii) and 4.01(jj) hereto, including a list of all real
property disposed of by the Borrower or any of its Subsidiaries during
such Fiscal Year (which list shall include the location of such real
property and the Net Cash Proceeds received by the Borrower and its
Subsidiaries from such disposal) and a list and description (including
the street address, state, record owner, book value thereof), of all
real property acquired during such Fiscal Year.
(o) Insurance. As soon as available and in any event within 90
days after the end of each Fiscal Year, a report summarizing the
insurance coverage required under the Credit Agreement (specifying type,
amount and carrier) in effect for the
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96
Borrower and its Subsidiaries and containing such additional information
as any Lender Party (through the Administrative Agent) may reasonably
specify.
(p) Other Information. Such other information respecting the
business, condition (financial or otherwise), operations, performance,
properties or prospects of any Loan Party or any of its Subsidiaries as
any Lender Party (through the Administrative Agent) may from time to
time reasonably request.
SECTION 5.04. Financial Covenants. So long as any Advance
shall remain unpaid, any Letter of Credit shall be outstanding or any Lender
Party shall have any Commitment hereunder, the Borrower will:
(a) Interest Coverage Ratio. Maintain as of the end of each
fiscal quarter of the Borrower a ratio of (i) EBITDA of the Borrower and
its Subsidiaries for the most recently completed four fiscal quarter
period to (ii) Interest Expense of the Borrower and its Subsidiaries for
such fiscal quarter of not less than the ratio set forth below for such
fiscal quarter:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING RATIO
--------------------- -----
<S> <C>
February 15, 1998 2.25:1
May 10, 1998 2.25:1
August 2, 1998 2.25:1
October 25, 1998 2.25:1
February 14, 1999 2.75:1
May 9, 1999 2.75:1
August 1, 1999 2.75:1
October 31, 1999 2.75:1
February 20, 2000 3.25:1
May 14, 2000 3.25:1
August 6, 2000 3.25:1
October 29, 2000 3.25:1
February 18, 2001 and thereafter 3.75:1
</TABLE>
(b) Net Worth. Maintain at all times an excess of Consolidated
total assets over Consolidated total liabilities, in each case, of the
Borrower and its Subsidiaries (calculated, in each case, without taking
into account the Asset Impairment Charges and the Restructuring Charges
to the extent such charges have reduced such excess) of not less than
50% of Consolidated net income of the Borrower and its Subsidiaries for
the period after October 26, 1997 to and including each date of
determination computed on a cumulative basis for said entire period
(calculated without taking into
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97
account the Asset Impairment Charges and the Restructuring Charges to
the extent such charges have reduced such Consolidated net income).
(c) Leverage Ratio. Maintain as of the end of each fiscal
quarter of the Borrower a Leverage Ratio of not more than the ratio set
forth below for such fiscal quarter:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING RATIO
--------------------- -----
<S> <C>
February 15, 1998 5.50:1
May 10, 1998 5.50:1
August 2, 1998 5.50:1
October 25, 1998 4.75:1
February 14, 1999 4.75:1
May 9, 1999 4.75:1
August 1, 1999 4.75:1
October 31, 1999 4.50:1
February 20, 2000 4.50:1
May 14, 2000 4.50:1
August 6, 2000 4.00:1
October 29, 2000 4.00:1
February 18, 2001 4.00:1
May 13, 2001 4.00:1
August 5, 2001 4.00:1
October 28, 2001 and thereafter 3.75:1
</TABLE>
(d) Fixed Charge Coverage Ratio. Maintain as of the end of
each fiscal quarter of the Borrower a ratio of (i) the sum of (A)
Consolidated EBITDA of the Borrower and its Subsidiaries for the most
recently completed four fiscal quarter period less (B) the aggregate
amount of cash Capital Expenditures made by the Borrower and its
Subsidiaries during such four fiscal quarter period to (ii) the sum of
(A) Interest Expense in respect of such fiscal quarter plus (B) the
aggregate principal amount of all scheduled amortization payments made
by the Borrower and its Subsidiaries during such four fiscal quarter
period in respect of Debt of the Borrower and its Subsidiaries plus (C)
the aggregate amount of all tax expense incurred by the Borrower and its
Subsidiaries during such four fiscal quarter period of not less than
1.10:1; provided, however, that for purposes of calculating the fixed
charge coverage ratio for (x) the fiscal quarter ended February 15,
1998, each component (other than EBITDA and Interest Expense) shall be
the product of such component for such fiscal quarter times a fraction
the numerator of which is 13 and the denominator of which is 4, (y) the
fiscal quarter ended May 10, 1998, each component (other than EBITDA and
Interest Expense) shall be the product of such component for the two
fiscal quarters then ended
<PAGE> 104
98
times a fraction the numerator of which is 13 and the denominator of
which is 7 and (z) for the fiscal quarter ended August 2, 1998, each
component (other than EBITDA and Interest Expense) shall be the product
of such component for the three fiscal quarters then ended times a
fraction the numerator of which is 13 and the denominator of which is
10; provided further that for purposes of calculating the fixed charge
coverage ratio for each of the fiscal quarters ended February 15, 1998,
May 10, 1998 and August 2, 1998, the Capital Expenditure component of
such ratio shall not exceed $35,000,000.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) (i) the Borrower shall fail to pay any principal of any
Advance when the same shall become due and payable or (ii) the Borrower
shall fail to pay any interest on any Advance, or any Loan Party shall
fail to make any other payment under any Loan Document, in each case
under this clause (ii) within 3 Business Days after the same becomes due
and payable; or
(b) any representation or warranty made by any Loan Party (or
any of its officers) under or in connection with any Loan Document shall
prove to have been incorrect in any material respect when made; or
(c) the Borrower shall fail to perform or observe any term,
covenant or agreement contained in Section 2.14, 5.01(d) (to the extent
that such covenant relates to casualty or liability insurance in respect
of Collateral), (e), (g), (l), (m) or (n), 5.02, 5.03 or 5.04; or
(d) any Loan Party shall fail to perform any other term,
covenant or agreement contained in any Loan Document on its part to be
performed or observed if such failure shall remain unremedied for 30
days after the earlier of the date on which (A) a Responsible Officer of
any Loan Party becomes aware of such failure or (B) written notice
thereof shall have been given to the Borrower by the Administrative
Agent or any Lender Party; or
(e) any Loan Party or any of its Subsidiaries shall fail to
pay any principal of, premium or interest on or any other amount payable
in respect of any Debt that is outstanding in a principal or notional
amount of at least $5,000,000 either individually
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99
or in the aggregate (but excluding Debt outstanding hereunder) of such
Loan Party or such Subsidiary (as the case may be), when the same
becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), and such failure shall
continue after the applicable grace period, if any, specified in the
agreement or instrument relating to such Debt; or any other event shall
occur or condition shall exist under any agreement or instrument
relating to any such Debt and shall continue after the applicable grace
period, if any, specified in such agreement or instrument, if the effect
of such event or condition is to accelerate, or to permit the
acceleration of, the maturity of such Debt or otherwise to cause, or to
permit the holder thereof to cause, such Debt to mature; or any such
Debt shall be declared to be due and payable or required to be prepaid
or redeemed (other than by a regularly scheduled required prepayment or
redemption), purchased or defeased, or an offer to prepay, redeem,
purchase or defease such Debt shall be required to be made, in each case
prior to the stated maturity thereof; or
(f) any Loan Party or any of its Subsidiaries shall generally
not pay its debts as such debts become due, or shall admit in writing
its inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be
instituted by or against any Loan Party or any of its Subsidiaries
seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment
of a receiver, trustee, or other similar official for it or for any
substantial part of its property and, in the case of any such proceeding
instituted against it (but not instituted by it) that is being
diligently contested by it in good faith, either such proceeding shall
remain undismissed or unstayed for a period of 30 days or any of the
actions sought in such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment of a receiver,
trustee, custodian or other similar official for, it or any substantial
part of its property) shall occur; or any Loan Party or any of its
Subsidiaries shall take any corporate action to authorize any of the
actions set forth above in this subsection (f); or
(g) any judgment or court order for the payment of money in
excess of $5,000,000 shall be rendered against any Loan Party or any of
its Subsidiaries and either (i) enforcement proceedings shall have been
commenced by any creditor upon such judgment or court order or (ii)
there shall be any period of 30 consecutive days during which such
judgment shall not have been discharged or a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not
be in effect; provided, however, that any such judgment or court order
shall not be an Event of Default under this Section 6.01(g) if and for
so long as (i) the entire amount of such judgment or court order is
covered by a valid and binding policy of insurance between
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100
the defendant and the insurer covering payment thereof and (ii) such
insurer, which shall be rated at least "A" by A.M. Best Company, has
been notified of, and has not disputed the claim made for payment of the
amount of such judgment or order; or
(h) any non-monetary judgment or order shall be rendered
against any Loan Party or any of its Subsidiaries that is reasonably
likely to have a Material Adverse Effect, and there shall be any period
of 30 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not
be in effect; or
(i) any provision of any Loan Document after delivery thereof
pursuant to Section 3.01 or 5.01(l) shall for any reason cease to be
valid and binding on or enforceable against any Loan Party party to it,
or any such Loan Party shall so state in writing; or
(j) any Collateral Document after delivery thereof pursuant to
Section 3.01 or 5.01(l) shall for any reason (other than pursuant to the
terms thereof) cease to create a valid and perfected first priority lien
on and security interest in the Collateral purported to be covered
thereby, other than in respect of any item or items of Collateral the
fair market value of which, either individually or in the aggregate,
does not exceed $5,000,000 ; or
(k) (i) any Person or two or more Persons acting in concert
shall have acquired beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934), directly or indirectly, of Voting Stock of the
Borrower (or other securities convertible into such Voting Stock)
representing 20% or more of the combined voting power of all Voting
Stock of the Borrower; or (ii) a majority of the board of directors of
the Borrower shall consist of directors other than (A) directors holding
office as of the date of this Agreement or (B) directors whose election
was recommended by such directors or subsequent directors so
recommended; or (iii) any Person or two or more Persons acting in
concert shall have acquired by contract or otherwise, or shall have
entered into a contract or arrangement that, upon consummation, will
result in its or their acquisition of the power to exercise, directly or
indirectly, a controlling influence over the management or policies of
the Borrower; or
(l) any ERISA Event shall have occurred with respect to a Plan
and the sum (determined as of the date of occurrence of such ERISA
Event) of the Insufficiency of such Plan and the Insufficiency of any
and all other Plans with respect to which an ERISA Event shall have
occurred and then exist (or the liability of the Loan Parties and the
ERISA Affiliates related to such ERISA Event) exceeds $5,000,000; or
<PAGE> 107
101
(m) any Loan Party or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred
Withdrawal Liability to such Multiemployer Plan in an amount that, when
aggregated with all other amounts required to be paid to Multiemployer
Plans by the Loan Parties and the ERISA Affiliates as Withdrawal
Liability (determined as of the date of such notification), exceeds
$5,000,000 or requires payments exceeding $1,000,000 per annum; or
(n) any Loan Party or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that such Multiemployer
Plan is in reorganization or is being terminated, within the meaning of
Title IV of ERISA, and as a result of such reorganization or termination
the aggregate annual contributions of the Loan Parties and the ERISA
Affiliates to all Multiemployer Plans that are then in reorganization or
being terminated have been or will be increased over the amounts
contributed to such Multiemployer Plans for the plan years of such
Multiemployer Plans immediately preceding the plan year in which such
reorganization or termination occurs by an amount exceeding $1,000,000;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Required Lenders, by notice to the Borrower,
declare the obligation of each Appropriate Lender to make Advances (other than
Letter of Credit Advances by the Issuing Bank or a Working Capital Lender
pursuant to Section 2.03(c)) and of the Issuing Bank to issue Letters of Credit
to be terminated, whereupon the same shall forthwith terminate, and (ii) shall
at the request, or may with the consent, of the Required Lenders, by notice to
the Borrower, declare the Notes, all interest thereon and all other amounts
payable under this Agreement and the other Loan Documents to be forthwith due
and payable, whereupon the Notes, all such interest and all such amounts shall
become and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Borrower; provided, however, that in the event of an actual or deemed entry of
an order for relief with respect to the Borrower under the Federal Bankruptcy
Code, (x) the obligation of each Appropriate Lender to make Advances (other than
Letter of Credit Advances by the Issuing Bank or a Working Capital Lender
pursuant to Section 2.03(c)) and Working Capital Advances by a Working Capital
Lender pursuant to Section 2.02(b) and of the Issuing Bank to issue Letters of
Credit shall automatically be terminated and (y) the Notes, all such interest
and all such amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrower.
SECTION 6.02. Actions in Respect of the Letters of Credit upon
Default. If any Event of Default shall have occurred and be continuing, the
Administrative Agent may, or shall at the request of the Required Lenders,
irrespective of whether it is taking any of the actions described in Section
6.01 or otherwise, make demand upon the Borrower to, and forthwith upon such
demand the Borrower will, pay to the Administrative Agent on behalf of
<PAGE> 108
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the Lender Parties in same day funds at the Administrative Agent's office
designated in such demand, for deposit in the L/C Cash Collateral Account, an
amount equal to the aggregate Available Amount of all Letters of Credit then
outstanding. If at any time the Administrative Agent determines that any funds
held in the L/C Cash Collateral Account are subject to any right or claim of any
Person other than the Administrative Agent and the Lender Parties or that the
total amount of such funds is less than the aggregate Available Amount of all
Letters of Credit, the Borrower will, forthwith upon demand by the
Administrative Agent, pay to the Administrative Agent, as additional funds to be
deposited and held in the L/C Cash Collateral Account, an amount equal to the
excess of (a) such aggregate Available Amount over (b) the total amount of
funds, if any, then held in the L/C Cash Collateral Account that the
Administrative Agent determines to be free and clear of any such right and
claim.
ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.01. Authorization and Action. Each Lender Party (in
its capacities as a Lender, the Swing Line Bank (if applicable), the Issuing
Bank (if applicable) and a potential Hedge Bank) hereby appoints and authorizes
the Administrative Agent to take such action as agent on its behalf and to
exercise such powers and discretion under this Agreement and the other Loan
Documents as are delegated to the Administrative Agent by the terms hereof and
thereof, together with such powers and discretion as are reasonably incidental
thereto. As to any matters not expressly provided for by the Loan Documents
(including, without limitation, enforcement or collection of the Notes), the
Administrative Agent shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Required Lenders or such other Lenders as required by Section 8.01, and such
instructions shall be binding upon all Lender Parties and all holders of Notes;
provided, however, that the Administrative Agent shall not be required to take
any action that exposes the Administrative Agent to personal liability or that
is contrary to this Agreement or applicable law. To the extent permitted in the
Security Agreement and the Mortgages, the Administrative Agent may release any
assets permitted to be sold, leased, transferred or otherwise disposed of
pursuant to the terms hereof. The Administrative Agent agrees to give to each
Lender Party prompt notice of each notice given to it by the Borrower pursuant
to the terms of this Agreement.
SECTION 7.02. Agent's Reliance, Etc. Neither the
Administrative Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with the Loan Documents, except for its or their own gross
negligence or willful misconduct. Without limitation of the generality of the
foregoing, the Administrative Agent: (a) may treat the payee of any Note
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as the holder thereof until the Administrative Agent receives and accepts an
Assignment and Acceptance entered into by the Lender that is the payee of such
Note, as assignor, and an Eligible Assignee, as assignee, as provided in Section
8.07; (b) may consult with legal counsel (including counsel for any Loan Party),
independent public accountants and other experts selected by it with reasonable
care and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants or
experts; (c) makes no warranty or representation to any Lender Party and shall
not be responsible to any Lender Party for any statements, warranties or
representations (whether written or oral) made in or in connection with the Loan
Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of any
Loan Document on the part of any Loan Party or to inspect the property
(including the books and records) of any Loan Party; (e) shall not be
responsible to any Lender Party for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any lien or security interest created or purported to be created
under or in connection with, any Loan Document or any other instrument or
document furnished pursuant thereto; and (f) shall incur no liability under or
in respect of any Loan Document by acting upon any notice, consent, certificate
or other instrument or writing (which may be by telegram, telecopy or telex)
believed by it to be genuine and signed or sent by the proper party or parties.
SECTION 7.03. NationsBank and Affiliates. With respect to its
Commitments, the Advances made by it and the Notes issued to it, NationsBank
shall have the same rights and powers under the Loan Documents as any other
Lender Party and may exercise the same as though it were not the Administrative
Agent; and the term "Lender Party" or "Lenders Parties" shall, unless otherwise
expressly indicated, include NationsBank in its individual capacity. NationsBank
and its affiliates may accept deposits from, lend money to, act as trustee under
indentures of, accept investment banking engagements from and generally engage
in any kind of business with, any Loan Party, any of its Subsidiaries and any
Person who may do business with or own securities of any Loan Party or any such
Subsidiary, all as if NationsBank were not the Administrative Agent and without
any duty to account therefor to the Lender Parties.
SECTION 7.04. Lender Party Credit Decision. Each Lender Party
acknowledges that it has, independently and without reliance upon the
Administrative Agent or any other Lender Party and based on the financial
statements referred to in Section 4.01 and such other documents and information
as it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Lender Party also acknowledges that it will,
independently and without reliance upon the Administrative Agent or any other
Lender Party and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.
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SECTION 7.05. Indemnification. (a) Each Lender Party severally
agrees to indemnify the Administrative Agent (to the extent not promptly
reimbursed by the Borrower) from and against such Lender Party's ratable share
(determined as provided below) of any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever that may be imposed on, incurred by, or
asserted against the Administrative Agent in any way relating to or arising out
of the Loan Documents or any action taken or omitted by the Administrative Agent
under the Loan Documents; provided, however, that no Lender Party shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Administrative Agent's gross negligence or willful misconduct. Without
limitation of the foregoing, each Lender Party agrees to reimburse the
Administrative Agent promptly upon demand for its ratable share of any costs and
expenses (including, without limitation, fees and expenses of counsel) payable
by the Borrower under Section 8.04, to the extent that the Administrative Agent
is not promptly reimbursed for such costs and expenses by the Borrower. For
purposes of this Section 7.05(a), the Lender Parties' respective ratable shares
of any amount shall be determined, at any time, according to the sum of (a) the
aggregate principal amount of the Advances outstanding at such time and owing to
the respective Lender Parties, (b) their respective Pro Rata Shares of the
aggregate Available Amount of all Letters of Credit outstanding at such time,
(c) the aggregate unused portions of their respective Term A Commitments and
Term B Commitments at such time and (d) their respective Unused Working Capital
Commitments at such time; provided, that the aggregate principal amount of Swing
Line Advances owing to the Swing Line Bank and of Letter of Credit Advances
owing to the Issuing Bank shall be considered to be owed to the Working Capital
Lenders ratably in accordance with their respective Working Capital Commitments.
In the event that any Defaulted Advance shall be owing by any Defaulting Lender
at any time, such Lender Party's Commitment with respect to the Facility under
which such Defaulted Advance was required to have been made shall be considered
to be unused for purposes of this Section 7.05(a) to the extent of the amount of
such Defaulted Advance. The failure of any Lender Party to reimburse the
Administrative Agent promptly upon demand for its ratable share of any amount
required to be paid by the Lender Party to the Administrative Agent as provided
herein shall not relieve any other Lender Party of its obligation hereunder to
reimburse the Administrative Agent for its ratable share of such amount, but no
Lender Party shall be responsible for the failure of any other Lender Party to
reimburse the Administrative Agent for such other Lender Party's ratable share
of such amount. Without prejudice to the survival of any other agreement of any
Lender Party hereunder, the agreement and obligations of each Lender Party
contained in this Section 7.05(a) shall survive the payment in full of
principal, interest and all other amounts payable hereunder and under the other
Loan Documents.
(b) Each Lender Party severally agrees to indemnify the
Issuing Bank (to the extent not promptly reimbursed by the Borrower) from and
against such Lender Party's
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ratable share (determined as provided below) of any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever that may be imposed
on, incurred by, or asserted against the Issuing Bank in any way relating to or
arising out of the Loan Documents or any action taken or omitted by the Issuing
Bank under the Loan Documents; provided, however, that no Lender Party shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Issuing Bank's gross negligence or willful misconduct. Without
limitation of the foregoing, each Lender Party agrees to reimburse the Issuing
Bank promptly upon demand for its ratable share of any costs and expenses
(including, without limitation, fees and expenses of counsel) payable by the
Borrower under Section 8.04, to the extent that the Issuing Bank is not promptly
reimbursed for such costs and expenses by the Borrower. For purposes of this
Section 7.05(b), the Lender Parties' respective ratable shares of any amount
shall be determined, at any time, according to the sum of (a) the aggregate
principal amount of the Advances outstanding at such time and owing to the
respective Lender Parties, (b) their respective Pro Rata Shares of the aggregate
Available Amount of all Letters of Credit outstanding at such time, (c) the
aggregate unused portions of their respective Term A Commitments and Term B
Commitments at such time plus (d) their respective Unused Working Capital
Commitments at such time; provided that the aggregate principal amount of Swing
Line Advances owing to the Swing Line Bank and Letter of Credit Advances owing
to the Issuing Bank shall be considered to be owed to the Working Capital
Lenders ratably in accordance with their respective Working Capital Commitments.
In the event that any Defaulted Advance shall be owing by any Defaulting Lender
at any time, such Lender Party's Commitment with respect to the Facility under
which such Defaulted Advance was required to have been made shall be considered
to be unused for purposes of this Section 7.05(b) to the extent of the amount of
such Defaulted Advance. The failure of any Lender Party to reimburse the Issuing
Bank promptly upon demand for its ratable share of any amount required to be
paid by the Lender Parties to the Issuing Bank as provided herein shall not
relieve any other Lender Party of its obligation hereunder to reimburse the
Issuing Bank for its ratable share of such amount, but no Lender Party shall be
responsible for the failure of any other Lender Party to reimburse the Issuing
Bank for such other Lender Party's ratable share of such amount. Without
prejudice to the survival of any other agreement of any Lender Party hereunder,
the agreement and obligations of each Lender Party contained in this Section
7.05(b) shall survive the payment in full of principal, interest and all other
amounts payable hereunder and under the other Loan Documents.
SECTION 7.06. Successor Agents. The Administrative Agent may
resign as to any or all of the Facilities at any time by giving written notice
thereof to the Lender Parties and the Borrower and may be removed as to all of
the Facilities at any time with or without cause by the Required Lenders. Upon
any such resignation or removal, the Required Lenders shall have the right to
appoint a successor Administrative Agent as to such of the Facilities as to
which the Administrative Agent has resigned or been removed. If no
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successor Administrative Agent shall have been so appointed by the Required
Lenders, and shall have accepted such appointment, within 30 days after the
retiring Administrative Agent's giving of notice of resignation or the Required
Lenders' removal of the retiring Administrative Agent, then the retiring
Administrative Agent may, on behalf of the Lender Parties, appoint a successor
Administrative Agent, which shall be a commercial bank organized under the laws
of the United States or of any State thereof and having a combined capital and
surplus of at least $250,000,000. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent as to all of
the Facilities and upon the execution and filing or recording of such financing
statements, or amendments thereto, and such amendments or supplements to the
Mortgages, and such other instruments or notices, as may be necessary or
desirable, or as the Required Lenders may request, in order to continue the
perfection of the Liens granted or purported to be granted by the Collateral
Documents, such successor Administrative Agent shall succeed to and become
vested with all the rights, powers, discretion, privileges and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations under the Loan Documents. Upon the
acceptance of any appointment as Administrative Agent hereunder by a successor
Administrative Agent as to less than all of the Facilities and upon the
execution and filing or recording of such financing statements, or amendments
thereto, and such amendments or supplements to the Mortgages, and such other
instruments or notices, as may be necessary or desirable, or as the Required
Lenders may request, in order to continue the perfection of the Liens granted or
purported to be granted by the Collateral Documents, such successor
Administrative Agent shall succeed to and become vested with all the rights,
powers, discretion, privileges and duties of the retiring Administrative Agent
as to such Facilities, other than with respect to funds, transfers and other
similar aspects of the administration of borrowings under such Facilities,
issuance of Letters of Credit (notwithstanding any resignation as Administrative
Agent with respect to the Letter of Credit Facility) and payments by the
Borrower in respect of such Facilities, and the retiring Administrative Agent
shall be discharged from its duties and obligations under this Agreement as to
such Facilities, other than as aforesaid. After any retiring Administrative
Agent's resignation or removal hereunder as Administrative Agent, the provisions
of this Article VII shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Administrative Agent under this
Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement or the Notes or any other Loan Document, nor consent
to any departure by the Borrower therefrom, shall in any event be effective
unless the same shall be in writing and signed (or, in the case of the
Collateral Documents, consented to) by the
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Required Lenders, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that (a) no amendment, waiver or consent shall, unless in writing and
signed by all of the Lenders (other than any Lender Party that is, at such time,
a Defaulting Lender), do any of the following at any time: (i) except as
provided in Section 3.03, waive any of the conditions specified in Section 3.01
or, in the case of the Initial Extension of Credit, Section 3.02, (ii) change
the number of Lenders or the percentage of (x) the Commitments, (y) the
aggregate unpaid principal amount of the Advances or (z) the aggregate Available
Amount of outstanding Letters of Credit that, in each case, shall be required
for the Lenders or any of them to take any action hereunder, (iii) except in
connection with actions permitted by Section 5.02(d), reduce or limit the
obligations of any Subsidiary Guarantor under Section 1 of the Subsidiary
Guaranty or otherwise limit a Subsidiary Guarantor's liability with respect to
the Obligations owing to the Administrative Agent and the Lender Parties, (iv)
release any material portion of the Collateral in any transaction or series of
related transactions or permit the creation, incurrence, assumption or existence
of any Lien on all or substantially all of the Collateral in any transaction or
series of related transactions to secure any Obligations other than Obligations
owing to the Secured Parties under the Loan Documents and other than Debt owing
to any other Person, provided that, in the case of the creation, incurrence,
assumption or existence of any Lien on any material portion of the Collateral to
secure Debt owing to any other Person, (A) the Borrower shall, on the date such
Debt shall be incurred or issued, prepay the Advances pursuant to, and in the
order of priority set forth in, Section 2.06(b)(ii) in an aggregate principal
amount equal to the amount of the Net Cash Proceeds received by the Borrower or
any of its Subsidiaries to the extent required to do so under Section
2.06(b)(ii), (B) such Lien shall be subordinated to the Liens created under the
Loan Documents on terms acceptable to the Required Lenders and (C) the Required
Lenders shall otherwise permit the creation, incurrence, assumption or existence
of such Lien and, to the extent not otherwise permitted under Section 5.02(b),
of such Debt or (v) amend this Section 8.01 and (b) no amendment, waiver or
consent shall, unless in writing and signed by the Required Lenders and each
Lender that has a Commitment under the Term A Facility, Term B Facility or
Working Capital Facility if affected by such amendment, waiver or consent, (i)
increase the commitments of such Lender or subject such Lender to any additional
obligations, (ii) reduce the principal of, or interest on, the Notes held by
such Lender or any fees or other amounts payable hereunder to such Lender, (iii)
postpone any date fixed for any payment of principal of, or interest on, the
Notes held by such Lender or any fees or other amounts payable hereunder to such
Lender (including, without limitation, the scheduled amortization payments set
forth in Section 2.04) or (iv) waive, amend or change the order of application
of any prepayment set forth in Section 2.06 in any manner that materially
affects such Lender; provided further that no amendment, waiver or consent
shall, unless in writing and signed by the Swing Line Bank or the Issuing Bank,
as the case may be, in addition to the Lenders required above to take such
action, affect the rights or obligations of the Swing Line Bank or of the
Issuing Bank, as the case may be, under this Agreement; and provided further
that no amendment, waiver or consent shall, unless in
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writing and signed by the Administrative Agent in addition to the Lenders
required above to take such action, affect the rights or duties of the
Administrative Agent under this Agreement.
SECTION 8.02. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including
telegraphic, telecopy or telex communication) and mailed, telegraphed,
telecopied, telexed or delivered, if to the Borrower, at its address at 1727 Elm
Hill Pike, Nashville, Tennessee 37210 (Telecopier No.: (615) 231-2734,
Attention: F. E. McDaniel, Jr.; if to any Initial Lender or the Initial Issuing
Bank, at its Domestic Lending Office specified opposite its name on Schedule I
hereto; if to any other Lender Party, at its Domestic Lending Office specified
in the Assignment and Acceptance pursuant to which it became a Lender Party; and
if to the Administrative Agent, at its address at 101 Tryon Street, Independence
Center, Charlotte, NC 28255, Attention: Corporate Credit Services, Ref:
Shoney's; or, as to each party, at such other address as shall be designated by
such party in a written notice to the other parties or, as to the Borrower or
the Administrative Agent, at such other address as shall be designated by such
party in a written notice to the other parties and, as to each other party, at
such other address as shall be designated by such party in a written notice to
the Borrower and the Administrative Agent. All such notices and other
communications shall, when mailed, telegraphed, telecopied or telexed, be
effective three days after being deposited in the mails, or, if sent by
overnight courier, on the first Business Day following the day of delivery to
the overnight courier, or when delivered to the telegraph company, transmitted
by telecopier or confirmed by telex answerback, respectively, except that
notices and communications to the Administrative Agent pursuant to Article II,
III or VII shall not be effective until received by the Administrative Agent.
Delivery by telecopier of an executed counterpart of any amendment or waiver of
any provision of this Agreement or the Notes or of any Exhibit hereto to be
executed and delivered hereunder shall be effective as delivery of a manually
executed counterpart thereof.
SECTION 8.03. No Waiver; Remedies. No failure on the part of
any Lender Party or the Administrative Agent to exercise, and no delay in
exercising, any right hereunder or under any Note shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
SECTION 8.04. Costs, Expenses. (a) The Borrower agrees to pay
on demand (i) all reasonable costs and expenses of the Administrative Agent in
connection with the preparation, execution, delivery, administration,
modification and amendment of the Loan Documents (including, without limitation,
(A) all due diligence, collateral review, syndication, transportation, computer,
duplication, appraisal, audit, insurance, consultant, search, filing and
recording fees and expenses and (B) the reasonable fees and expenses of
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counsel for the Administrative Agent with respect thereto, with respect to
advising the Administrative Agent as to its rights and responsibilities, or the
perfection, protection or preservation of rights or interests, under the Loan
Documents, with respect to negotiations with any Loan Party or with other
creditors of any Loan Party or any of its Subsidiaries arising out of any
Default or any events or circumstances that may give rise to a Default and with
respect to presenting claims in or otherwise participating in or monitoring any
bankruptcy, insolvency or other similar proceeding involving creditors' rights
generally and any proceeding ancillary thereto) and (ii) all reasonable costs
and expenses of the Administrative Agent and the Lender Parties in connection
with the enforcement of the Loan Documents, whether in any action, suit or
litigation, any bankruptcy, insolvency or other similar proceeding affecting
creditors' rights generally (including, without limitation, the reasonable fees
and expenses of counsel for the Administrative Agent and each Lender Party with
respect thereto).
(b) The Borrower agrees to indemnify and hold harmless the
Administrative Agent, each Lender Party and each of their Affiliates and their
officers, directors, trustees, employees, agents and advisors (each, an
"Indemnified Party") from and against any and all claims, damages, losses,
liabilities and expenses (including, without limitation, reasonable fees and
expenses of counsel) that may be incurred by or asserted or awarded against any
Indemnified Party, in each case arising out of or in connection with or by
reason of (including, without limitation, in connection with any investigation,
litigation or proceeding or preparation of a defense in connection therewith)
(i) the Facilities, the actual or proposed use of the proceeds of the Advances
or the Letters of Credit, the Loan Documents or any of the transactions
contemplated thereby, or (ii) the actual or alleged presence of Hazardous
Materials on any property of any Loan Party or any of its Subsidiaries or any
Environmental Action relating in any way to any Loan Party or any of its
Subsidiaries, except to the extent such claim, damage, loss, liability or
expense is found in a final, non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's gross negligence or
willful misconduct. In the case of an investigation, litigation or other
proceeding to which the indemnity in this Section 8.04(b) applies, such
indemnity shall be effective whether or not such investigation, litigation or
proceeding is brought by any Loan Party, its directors, shareholders or
creditors or an Indemnified Party or any Indemnified Party is otherwise a party
thereto and whether or not the transactions contemplated hereby are consummated.
The Borrower also agrees that no Indemnified Party shall have any liability
(whether direct or indirect, in contract or tort or otherwise) to the Borrower
or any of its Subsidiaries or Affiliates or to any security holders or creditors
of the Borrower or any of its Subsidiaries arising out of, related to or in
connection with the transactions contemplated under the Loan Documents, except
for direct, as opposed to consequential, damages determined in a final
nonappealable judgment by a court of competent jurisdiction to have resulted
from such Indemnified Party's gross negligence or willful misconduct.
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(c) If any payment of principal of, or Conversion of, any
Eurodollar Rate Advance is made by the Borrower to or for the account of a
Lender Party other than on the last day of the Interest Period for such Advance,
as a result of a payment or Conversion pursuant to Section 2.09(b)(i), 2.10(a)
or 2.10(d), acceleration of the maturity of the Notes pursuant to Section 6.01
or for any other reason, the Borrower shall, upon demand by such Lender Party
(with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender Party any amounts required
to compensate such Lender Party for any additional losses, costs or expenses
that it may reasonably incur as a result of such payment, including, without
limitation, any loss (including loss of anticipated profits), cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by any Lender Party to fund or maintain such Advance.
(d) If any Loan Party fails to pay when due any costs,
expenses or other amounts payable by it under any Loan Document, including,
without limitation, fees and expenses of counsel and indemnities, such amount
may be paid on behalf of such Loan Party by the Administrative Agent or any
Lender Party, in its sole discretion.
(e) Without prejudice to the survival of any other agreement
of any Loan Party hereunder or under any other Loan Document, the agreements and
obligations of the Borrower contained in Sections 2.10 and 2.12 and this Section
8.04 shall survive the payment in full of principal, interest and all other
amounts payable hereunder and under any of the other Loan Documents.
SECTION 8.05. Right of Set-off. Upon (a) the occurrence and
during the continuance of any Event of Default and (b) the making of the request
or the granting of the consent specified by Section 6.01 to authorize the
Administrative Agent to declare the Notes due and payable pursuant to the
provisions of Section 6.01, each Lender Party and each of its respective
Affiliates is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and otherwise apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Lender Party or such
Affiliate to or for the credit or the account of the Borrower against any and
all of the Obligations of the Borrower now or hereafter existing under this
Agreement and the Note or Notes (if any) held by such Lender Party, irrespective
of whether such Lender Party shall have made any demand under this Agreement or
such Note or Notes and although such obligations may be unmatured. Each Lender
Party agrees promptly to notify the Borrower after any such set-off and
application; provided, however, that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of each Lender
Party and its respective Affiliates under this Section are in addition to other
rights and remedies (including, without limitation, other rights of set-off)
that such Lender Party and its respective Affiliates may have.
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SECTION 8.06. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Borrower and the
Administrative Agent and when the Administrative Agent shall have been notified
by each Initial Lender and the Initial Issuing Bank that such Initial Lender and
the Initial Issuing Bank has executed it and thereafter shall be binding upon
and inure to the benefit of the Borrower, the Administrative Agent and each
Lender Party and their respective successors and assigns, except that the
Borrower shall not have the right to assign its rights hereunder or any interest
herein without the prior written consent of the Lender Parties.
SECTION 8.07. Assignments and Participations. (a) Each Lender
may assign to one or more Eligible Assignees all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitment or Commitments, the Advances owing to it and the Note
or Notes held by it); provided, however, that (i) each such assignment shall be
of a uniform, and not a varying, percentage of all rights and obligations under
and in respect of one or more of the Facilities, (ii) except in the case of an
assignment to a Person that, immediately prior to such assignment, was a Lender
or an assignment of all of a Lender's rights and obligations under this
Agreement, the amount of the Commitment of the assigning Lender being assigned
pursuant to each such assignment (determined as of the date of the Assignment
and Acceptance with respect to such assignment) shall in no event be less than
$5,000,000, (iii) each such assignment shall be to an Eligible Assignee, (iv) no
such assignments shall be permitted without the consent of the Administrative
Agent (which consent shall not be unreasonably withheld) until the
Administrative Agent shall have notified the Lender Parties that syndication of
the Commitments hereunder has been completed, and (v) the parties to each such
assignment shall execute and deliver to the Administrative Agent, for its
acceptance and recording in the Register, an Assignment and Acceptance, together
with any Note or Notes subject to such assignment and a processing and
recordation fee of $3,500.
(b) Upon such execution, delivery, acceptance and recording,
from and after the effective date specified in such Assignment and Acceptance,
(x) the assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, have the rights and obligations of a Lender or
Issuing Bank, as the case may be, hereunder and (y) the Lender or Issuing Bank
assignor thereunder shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment and Acceptance, relinquish
its rights (other than its rights under Sections 2.10, 2.12 and 8.04 (and other
similar provisions of the other Loan Documents that are specified under the
terms of such other Loan Documents to survive the payment in full of the
Obligations of the Loan Parties under or in respect of the Loan Documents) to
the extent any claim thereunder relates to an event arising prior to such
assignment) and be released from its obligations under this Agreement (and, in
the case of an Assignment and Acceptance covering all or the remaining portion
of an assigning Lender's or
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Issuing Bank's rights and obligations under this Agreement, such Lender or
Issuing Bank shall cease to be a party hereto).
(c) By executing and delivering an Assignment and Acceptance,
the Lender Party assignor thereunder and the assignee thereunder confirm to and
agree with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such assigning Lender Party makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or any other Loan Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any lien or security interest created or purported to be created
under or in connection with, this Agreement or any other Loan Document or any
other instrument or document furnished pursuant hereto or thereto; (ii) such
assigning Lender Party makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or any
other Loan Party or the performance or observance by any Loan Party of any of
its obligations under any Loan Document or any other instrument or document
furnished pursuant thereto; (iii) such assignee confirms that it has received a
copy of this Agreement, together with copies of the financial statements
referred to in Section 4.01 and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
such Assignment and Acceptance; (iv) such assignee will, independently and
without reliance upon the Administrative Agent, such assigning Lender Party or
any other Lender Party and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (v) such assignee confirms
that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the
Administrative Agent to take such action as agent on its behalf and to exercise
such powers and discretion under the Loan Documents as are delegated to the
Administrative Agent by the terms hereof, together with such powers and
discretion as are reasonably incidental thereto; and (vii) such assignee agrees
that it will perform in accordance with their terms all of the obligations which
by the terms of this Agreement are required to be performed by it as a Lender or
Issuing Bank, as the case may be.
(d) The Administrative Agent, acting for this purpose (but
only for this purpose) as the agent of the Borrower, shall maintain at its
address referred to in Section 8.02 a copy of each Assignment and Acceptance
delivered to and accepted by it and a register for the recordation of the names
and addresses of the Lender Parties and the Commitment of, and principal amount
of the Advances owing to, each Lender Party from time to time (the "Register").
The entries in the Register shall be conclusive and binding for all purposes,
absent manifest error, and the Borrower, the Administrative Agent and the Lender
Parties shall treat each Person whose name is recorded in the Register as a
Lender Party hereunder for all purposes of this Agreement. The Register shall be
available for
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inspection by the Borrower or any Lender Party at any reasonable time and from
time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender Party and an assignee, together with any Note or Notes
subject to such assignment, the Administrative Agent shall, if such Assignment
and Acceptance has been completed and is in substantially the form of Exhibit C
hereto, (i) accept such Assignment and Acceptance, (ii) record the information
(the "Ownership Information") contained therein in the Register and (iii) give
prompt notice thereof to the Borrower. Any transfer of an ownership interest in
any Advance, including any right to principal or interest payable with respect
to the Advance, shall be subject to and conditioned upon the due recordation of
such transfer and the Ownership Information with respect to the transferee in
the Register and such transfer shall be effective only upon such recordation
(and not prior thereto). In the case of any assignment by a Lender, within five
Business Days after its receipt of such notice, the Borrower, at its own
expense, shall execute and deliver to the Administrative Agent in exchange for
the surrendered Note or Notes a new Note to the order of such Eligible Assignee
in an amount equal to the Commitment assumed by it pursuant to such Assignment
and Acceptance and, if the assigning Lender has retained a Commitment hereunder,
a new Note to the order of the assigning Lender in an amount equal to the
Commitment retained by it hereunder. Such new Note or Notes shall be in an
aggregate principal amount equal to the aggregate principal amount of such
surrendered Note or Notes, shall be dated the effective date of such Assignment
and Acceptance and shall otherwise be in substantially the form of Exhibit A-1,
A-2 or A-3 hereto, as the case may be.
(f) The Issuing Bank may assign to an Eligible Assignee all of
its rights and obligations under the undrawn portion of its Letter of Credit
Commitment at any time; provided, however, that (i) each such assignment shall
be to an Eligible Assignee and (ii) the parties to each such assignment shall
execute and deliver to the Administrative Agent, for its acceptance and
recording in the Register, an Assignment and Acceptance, together with a
processing and recordation fee of $3,500.
(g) Each Lender Party may sell participations to one or more
Persons (other than any Loan Party or any of its Affiliates) in or to all or a
portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitments, the Advances owing to it and
the Note or Notes (if any) held by it); provided, however, that (i) such Lender
Party's obligations under this Agreement (including, without limitation, its
Commitments) shall remain unchanged, (ii) such Lender Party shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender Party shall remain the holder of any such Note for all
purposes of this Agreement, and (iv) the Borrower, the Administrative Agent and
the other Lender Parties shall continue to deal solely and directly with such
Lender Party in connection with such Lender Party's rights and obligations under
this Agreement and (v) no participant under any
<PAGE> 120
114
such participation shall have any right to approve any amendment or waiver of
any provision of any Loan Document, or any consent to any departure by any Loan
Party therefrom, except to the extent that such amendment, waiver or consent
would reduce the principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, in each case to the extent subject to such
participation, postpone any date fixed for any payment of principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, in each
case to the extent subject to such participation, or release all or
substantially all of the Collateral or release any of the Subsidiary Guarantors
from any of their Obligations under the Loan Documents.
(h) Any Lender Party may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
8.07, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower furnished to such Lender
Party by or on behalf of the Borrower; provided, however, that, prior to any
such disclosure, the assignee or participant or proposed assignee or participant
shall agree to preserve the confidentiality of any Confidential Information
received by it from such Lender Party.
(i) Notwithstanding any other provision set forth in this
Agreement, any Lender Party may (without the consent of the Administrative Agent
or the Borrower) at any time (i) create a security interest in all or any
portion of its rights under this Agreement (including, without limitation, the
Advances owing to it and the Note or Notes held by it) in favor of any Federal
Reserve Bank in accordance with Regulation A of the Board of Governors of the
Federal Reserve System, or (ii) pledge its interest in all or any portion of its
rights under this Agreement to its trustee in support of its obligations to such
trustee.
SECTION 8.08. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 8.09. No Liability of the Issuing Bank. The Borrower
assumes all risks of the acts or omissions of any beneficiary or transferee of
any Letter of Credit with respect to its use of such Letter of Credit. Neither
the Issuing Bank nor any of its officers or directors shall be liable or
responsible for: (a) the use that may be made of any Letter of Credit or any
acts or omissions of any beneficiary or transferee in connection therewith; (b)
the validity, sufficiency or genuineness of documents, or of any endorsement
thereon, even if such documents should prove to be in any or all respects
invalid, insufficient, fraudulent or forged; (c) payment by the Issuing Bank
against presentation of documents that do not comply with the terms of a Letter
of Credit, including failure of any documents to
<PAGE> 121
115
bear any reference or adequate reference to the Letter of Credit; or (d) any
other circumstances whatsoever in making or failing to make payment under any
Letter of Credit, except that the Borrower shall have a claim against the
Issuing Bank, and the Issuing Bank shall be liable to the Borrower, to the
extent of any direct, but not consequential, damages suffered by the Borrower
that the Borrower proves were caused by (i) the Issuing Bank's willful
misconduct or gross negligence in determining whether documents presented under
any Letter of Credit comply with the terms of the Letter of Credit or (ii) the
Issuing Bank's willful failure to make lawful payment under a Letter of Credit
after the presentation to it of a draft and certificates strictly complying with
the terms and conditions of the Letter of Credit. In furtherance and not in
limitation of the foregoing, the Issuing Bank may accept documents that appear
on their face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary.
SECTION 8.10. Confidentiality. Neither the Administrative
Agent nor any Lender Party shall disclose any Confidential Information to any
Person without the consent of the Borrower, other than (a) to the Administrative
Agent's or such Lender Party's Affiliates and their officers, directors,
employees, agents and advisors and to actual or prospective Eligible Assignees
and participants, and then upon the recipient's agreement to be bound by the
terms of this Section 8.10 as if it were a Lender Party, (b) as required by any
law, rule or regulation or judicial process and (c) as requested or required by
any state, federal or foreign authority or examiner regulating banks or banking.
SECTION 8.11. Jurisdiction, Etc. (a) Each of the parties
hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or any of the other Loan Documents to which it is a
party, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in any such
New York State court or, to the extent permitted by law, in such federal court.
Each of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Agreement shall affect any right that any party may otherwise have to bring any
action or proceeding relating to this Agreement or any of the other Loan
Documents in the courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or any of the
other Loan Documents to which it is a party in any New York State or federal
court. Each of the parties hereto hereby irrevocably waives, to
<PAGE> 122
116
the fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
SECTION 8.12. Governing Law. This Agreement and the Notes
shall be governed by, and construed in accordance with, the laws of the State
of New York.
SECTION 8.13. Designation as Senior Indebtedness. The Borrower
hereby acknowledges and agrees that its Obligations under and in respect of the
Loan Documents shall be "Designated Senior Indebtedness of the Company" for all
purposes of the Indenture (including, without limitation, Article Fourteen
thereof).
SECTION 8.14. Waiver of Jury Trial. Each of the Borrower, the
Administrative Agent and the Lender Parties irrevocably waives all right to
trial by jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to any of the Loan
Documents, the Advances or the actions of the Administrative Agent or any Lender
Party in the negotiation, administration, performance or enforcement thereof.
<PAGE> 123
117
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
SHONEY'S, INC.
By
---------------------------------
Title:
NATIONSBANK, N.A., as Administrative
Agent
By
---------------------------------
Title:
NATIONSBANC MONTGOMERY
SECURITIES, INC., as Syndication
Agent
By
---------------------------------
Title:
INITIAL ISSUING BANK
NATIONSBANK, N.A.,
as Initial Issuing Bank
By
---------------------------------
Title:
<PAGE> 124
118
SWING LINE BANK
FIRST AMERICAN NATIONAL BANK,
as Swing Line Bank
By
---------------------------------
Title:
INITIAL LENDERS
NATIONSBANK, N.A.
By
---------------------------------
Title:
GENERAL ELECTRIC CAPITAL
CORPORATION
By
---------------------------------
Title:
PRIME INCOME TRUST
By
---------------------------------
Title:
<PAGE> 125
119
MERRILL LYNCH SENIOR FLOATING
RATE FUND
By
---------------------------------
Title:
CRESCENT/MACH I
PARTNERS, L.P.,
By: TCW Asset Management
Company, as Investment Manager
By
---------------------------------
Title:
VAN KAMPEN AMERICAN
CAPITAL PRIME
RATE INCOME TRUST
By
---------------------------------
Title:
FIRST AMERICAN NATIONAL BANK
By
---------------------------------
Title:
<PAGE> 126
120
THE LONG-TERM CREDIT
BANK OF JAPAN, LTD.
By
---------------------------------
Title:
CIBC, INC.
By
---------------------------------
Title:
HELLER FINANCIAL, INC.
By
---------------------------------
Title:
<PAGE> 127
121
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By
---------------------------------
Title:
DEUTSCHE FINANCIAL SERVICES
CORPORATION
By
---------------------------------
Title:
GREEN TREE FINANCIAL SERVICING
CORPORATION
By
---------------------------------
Title:
THE TORONTO DOMINION BANK
By
---------------------------------
Title:
<PAGE> 128
SCHEDULE I
COMMITMENTS AND APPLICABLE LENDING OFFICES
<TABLE>
<CAPTION>
============================================================================================================================
NAME OF LENDER TERM A TERM B WORKING CAPITAL LETTER OF CREDIT SWINGLINE
COMMITMENT COMMITMENT COMMITMENT COMMITMENT COMMITMENT
============================================================================================================================
<S> <C> <C> <C> <C> <C>
NationsBank, N.A. 31,547,619.04 104,166,666.67 39,285,714.29 35,000,000.00
- ----------------------------------------------------------------------------------------------------------------------------
CIBC, Inc. 25,000,000.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
TransAmerica Business
Credit Corporation 14,285,714.29 0.00 10,714,285.71
- ----------------------------------------------------------------------------------------------------------------------------
The Long-Term Credit
Bank of Japan, Ltd. 4,285,714.29 10,000,000.00 3,214,285.71
- ----------------------------------------------------------------------------------------------------------------------------
First American National
Bank 7,142,857.14 0.00 5,357,142.86 15,000,000.00
- ----------------------------------------------------------------------------------------------------------------------------
Deutsche Financial Services 5,714,285.71 0.00 4,285,714.29
- ----------------------------------------------------------------------------------------------------------------------------
General Electric Capital
Corporation 5,000,000.00 5,000,000.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Heller Financial Inc. 7,500,000.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
The Toronto-Dominion
Bank 0.00 25,000,000.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Van Kampen American
Capital 0.00 15,000,000.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Prime Income Trust 0.00 10,000,000.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Senior
Floating Rate Fund 0.00 5,000,000.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Crescent/Mach I Partners, L.P. 0.00 5,000,000.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------
Green Tree Financial
Servicing Corporation 6,666,666.67 13,333,333.33 5,000,000.00
============================================================================================================================
</TABLE>
<PAGE> 129
SCHEDULE II
APPLICABLE MARGIN AND
APPLICABLE PERCENTAGE
TERM A ADVANCES AND WORKING CAPITAL ADVANCES
<TABLE>
<CAPTION>
Applicable Margin Applicable Margin Applicable Applicable
Leverage Ratio for Eurodollar for Prime Commitment Letter of Credit
Level Rate Advance Rate Advance Fee Percentage Fee Percentage
----- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Level 1
4.75:1 or greater 2.75% 1.75% 0.50% 2.75%
Level 2
4.0:1 or greater but
less than 4.75:1 2.50% 1.50% 0.50% 2.50%
Level 3
3.5:1 or greater but
less than 4.0:1 2.25% 1.25% 0.50% 2.25%
Level 4
3.0:1 or greater but
less than 3.5:1 2.00% 1.00% 0.375% 2.00%
Level 5
2.5:1 or greater but
less than 3.0:1 1.75% 0.75% 0.25% 1.75%
Level 6
less than 2.5:1 1.50% 0.50% 0.25% 1.50%
</TABLE>
TERM B ADVANCES
<TABLE>
<CAPTION>
Applicable Margin Applicable Margin
for Eurodollar for Prime
Level Rate Advances Rate Advances
- ----- ------------- -------------
<S> <C> <C>
Level 1
4.75:1 or greater 3.25% 2.25%
Level 2
4.0:1 or greater
but less than 4.75 3.00% 2.00%
Level 3
3.5:1 or greater but
less than 4.0:1 2.75% 1.75%
Level 4
less than 3.5:1 2.50% 1.50%
</TABLE>
<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
BY AND BETWEEN
SHONEY'S, INC.
AND
RAYMOND L. DANNER
NASHVILLE, TENNESSEE
DECEMBER 1, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Certain Definitions and Terms..........................................2
2. Statement of Intent....................................................4
3. Required and Incidental Registrations..................................4
4. Deviation from Agreement; Amendments; and Waivers.....................20
5. Construction..........................................................20
6. Titles of Articles, Sections and Subsections..........................20
7. Shareholder's Death...................................................20
8. Time of Essence.......................................................20
9. Successors and Assigns, Etc...........................................21
10. Notices...............................................................21
11. Arbitration...........................................................22
12. Best Efforts..........................................................23
13. Good Faith and Fair Dealing; Cooperation..............................23
14. Resolution of Issues, Etc.............................................23
15. Counterparts..........................................................24
SIGNATURES.....................................................................24
</TABLE>
ii
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
BY AND BETWEEN SHONEY'S, INC.
AND RAYMOND L. DANNER
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") entered into and made
by Shoney's, Inc. (the "Company") and Raymond L. Danner (the "Shareholder"), on
behalf of himself and his affiliates, to be effective as of December 1, 1997.
RECITALS:
A. The Shareholder and/or his affiliates beneficially own the Shares
(as defined below) listed on Schedule A hereto, many of which have not been
registered pursuant to the Securities Act of 1933, as amended.
B. Both the Shareholder and the Company believe that a sale of all or a
material portion of such a large number of the Shares (such as in the
circumstances of a sale to diversify the Shareholder's estate or an estate sale
to satisfy estate tax obligations after the Shareholder's death) without
registration could have a disruptive and deleterious impact on the orderly and
stable market for the Company's Common Stock.
C. The appropriate officers of the Company are authorized to enter into
this registration rights agreement with the Shareholder, under which all or a
material portion of the Shares may be registered for sale incidental to a public
distribution of the Shares (excluding Plan Registrations, as herein defined),
subject to the terms and conditions expressed herein.
D. The appropriate officers of the Company also have been authorized to
include in this registration rights agreement an agreement to cooperate with the
Shareholder during his life and, thereafter, with the estate of the Shareholder
in one registration of the Shares on demand (with reasonable advance notice)
during his lifetime and one registration upon his death, pursuant to the terms
and subject to the conditions expressed in this Agreement.
<PAGE> 4
NOW THEREFORE, in consideration of One Thousand Dollars ($1,000.00)
paid by the Shareholder to the Company, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties have agreed to the terms set forth in this Agreement.
TERMS:
1. Certain Definitions and Terms. The following terms and definitions
apply to this Agreement:
a. "Common Stock" means the Company's common stock, $1.00 par value,
outstanding on the date hereof, together with any reclassifications thereof or
other changes in respect thereof.
b. "Company" means Shoney's, Inc., a Tennessee corporation with
principal offices located currently at 1727 Elm Hill Pike, Nashville, Tennessee,
and any successor(s) in interest thereto.
c. "Company Party" shall have the meaning ascribed to such term in
Subsection 3.e. hereof.
d. "Estate" means the Estate of Raymond L. Danner.
e. "Executor" means the executor or administrator of the Estate, as
such Person(s) may be appointed from time to time.
f. "NYSE" means the New York Stock Exchange, Inc. and any successor(s)
in interest thereto.
g. "Person" means any individual, corporation, limited liability
company, limited liability partnership, partnership, general partnership,
association, joint venture, joint stock company, syndicate, business trust or
other type of trust, unincorporated organization, government or any agency or
political subdivision thereof, or any other form of entity.
2
<PAGE> 5
h. "Plan Registration" means a registration statement filed on Form S-4
or Form S-8, or any shelf registration statement (unless and until the
securities registered under a shelf registration statement are actually offered
for sale) or other similar successor registration statement.
i. "Registrable Securities" shall have the meaning ascribed to such
term in Section 3 hereof.
j. "Securities Act" means the Securities Act of 1933, as amended.
k. "Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended.
l. "SEC" means the United States Securities and Exchange Commission.
m. "Shareholder" means Raymond L. Danner, currently a resident and a
citizen of the State of Tennessee. The term "Shareholder" includes also, where
the context so indicates, the Executor.
n. "Shareholder Party" shall have the meaning ascribed to such term in
Subsection 3.e. hereof.
o. "Shares" means shares of Common Stock beneficially owned by the
Shareholder and/or his affiliates as listed on Schedule A hereto, unless the
context otherwise requires, subject to any adjustment to reflect any
reclassifications thereof or other changes in respect thereof.
p. "State Administrator" means the Person charged with administering or
enforcing State Laws.
q. "State Laws" mean laws, rules and regulations applicable to the
registration or sale of securities in the various states and territories of the
United States of America, including the District of Columbia, and this term
includes those statutes commonly referred to as "Blue Sky Laws."
3
<PAGE> 6
r. The words "hereof", "herein", "hereunder", and words of similar
import shall, when used in this Agreement, refer to this Agreement as a whole
and not to any particular provision of this Agreement.
s. Words importing a particular gender mean and include every other
gender, and words importing the singular number mean and include the plural
number, and vice versa, as the context shall require.
2. Statement of Intent. This Agreement is intended to serve as the
mechanism for avoiding, to the extent practicable, a disruption of the market in
the Common Stock resulting from any sale of all or a material portion of the
Shares before or after the Shareholder's death (many of such Shares having not
been registered pursuant to the Securities Act) in a public distribution
pursuant to applicable exemptions under the Securities Act. The parties'
agreements herein are subject to the terms and conditions set forth in this
Agreement. This Agreement provides a non-exclusive means for the Shareholder or
the Estate to dispose of the Shares.
3. Required and Incidental Registrations.
a. Required Registration.
i. During the lifetime of the Shareholder and upon the written request
of the Shareholder, the Company agrees to prepare and file a registration
statement under the Securities Act covering the Shares which are the subject of
such request (referred to herein as the "Registrable Securities") and agrees to
use its best efforts to cause such registration statement to become effective as
expeditiously as possible.
ii. Commencing on the death of the Shareholder, if and whenever the
Company shall receive a written request therefor from the Executor of the
Estate, the Company agrees to prepare and file a registration statement under
the Securities Act covering the Shares which are the subject of such request
(also referred to herein as the "Registrable Securities") and agrees to use its
best efforts to cause such registration statement to become effective as
expeditiously as possible. Before acting on any such request, the Company shall
have the right to determine to its reasonable satisfaction that the person
making the request has the legal authority to represent the Estate and that such
person is authorized to make the request. An opinion of counsel to the Estate or
certified copies of court orders (including letters testamentary) confirming or
containing such authorization shall satisfy the Company's inquiry into the
authority of the person making the request.
4
<PAGE> 7
iii. The Company shall be required to prepare, file and to use its best
efforts to cause to become effective only one registration statement pursuant to
this Subsection 3.a. during the life of the Shareholder and only one after his
death.
iv. The request for registration by the Shareholder or the Executor
shall specify the number of Shares to be registered and shall describe the
proposed method of sale of such Shares. If, in the judgment of the Shareholder
or the Executor, the proposed sale of Registrable Securities is not on
satisfactory terms, such request may be withdrawn by the Shareholder or the
Executor at any time before the registration statement is effective, with the
effect that such request shall be deemed, for the purposes of this Agreement,
never to have been made so long as the Shareholder or the Executor promptly
reimburses the Company for all reasonable expenses incurred by the Company
related to such now-withdrawn request. Such expenses shall be itemized.
v. If the Shareholder or the Executor intends to distribute the
Registrable Securities by means of an underwriting, the Shareholder or the
Executor shall provide the Company with the name of a nationally recognized
managing underwriter or underwriters (the "Managing Underwriter") that the
Shareholder or the Executor proposes to employ as a part of Shareholder's or the
Executor's request made pursuant to this Subsection. The Company shall have the
right to approve such Managing Underwriter, which approval shall not be
unreasonably withheld. The Company may disapprove the Shareholder's proposed
underwriter if the Company is then in the process of registering its securities
using another nationally recognized Managing Underwriter or has otherwise
obligated itself to use another nationally recognized Managing Underwriter in
public offerings of its securities. In the event that the Shareholder or the
Estate proposes to sell Shares through such underwriting, the Company agrees to
enter into (together with the Shareholder or the Executor and the other
shareholders distributing their securities through such underwriting) an
underwriting agreement with the nationally recognized Managing Underwriter and
other underwriters selected for such underwriting, provided that such
underwriting agreement is in customary form (including customary provisions
restricting any participant's ability to sell shares of the Company securities
for a reasonable period following the effective date of the registration
statement) and is reasonably acceptable to the Company.
vi. The Company and, subject to the requirements of Subsection f. of
this Section 3, other holders of the Company's securities may include securities
for its (or their) own account in such registration (1) if the Managing
Underwriter so agrees and (2) if the number of Registrable Securities which
would otherwise have been included in such registration statement and
underwriting will not thereby be limited.
5
<PAGE> 8
vii. The Company may postpone the filing of any registration statement
requested pursuant to this Subsection for a reasonable period of time not to
exceed one hundred twenty (120) days if it deems such postponement prudent as a
result of current Company or market circumstances, so long as such postponement
does not delay the expected date of sale of the Registrable Securities beyond
ten (10) days before the date by which the Executor must pay federal and/or
state estate taxes in respect of the Estate, including available extensions of
such date that can be obtained by the Executor without, in the opinion of
counsel to the Estate, unreasonable expense or uncertainty (the "Tax Deadline").
The Shareholder's Executor shall certify in writing to the Company the date that
such Person is advised is the Tax Deadline by legal counsel to the Estate and
shall furnish to the Company, upon request, a copy of the opinion of such
counsel to the Estate.
viii. Notwithstanding anything to the contrary contained herein, the
Company may choose to deny any request for registration pursuant to Subsection
3.a. within one hundred twenty (120) days after the effective date of a
registration statement filed by the Company covering an underwritten public
offering which the Shareholder or the Executor shall have been entitled to join,
but failed or refused to join, pursuant to Subsection 3.b., unless (1) in the
interim the Shareholder shall have died, (2) the Managing Underwriter shall have
limited the number of Registrable Securities that the Shareholder or the
Executor proposed to offer for sale pursuant to such registration statement,
and/or (3) if the registration statement shall have been withdrawn by the
Company or the underwriting was not completed substantially in accordance with
the terms offered to the Shareholder or the Executor.
ix. The Company shall not be required to effect any requested
registration pursuant to this Subsection 3.a. if such registration does not
involve the disposition of Registrable Securities constituting at least
twenty-five percent (25%) of the Shares registered in the name of the
Shareholder or the Estate and if the Company shall deliver to the Shareholder or
to the Executor making such request an unqualified opinion of counsel reasonably
acceptable for such Shareholder or Executor to the effect that no such
registration is necessary under the Securities Act and applicable State Laws in
connection with the proposed disposition of such Registrable Securities. Such
opinion shall be addressed to the Shareholder (or to the Estate and the Executor
as the case may be) and shall specifically state that such person or entity, and
the proposed purchaser(s) of the Shares to which the opinion relates, are
entitled to rely thereon in connection with the means of disposition covered by
such opinion; provided, however, that this limitation shall not apply if the
proposed purchaser(s) from the Shareholder or the Estate refuse(s) to purchase
the Shares unless they first be registered.
x. The Company shall not be required to effect any requested
registration pursuant to Subsection 3.a. if the Company is engaged or plans to
be engaged within ninety (90) days, at the time
6
<PAGE> 9
of such written request, in a registered public offering in which the
Shareholder or the Executor has the right to request inclusion of the
Registrable Securities pursuant to Subsection 3.b. hereof so long as (1) the
Company uses its best efforts to assure that all of the Registrable Securities
are in fact included in such registration and (2) as to requests by the Estate
after the death of the Shareholder, the sale pursuant to such registered public
offering is expected to be completed not less than ten (10) days before the Tax
Deadline. In the event that the Company advises the Shareholder or the Executor
that the Company is denying the request for the reason set out in this
paragraph, it is agreed that such request for registration shall not be deemed
or understood to count as a demand registration request under Subsection 3.a.
for purposes of this Agreement.
xi. If the requested registration pursuant to Subsection 3.a. hereof
does not involve an underwritten public offering, the Company's obligation to
maintain the availability of such registration statement for the public
distribution of the Registrable Securities included thereunder shall not exceed
ninety (90) days from the effective date of the registration statement.
xii. The Shareholder or the Estate may withdraw the Registrable
Securities from any registration statement filed pursuant to Subsection 3.a. at
any time before the registration statement becomes effective by giving
telephonic notice to the Company and any Managing Underwriter, which notice
shall be reduced to writing and sent immediately to the Company in accordance
with the notice provisions hereof, and in such event the Shareholder or the
Estate shall promptly reimburse the Company for all reasonable expenses related
to the filing of the registration statement and the Company's obligation to file
a registration statement under Subsection 3.a. shall continue as if the demand
never had been made. Such expenses shall be itemized.
xiii. The Company's undertakings in this Section 3.a. include filings
under and in compliance with State Laws, subject to the limitation set forth in
Subsection 3.c.i.D.
b. Incidental Registration.
i. Each time the Company shall determine to file a registration
statement under the Securities Act (other than pursuant to Section 3.a. hereof
and other than in respect of a Plan Registration), either for its own account or
on behalf of any other security holder, the Company agrees to give prompt
written notice of its determination to the Shareholder or to the Executor. Upon
the written request of the Shareholder or the Executor stating the number of
Shares the Shareholder or the Executor desires to have registered and sold,
received within fifteen (15) days after the receipt of such written notice from
the Company, the Company agrees to use its best efforts to cause all or
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a portion of such Registrable Securities to be included in the Company's
registration statement and registered under the Securities Act, all to the
extent requisite to permit the sale or other disposition by the Shareholder or
the Executor of as many of the shares of Registrable Securities as practicable.
Notwithstanding the foregoing provisions of this Subsection 3.b.i., the Company
may withdraw any registration statement filed or planned to be filed pursuant to
Subsection 3.b. hereof without incurring any liability to the Shareholder or to
the Estate (other than reimbursement of fees, including counsel, accounting and
underwriting fees actually expended by the Shareholder or the Estate in
connection with the proposed registration).
ii. If the registration of which the Company gives written notice
pursuant to Subsection 3.b.i. is for a public offering involving an
underwriting, the Company agrees to so advise the Shareholder or the Executor as
a part of its written notice, including the identity of a nationally recognized
Managing Underwriter selected by the Company. In such event the right of the
Shareholder or the Executor to registration pursuant to this Subsection 3.b.i.
shall be conditioned upon the Shareholder's or the Executor's participation in
such underwriting and the inclusion of the Shareholder's or the Executor's
Registrable Securities in the underwriting to the extent provided herein. In the
event that the Shareholder or the Estate proposes to sell Shares through such
underwriting, the Shareholder or the Executor agrees to enter into (together
with the Company and the other shareholders distributing their securities
through such underwriting) an underwriting agreement with the nationally
recognized Managing Underwriter and other underwriters selected for such
underwriting by the Company, provided that such underwriting agreement is in
customary form (including customary provisions restricting the ability of the
Shareholder or his Estate to sell Shares for a reasonable period following the
effective date of the registration statement) and is reasonably acceptable to
the Company. No underwriting agreement shall result in charges to the
Shareholder or the Estate that are disproportionate to the number of Registrable
Securities included in the registration statement.
iii. Notwithstanding any other provision of this Section 3.b., if the
Managing Underwriter of an underwritten distribution advises the Company and the
Shareholder or the Executor in writing that in its good faith judgment the
number of shares of Registrable Securities and the other securities requested to
be registered exceeds the number of shares of Registrable Securities and other
securities which is advisable to include in such offering (a "Recommendation"),
then (A) the number of shares of Registrable Securities and other securities so
requested to be included in the offering shall be reduced to that number of
shares which in the good faith judgment of the Managing Underwriter it is
advisable to include in such offering except for shares to be issued by the
Company in an offering initiated by the Company, which shall have priority over
the shares of Registrable Securities, and (B)
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such reduced number of shares shall be allocated among the Shareholder or the
Executor and holders of other securities in proportion, as nearly as
practicable, to the respective number of shares of Registrable Securities
requested by the Shareholder or the Executor or other securities requested by
other holders to be included in the registration statement. All Registrable
Securities and other securities which are excluded from the underwriting by
reason of the Managing Underwriter's Recommendation and all Shares not
originally requested to be so included shall not be included in such
registration statement and shall be withheld from the market by the holders
thereof for a period which the Managing Underwriter reasonably determines is
necessary to effect the underwritten public offering.
iv. In the event that, as a result of the allocation as described in
Subsection 3.b.iii. above, the Shareholder or the Executor is unable to include
all requested Registrable Securities in a registration statement which is the
subject of Subsection 3.b., then the Company, upon request of the Shareholder or
the Executor, hereby agrees to include such Registrable Securities, with a full
priority over other Company securities being offered by other Company security
holders, in the next subsequent registration by the Company in accordance with
Subsection 3.b. above, subject to a reduction being effected by reason of the
Managing Underwriter's recommendation and compliance with other applicable terms
of Subsection 3.b.
v. The Shareholder or the Estate may withdraw Registrable Securities
from any registration statement at any time before the registration statement
becomes effective by giving telephonic notice to the Company and the Managing
Underwriter, which notice shall be reduced to writing and sent immediately to
the Company and to the Managing Underwriter in accordance with the notice
provisions hereof.
vi. The Company's undertakings in this Section 3.b. include filings
under and in compliance with State Laws, subject to the limitation set forth in
Subsection 3.c.i.D.
c. Registration Procedures.
i. If and whenever the Company is required by the provisions of
Subsections a. or b. of this Section 3 to use its best efforts to effect the
registration of Registrable Securities under the Securities Act, the Company, as
expeditiously as possible, agrees to:
A. In accordance with the Securities Act and all applicable rules and
regulations, prepare and file with the SEC a registration statement with respect
to such securities and use its best efforts to
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cause such registration statement to become and remain effective for the period
of distribution contemplated thereby, not to exceed ninety (90) days, and
prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus contained therein as may be necessary
to keep such registration statement effective for such period and to maintain
such registration statement and prospectus accurate and complete in all material
respects for such period; provided, however, that the Company shall not be
required to maintain the effectiveness of any registration statement not
covering an underwritten public offering (1) beyond the period of distribution
contemplated thereby or (2) for more than ninety (90) days after such
registration statement becomes effective (whichever period is shorter);
B. If the offering is to be underwritten in whole or in part, enter
into and perform under a written underwriting agreement in customary form and
substance which is reasonably satisfactory to the Managing Underwriter of the
public offering, the Shareholder or the Executor, and the Company;
C. Furnish to the Shareholder or the Executor and to the underwriters
of the securities being registered such number of copies of the registration
statement and each amendment and supplement thereto, preliminary prospectus,
final prospectus and such other documents as such underwriters and the
Shareholder or the Executor may reasonably request in order to facilitate the
public offering of such securities;
D. Use its best efforts to list, register or qualify the securities
covered by such registration statement with the NYSE and under such State Laws
of such jurisdictions as the Shareholder or the Executor and underwriters may
reasonably request, except that the Company shall not for any purpose be
required to qualify to do business as a foreign corporation in any jurisdiction
where it is not so qualified;
E. Notify the Shareholder or the Executor, promptly after it shall
receive notice thereof, of the date and time when such registration statement
and each post-effective amendment thereto has become effective or a supplement
to any prospectus forming a part of such registration statement has been filed;
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<PAGE> 13
F. Notify the Shareholder or the Executor promptly of any request by
the SEC for the amending or supplementing of such registration statement or
prospectus or for additional information;
G. Prepare and file with the SEC, promptly upon the request of the
Shareholder or the Executor, any amendments or supplements to such registration
statement or prospectus which, in the reasonable opinion of counsel for the
Shareholder or the Executor, is required under the Securities Act or the rules
and regulations thereunder in connection with the distribution of the
Registrable Securities by the Shareholder or the Executor;
H. Prepare and file promptly with the SEC, and promptly notify the
Shareholder or the Executor of the filing of, such amendments or supplements to
such registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event has
occurred as the result of which any such prospectus or any other prospectus as
then in effect would include an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading;
I. In case the Shareholder or the Executor or any underwriter for the
Shareholder or the Executor is required to deliver a prospectus at a time when
the prospectus then in circulation is not in compliance in all material respects
with the Securities Act or the rules and regulations of the SEC, or applicable
State Laws, prepare promptly upon request such amendments or supplements to such
registration statement and such prospectus as may be necessary in order for such
prospectus to comply with the requirements of the Securities Act and such rules
and regulations, and/or applicable State Laws;
J. Advise the Shareholder or the Executor, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the SEC (and/or any State Administrator) suspending the effectiveness of such
registration statement or the initiation or threatening of any proceeding for
that purpose and promptly use its best efforts to prevent the issuance of any
stop order or to obtain its prompt withdrawal if such stop order should be
issued;
K. Not file any registration statement or prospectus or any amendment
or supplement to such registration statement or prospectus to which the
Shareholder or the Executor has reasonably objected on the grounds that such
registration statement or prospectus or amendment or supplement
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<PAGE> 14
thereto does not comply in all material respects with the requirements of the
Securities Act or the rules and regulations thereunder, and/or under any
applicable State Laws, after having been furnished with a copy thereof a
reasonable time (under the circumstances) prior to the filing thereof; provided,
however, that the failure of the Shareholder or the Executor or its counsel to
review or object to any registration statement or prospectus or any amendment or
supplement to such registration statement or prospectus (except to the extent of
information furnished to the Company by the Shareholder or the Executor in
writing) shall not affect the rights of the Shareholder or the Executor or its
respective representatives, executors, administrators, partners, assigns, legal
counsel, accountants or controlling persons or any underwriter or any
controlling person of such underwriter under Section 3.e. hereof; and
L. At the request of the Shareholder or the Executor, use its best
efforts to furnish to the Shareholder or the Executor on the effective date of
the registration statement or, if such registration includes an underwritten
public offering, at the closing provided for in the underwriting agreement, (A)
a copy of the opinion of the counsel representing the Company for the purposes
of such registration, covering such matters with respect to the registration
statement, the prospectus and each amendment or supplement thereto, proceedings
under state and federal securities laws, other matters relating to the Company,
the securities being registered and the offer and sale of such securities as are
customarily the subject of opinions of issuer's counsel provided to underwriters
in underwritten public offerings, and (B) copies of letters from the independent
certified public accountants of the Company, stating that they are independent
public accountants within the meaning of the Securities Act and dealing with
such matters as the Managing Underwriter may reasonably request, or if the
offering is not underwritten that in the opinion of such accountants the
financial statements and other financial data of the Company included in the
registration statement or the prospectus or any amendment or supplement thereto
comply as to form in all material respects with the applicable accounting
requirements of the Securities Act and any applicable State Laws.
ii. If and when the Shareholder or the Executor requests registration
of Registrable Securities pursuant to Subsections a. or b. of this Section 3,
the Shareholder or the Executor shall, at his expense and as expeditiously as
possible, do the following:
A. Supply the Company with all information reasonably required by the
Company concerning the Shareholder, the Executor or the Estate, and the
respective securities holdings and affiliates thereof, in connection with the
proposed distribution by the Shareholder or the Estate and/or their respective
affiliates;
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B. Correct, supplement or amend information requested by or furnished
to the Company so as to ensure that information supplied is not materially
misleading or does not omit to state facts or information necessary to cause
information provided, in light of the circumstances, not to be materially
misleading or incomplete;
C. Provide counsel to the Company, underwriters and accountants access
to all information and records of the Shareholder and his affiliates, or of the
Estate and its affiliates, that these professionals reasonably require to
perform their "due diligence" functions in connection with any registration
hereunder;
D. Comply in all respects with the requirements of the Securities Act,
the Securities Exchange Act, the NYSE, and applicable State Laws in connection
with any registration or sale of securities hereunder;
E. Comply in all material respects with reasonable requests by the
Company and the Managing Underwriter in connection with the sale of the
Registrable Securities (including without limitation entering into customary
underwriting agreements) or with the activities by the Shareholder or the Estate
and the affiliates thereof during or immediately following any underwriting
period hereunder (including without limitation other sales or purchases of
Company securities, confidentiality requirements, public statements, and
responses to the SEC or other regulatory inquiries); and
F. Pay promptly when due all registration fees and other fees and
expenses of the SEC, the NYSE, and any State Administrator or other governmental
entity, and all fees and expenses of his counsel, underwriters or placement
agents, with respect to the registration and/or sale of Registrable Securities
in accordance with the terms hereof.
iii. The Company reserves the right to amend or to stop any
registration or sale of Company securities if it concludes in good faith that
such registration or sale would violate any applicable securities law or
regulation. In such event, the Company shall send prior written notice to the
Shareholder or to the Executor specifying the problems that the Company has
identified in such detail as shall permit the Shareholder or the Executor to
attempt to resolve such ostensible violations to the Company's reasonable
satisfaction such that the registration is not stopped or withdrawn. However,
the Company shall not be required, in any event, to take or to permit any
registration or sale that it deems, in good faith, to violate the Securities Act
(inclusive of its rules and regulations) or any State Laws. However, if such
registration is canceled or withdrawn by the Company for any
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<PAGE> 16
reason or reasons not related to deliberate or grossly negligent misconduct by a
Shareholder Party, including the intentional provision of materially misleading
information (or the intentional omission of information required to make the
statements made not materially misleading in light of the circumstances then and
there pertaining), such registration shall not be deemed to be a demand
registration by the Shareholder, the Executor or the Estate.
d. Expenses.
i. Subject to any generally applicable State Law requirements with
respect to allocation of expenses, the Company shall bear one-half of all
expenses incurred in connection with a registration statement filed pursuant to
Subsection 3.a. hereof, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses incurred in
connection with complying with State Laws, fees of the NYSE, and fees of
transfer agents and registrars; provided, that the Shareholder or the Estate
holding the Registrable Securities covered by or included in such registration
statement shall bear (1) the fees and disbursements of any legal counsel,
accountants or other experts retained by the Shareholder or the Estate to review
matters relating to such registration statement on behalf of the Shareholder or
the Estate (2) any underwriting discounts or commissions applicable to the
Registrable Securities, and (3) any transfer taxes payable on account of the
transfer of such Registrable Securities.
ii. Subject to any generally applicable State Law requirements with
respect to allocation of expenses, the Company shall bear all expenses incurred
in connection with a registration statement filed pursuant to Subsection 3.b.
hereof, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses incurred in connection with
complying with State Laws, fees of the NYSE, and fees of transfer agents and
registrars; provided, that the Shareholder or the Estate holding the Registrable
Securities covered by or included in such registration statement shall bear (1)
the fees and disbursements of any legal counsel, accountants or other experts
retained by the Shareholder or the Estate to review matters relating to such
registration statement on behalf of the Shareholder or the Estate (2) any
underwriting discounts or commissions applicable to the Registrable Securities,
and (3) any transfer taxes payable on account of the transfer of such
Registrable Securities.
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e. Indemnification and Contribution.
i. The Company hereby agrees to indemnify and hold harmless each
Shareholder Party (as defined below) from and against, and agrees to reimburse
each such Shareholder Party with respect to, any and all claims, actions (actual
or threatened), demands, losses, damages, liabilities, costs and expenses
(including reasonable attorneys and other professional fees and the
disbursements thereof) to which any Shareholder Party may become subject, under
the Securities Act or otherwise, insofar as such claims, actions, demands,
losses, damages, liabilities, costs or expenses arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in such registration statement, any prospectus contained therein, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, however, that
the Company will not be liable in any such case to the extent that any such
claim, action, demand, loss, damage, liability, cost or expense is caused by an
untrue statement or alleged untrue statement or omission or alleged omission so
made in strict conformity with written information furnished by the Shareholder,
the Executor or the Estate, to such underwriter or such controlling person
specifically for use in the preparation thereof.
As used herein, the term "Shareholder Party" means and includes each of
the following: the Shareholder, the Estate, the Executor, and each of the
Shareholder's other representatives, executors, administrators, assigns,
representatives, and partners, and each person who controls or is controlled by
the Shareholder, the Executor, or the Estate within the meaning of the
Securities Act.
ii. The Shareholder hereby agrees that he and his Estate will indemnify
and hold harmless each Company Party (as defined below) from and against, and
agrees to reimburse each such Company Party, with respect to, any and all
claims, actions (actual or threatened), demands, losses, damages, liabilities,
costs or expenses (including attorneys and other professional fees and the
disbursements thereof) to which any Company Party may become subject, under the
Securities Act or otherwise, insofar as such claims, actions, demands, losses,
damages, liabilities, costs or expenses are caused by any untrue or alleged
untrue statement of any material fact contained in such registration statement,
any prospectus contained therein or any amendment or supplement thereto, or are
caused by the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, in each case
to the extent, but if and only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was actually so made in
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reliance upon and in strict conformity with written information furnished by the
Shareholder or his Executor specifically for use in the preparation thereof, or
withheld by the Shareholder or the Executor after a request for such information
is received from the Company or its representatives for use in the preparations
thereof.
As used herein, the term "Company Party" means and includes each of the
following: the Company, its officers, and directors, legal counsel and
accountants and each person who controls the Company within the meaning of the
Securities Act.
iii. Promptly after receipt by a party indemnified pursuant to the
provisions of Subsection e.i. or e.ii. of this Section 3 of notice of the
commencement (or threatened commencement) of any action involving the subject
matter of the foregoing indemnity provisions, such indemnified party will, if a
claim therefor is to be made against the indemnifying party pursuant to the
provisions of Subsection e.i. or e.ii. of this Section 3, notify the
indemnifying party of the commencement (or threatened commencement) thereof; but
the omission to notify the indemnifying party will not relieve it from any
liability which it may have to an indemnified party otherwise than under this
Section 3.e. and shall not relieve the indemnifying party from liability under
this Section 3.e. unless such indemnifying party is prejudiced by such omission.
In case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying parties similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, that if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel (in which case the indemnifying party shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties). Upon the permitted assumption by the indemnifying
party of the defense of such action, and approval by the indemnified party of
counsel, the indemnifying party shall not be liable to such indemnified party
under Subsection e.i. or e.ii. of this Section 3 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof (other than reasonable costs of investigation) unless (A) the
indemnified party shall have employed separate counsel in connection with the
assertion of legal defenses in accordance with the proviso to the immediately
preceding sentence, (B) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time, (C) the indemnifying party and its counsel do
not actively and vigorously
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pursue the defense of such action, or (D) the indemnifying party has authorized
the employment of counsel for the indemnified party at the expense of the
indemnifying party. No indemnifying party shall be liable to an indemnified
party for any settlement of any action or claim without the consent of the
indemnifying party and no indemnifying party may unreasonably withhold its
consent to any such settlement. No party seeking indemnity will consent to entry
of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability with respect to such claim or
litigation. The indemnified and the indemnifying party agree to cooperate fully
and, to the maximum extent practicable, to wage a joint defense as to all claims
for which the indemnified party demands indemnification pursuant to this
Agreement.
iv. If the indemnification provided for in Subsection e.i. or e.ii. of
this Section 3 is held by a court of competent jurisdiction to be unavailable to
a party to be indemnified with respect to any claims, actions, demands, losses,
damages, liabilities, costs or expenses referred to therein, then each
indemnifying party under any such Subsection, in lieu of indemnifying such
indemnified party thereunder, hereby agrees to contribute to the amount paid or
payable by such indemnified party as a result of such claims, actions, demands,
losses, damages, liabilities, costs or expenses in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with the statements
or omissions which resulted in such claims, actions, demands, losses, damages,
liabilities, costs or expenses, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. Notwithstanding the foregoing, the amount
any indemnifying party shall be obligated to contribute pursuant to this
Subsection 3.e.iv. shall be limited to an amount equal to the per share public
offering price (less any underwriting discount and commissions) multiplied by
the number of shares of Common Stock sold by the indemnifying party pursuant to
the registration statement which gives rise to such obligation to contribute
(less the aggregate amount of any damages which the indemnifying party has
otherwise been required to pay in respect of such claim, action, demand, loss,
damage, liability, cost or expense or any substantially similar claim, action,
demand, loss, damage, liability, cost or expense arising from the sale of such
Common Stock).
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v. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution
hereunder from any Person who was not guilty of such fraudulent
misrepresentation.
f. Future Registration Rights. Except as expressly permitted by this
Agreement or by the Shareholder or the Executor, and except for an underwriting
agreement between the Company and one or more professional underwriters of
securities, from and after the date hereof the Company agrees not to enter into
any agreement to file a registration statement on demand for any equity
securities under the Securities Act held by any other holder(s) of such
securities ("Other Shareholder(s)") except pursuant to an agreement between the
Company and such Other Shareholder(s) that specifically provides as follows: (i)
the Other Shareholder(s) of such equity securities may not participate in any
registration requested pursuant to Subsection a. of this Section 3 hereof
without the written consent of the Shareholder or the Estate unless (A) the sale
of the Registrable Securities is to be underwritten on a firm commitment basis
and the Managing Underwriter in its good faith judgment concludes that the
public offering or sale of such equity securities would not cause the number of
shares of Registrable Securities and such equity securities to exceed the number
which it is advisable to include in such offering to achieve not less than the
minimum desired sale price, and (B) the Shareholder and the Estate shall have
the right to participate, to the extent that either of them may request, in any
registration statement initiated under a demand registration right exercised by
the Other Shareholder(s), except that if the Managing Underwriter of a public
offering made pursuant to such a demand registration limits the number of shares
of Common Stock to be sold, the participation of the Shareholder or the Estate
and the holders of all other Common Stock desiring to participate (other than
the Other Shareholder(s)) shall be reduced pro rata based upon the number of
shares of Registrable Securities and Common Stock held at the time of filing the
Registration Statement; (ii) the Other Shareholder(s) may not participate in any
registration requested pursuant to Section 3.b. hereof if the sale of
Registrable Securities is to be underwritten unless, if the Managing Underwriter
limits the total number of securities to be sold, the Other Shareholder(s) and
the Shareholder (or the Estate) are entitled to participate in such underwritten
distribution pro rata based upon the number of shares of Common Stock and
Registrable Securities held at the time of filing the registration statement;
and (iii) all equity securities excluded from any registration as a result of
the foregoing limitations shall not be included in such registration and may not
be publicly offered or sold for such period as the Managing Underwriter of such
registered distribution may reasonably request.
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g. Reporting Requirements. The Company agrees (1) to use its best
efforts to file timely such information, documents and reports as the SEC may
require or prescribe under Sections 13, 14 or 15(d) (whichever is applicable) of
the Securities Exchange Act of 1934 and (2) upon request, to furnish to the
Shareholder such reports and documents filed by the Company with the SEC as the
Shareholder may reasonably request in availing itself of an exemption for the
sale of Registrable Securities without registration under the Securities Act.
The Company acknowledges and agrees that the purposes of the requirements
contained in this Section 3 are (i) to enable the Shareholder (or the Estate) to
comply with the current public information requirement contained in paragraph
(c) of Rule 144 under the Securities Act should the Shareholder ever wish to
dispose of any of the securities of the Company acquired by the Shareholder or
his affiliates without registration under the Securities Act in reliance upon
Rule 144 (or any other similar exemptive provision) and (3) to qualify the
Company for the use of registration statements on Form S-3. In addition, the
Company agrees to use its best efforts to take such other measures and file such
other information, documents and reports, as shall be required of it hereafter
by the SEC as a condition to the availability of Rule 144 under the Securities
Act (or any similar exemptive provision hereafter in effect) and the use of Form
S-3. The Company also covenants to use its best efforts, to the extent that it
is reasonably within its power to do so, to qualify, and maintain such
qualification, for the use of Form S-3.
h. Shareholder and Executor Information. The Shareholder or the
Executor shall furnish the Company with such information with respect to the
Shareholder and his affiliates or the Estate in connection with the distribution
of such Registrable Securities as the Company may from time to time reasonably
request in writing and as shall be required by law or by the SEC in connection
therewith. Such information shall be used by the Company solely in connection
with the requested registration and not for any other purpose(s) and shall be
treated as strictly confidential by the Company except as otherwise required by
the Securities Act or other laws, rules and regulations.
i. Forms. All references in this Agreement to particular forms of
registration statements are intended to include, and shall be deemed to include,
references to all successor forms which are intended to replace, or to apply to
similar transactions as, the forms herein referenced.
4. Deviation from Agreement; Amendments; and Waivers. In order to amend
or deviate from the terms of the Agreement, a party must first obtain the prior
written consent of the other party, which consent may be withheld or granted in
such party's sole discretion. No amendment(s), modification(s), deviations from
agreements or covenants, or waiver(s) of any provision of this Agreement, shall
in any event be effective unless the same shall be in writing and signed by
appropriate officers of the Company and by the Shareholder or his authorized
representative(s),
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including his Executor. No action or course of dealing on the part of any Person
or entity, its officers, employees, consultants, heirs, administrators,
executors or agents, nor any failure or delay by a party with respect to
exercising any right, power or privilege of such party under this Agreement
shall operate as a waiver thereof, except as expressly provided in writing in
accordance with this Section.
5. Construction. This Agreement constitutes a contract made under and
shall be construed in accordance with and governed by the laws of the State of
Tennessee.
6. Titles of Articles, Sections and Subsections. All titles or headings
to articles, sections, Subsections or other divisions of this Agreement are only
for the convenience of the parties and shall not be construed to have any effect
or meaning with respect to the other content of such articles, sections,
Subsections or other divisions, such other content being controlling as to the
agreement between the parties hereto.
7. Shareholder's Death. This Agreement shall survive the Shareholder's
death and shall inure to the benefit of the Shareholder's Executor and Estate.
8. Time of Essence. Time is of the essence with regard to each and
every provision of this Agreement.
9. Successors and Assigns, Etc. All covenants and agreements contained
by or on behalf of the parties in this Agreement shall bind such Person's
administrators, executors, and successors and shall inure to the benefit of the
other party and such other party's, administrators, executors, and successors.
However, the rights and duties of the parties under this Agreement may not be
assigned or delegated by any party without the written consent of the other.
10. Notices. All communications under or in connection with this
Agreement shall be in writing and shall be delivered by an overnight courier
service of national standing (such as FedEx) and sent, charges prepaid, for next
business day delivery. In addition, any communication deemed by the sending
party to be urgent shall also be in writing and sent by telecopy or other
similar form of rapid transmission followed by contemporaneously sending for
overnight delivery by overnight courier as provided above (or, in the discretion
of the sender, in lieu of telecopy, such
20
<PAGE> 23
communication can be delivered personally to the receiving party or to a
representative thereof at such person's principal office as indicated herein
(subject to change as provided below)). All such communications shall be sent or
delivered to the parties at their respective addresses set forth below:
a. If to the Company, to:
Shoney's, Inc.
1727 Elm Hill Pike
Nashville, Tennessee 37210
Facsimile No. (615) 231-2531
Attention: President
With a copy in each instance to:
James H. Cheek, III, Esq.
Bass Berry & Sims PLC
Suite 2700, First American Center
Nashville, Tennessee 37238
Facsmilie No. (615) 742-6298
b. If to the Shareholder, the Estate or Executor, to:
Raymond L. Danner
The Danner Company
2 International Drive Suite 510
Nashville, Tennessee 37217
Facsimile No. (615) 367-2156
With a copy in each instance to:
Daniel W. Small, Esq.
Small & Ragan
323 Union Street, Suite 300
Nashville, Tennessee 37219-0608
Facsimile No. (615) 252-6001
21
<PAGE> 24
Any party may send notice in accordance with this Section of a new
address to be used to contact such party. Any communication so addressed and
transmitted shall be deemed to be given on the date received.
11. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the actual or asserted violation or other breach of this
Agreement, shall be settled by arbitration administered by the American
Arbitration Association ("AAA") in accordance with its Commercial Arbitration
Rules ("Rules"), and judgment upon the award rendered by the arbitrator(s) (and
successor arbitrator(s)) may be entered in any court having jurisdiction
thereof. There shall be (a) one neutral arbitrator for any dispute involving any
claim in connection with this Agreement involving a monetary demand for Fifty
Thousand Dollars ($50,000.00) or less and (b) as to any other dispute, three (3)
neutral arbitrators selected by the AAA pursuant to the Rules. The arbitrators
shall be duly licensed attorneys and (in the judgment of the AAA) substantially
experienced in practicing securities law. The arbitrator(s) shall apply the
procedural and substantive law of the State of Tennessee, as well as the Rules
to the extent not inconsistent with such laws, except that the law applicable to
the arbitration shall be Federal Arbitration Act, 9 U.S.C. ss.ss. 1, et seq. Any
award by an arbitrator or panel of arbitrators shall be issued within 270 days
from the first demand for arbitration in such matter. Any dispute as to whether
a matter is arbitrable shall itself be arbitrated by the parties pursuant to
this provision. No award shall include punitive damages. Rather, each award
shall be for actual damages and out-of-pocket expenses. In the discretion of the
arbitrator, or a majority of the arbitrators as the case may be, the award may
include, as compensable damages and out-of-pocket expenses, all or part of a
party's attorneys fees and other out-of-pocket expenses. The award for attorneys
fees and costs to the prevailing party may be prorated as the arbitrator or a
majority of the arbitrators shall deem just and proper. The Arbitrator(s) shall
permit limited, non-abusive discovery in the form of depositions and the
production of documents and records and shall, on application by a party, enter
appropriate orders granting extraordinary relief to preserve the rights of the
parties pending the issuance of the award.
12. Best Efforts. The requirement that a party use its best efforts
shall not require such party to assume unduly expensive, unduly burdensome, or
otherwise commercially unreasonable obligations. However, it does require that
such a party shall seek to perform the required duty with the same determination
and diligence that it would use to obtain its own important business objectives.
22
<PAGE> 25
13. Good Faith and Fair Dealing; Cooperation. The provisions of this
Agreement require in all cases that each party hereto, and all representatives
thereof including underwriters and Managing Underwriters, or any other persons
bound hereby or subject hereto, shall act in good faith and deal fairly in
respect of the transactions described in this Agreement. All discretionary
unilateral decisions permitted by this Agreement shall be subject to the
limitation that such decisions are reasonable when made and not made other than
in good faith intended to accomplish, where reasonably possible, the objectives
of this Agreement.
The parties agree to cooperate with each other in order to promptly and
diligently discharge their obligations under this Agreement.
14. Resolution of Issues, Etc. In the event that a Person, including a
Managing Underwriter, shall recommend to the Company that a lesser number of
Registrable Securities be registered (or shall make other recommendations
relative to a registration of Registrable Securities) than has been requested by
the Shareholder, the Company shall promptly send a copy of the Recommendation to
the Shareholder and shall afford the Shareholder a reasonable opportunity to
resolve any problems raised by such Person (including a Managing Underwriter),
in whole or in part, with a view to resolving the problems raised by such Person
and/or maximizing the number of Registrable Securities (and the price thereof)
that can be sold pursuant to such registration.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY.]
23
<PAGE> 26
15. Counterparts. This Agreement may be executed in two or more
counterparts, and it shall not be necessary that the signatures of all parties
hereto be contained on any one counterpart hereof; each counterpart shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
In witness whereof the parties hereto have executed this Agreement to
be effective as of the date first above written.
EACH OF THE PARTIES HERETO SPECIFICALLY ACKNOWLEDGES, THAT AFTER CONSULTATION
WITH COUNSEL, SUCH PARTY HAS WAIVED SUCH PARTY'S RIGHT TO A TRIAL BY JURY AND
CONSENTS TO THE ARBITRATION PROVISIONS OF THIS AGREEMENT AS TO ALL ISSUES. THIS
IS A SPECIFIC INDUCEMENT TO EACH PARTY TO ENTER INTO THIS AGREEMENT AND A
MATERIAL PART OF THE CONSIDERATION THEREFOR.
THE COMPANY:
SHONEY'S, INC.
By: /s/ J. Michael Bodnar
----------------------------------
J. Michael Bodnar, President
SHAREHOLDER:
/s/ Raymond L. Danner
---------------------------------
Raymond L. Danner
24
<PAGE> 27
EXHIBIT A
<TABLE>
<CAPTION>
=============================================================================
Name of Owner Number of Shares
=============================================================================
<S> <C>
Raymond L. Danner 3,738,695
- -----------------------------------------------------------------------------
Donna Danner Wilson,
Custodian for Whitney Wilson (UGMA) 15,502
- -----------------------------------------------------------------------------
Donna Danner Wilson,
Custodian for Justin Wilson (UGMA) 19,107
- -----------------------------------------------------------------------------
Donna Danner Wilson 122,511
- -----------------------------------------------------------------------------
Roger Allen Danner 47,843
- -----------------------------------------------------------------------------
The Danner Foundation 348,276
- -----------------------------------------------------------------------------
Judith Boyer Danner,
Custodian for Raymond L. Danner, Jr.
(UGMA) 7,101
- -----------------------------------------------------------------------------
Judith Boyer Danner 83,068
- -----------------------------------------------------------------------------
Gail Danner Griel 126,005
- -----------------------------------------------------------------------------
Gail Danner Wilson,
Custodian for William Wilson, Jr. (UGMA) 17,862
- -----------------------------------------------------------------------------
Gail Danner Wilson,
Custodian for David Wilson (UGMA) 9,827
- -----------------------------------------------------------------------------
Estate of Frances J. Danner, deceased 27,742
=============================================================================
</TABLE>
<PAGE> 1
AMENDMENT TO AGREEMENT
THIS AMENDMENT dated as of November 11, 1997 (this "Amendment"), amends
the Agreement dated as of August 10, 1997 by and among Shoney's, Inc., a
Tennessee corporation (the "Company"), and Raymond D. Schoenbaum, an individual
resident of the State of Georgia, and Betty J. Schoenbaum, an individual
resident of the State of Florida, as amended (the "Agreement").
IN CONSIDERATION of the mutual agreements contained herein, the parties
hereby amend the Agreement as follows:
A. Section 1(g) is amended so as to reflect the adoption by the Board
of Directors at its meeting on November 11, 1997, of a resolution reconstituting
the Executive Committee so that its members are Raymond D. Schoenbaum, B.
Franklin Skinner (who shall continue to be Chairman of the Executive Committee),
J. Michael Bodnar and Carole F. Hoover. Section 1(g) is further amended to
reflect that each of the parties agrees that the Executive Committee shall
consist of four directors, and the Company represents and warrants that on the
date hereof the Board has amended the Bylaws of the Company to provide that the
Executive Committee shall consist of four directors.
B. Section 1(h) is amended to provide that effective November 11, 1997,
the name of the Operations Committee shall be changed to the Strategic Planning
Committee and the Chairman of the Strategic Planning Committee shall be Raymond
D. Schoenbaum, who shall replace John Farquharson. Section 1(h) is further
amended to reflect that each of the parties agrees that the Strategic Planning
Committee shall consist of three directors (Raymond D. Schoenbaum, J. Michael
Bodnar and John Farquharson), and the Company represents and warrants that on
the date hereof the Board has amended the Bylaws of the Company to change the
name of the Operations Committee to the Strategic Planning Committee and to
provide that the Strategic Planning Committee shall consist of three directors.
The Agreement is further amended to provide that the phrase "Operations
Committee" in each place in the Agreement where such phrase appears shall be
replaced with the phrase "Strategic Planning Committee," and the Company
represents and warrants that on the date hereof the Bylaws have been similarly
amended.
C. Section 1(j) is amended to insert a period after the word "two" in
the penultimate sentence of Section 1(j) and delete the remaining words in such
sentence, and the Company represents and warrants that on the date hereof the
Bylaws have been similarly amended.
D. Section 1(l) is amended by deleting the first sentence thereof and
replacing it with the following: "If the Chairman or the Chief Executive Officer
resigns or is removed or otherwise is unable to serve, the Board agrees that
Raymond D. Schoenbaum shall be given equal consideration for the Chairman or the
Chief Executive Officer positions."
E. Section 1(m) is amended by adding the following sentence: "If the
current Chairman of the Nominating Committee is for any reason no longer the
Chairman of such committee, then Raymond D. Schoenbaum shall become the Chairman
of the Nominating Committee."
<PAGE> 2
F. The Company represents and warrants that the Bylaws have been
amended on the date hereof to provide that the Chairman of the Board under the
Bylaws shall perform such duties as shall be prescribed by the Executive
Committee of the Board, and to provide that special meetings of shareholders may
be called by the Board of Directors and special meetings of directors may be
called by the President, the Chairman of the Executive Committee, a majority of
the Executive Committee or a majority of the directors.
G. The Company agrees to confer with the members of the Shareholders'
Committee regarding any press releases or other public announcements to be
issued or made in connection with, or relating to, the subject matter of this
Amendment prior to the issuance of any such press release or the making of any
such public announcement.
H. Except as provided in this Amendment, the Agreement shall remain in
full force and effect in accordance with its terms.
IN WITNESS WHEREOF, and intending to be legally bound hereby, each of
the undersigned parties has executed or caused this Amendment as of the date
first above written.
SHONEY'S, INC.
By: /s/ F.E. McDaniel, Jr.
-------------------------------
Name: F.E. McDaniel, Jr.
--------------------
Title: Secretary
-------------------
/s/ Raymond D. Schoenbaum
-----------------------------------
Raymond D. Schoenbaum
/s/ Betty J. Schoenbaum
-----------------------------------
Betty J. Schoenbaum
2
<PAGE> 1
TERMINATION AGREEMENT
This Termination Agreement (this "Termination Agreement") dated as of
January 8, 1998, among Shoney's, Inc., a Tennessee corporation (the "Company"),
and Raymond D. Schoenbaum, an individual resident of the State of Georgia, and
Betty J. Schoenbaum, an individual resident of the State of Florida.
W I T N E S S E T H:
WHEREAS, the parties to this Termination Agreement are parties to a
Settlement Agreement dated as of August 10, 1997 and amended as of November 11,
1997 (as so amended, the "Settlement Agreement"); and
WHEREAS, each of the parties to this Termination Agreement has
determined that it is in such party's best interests to terminate the Settlement
Agreement, except to the extent provided herein, effective upon the execution of
this Agreement by all of the parties hereto.
NOW THEREFORE, in consideration of the premises and mutual promises
contained herein, the parties agree as follows:
A. Termination of Settlement Agreement. Except to the extent set
forth in Section B of this Termination Agreement, effective upon the execution
of this Agreement by all of the parties hereto, the Settlement Agreement is
hereby terminated by the mutual agreement of the Company, Raymond D. Schoenbaum
and Betty J. Schoenbaum.
B. Surviving Provisions. Notwithstanding the provisions of
Section A of this Termination Agreement, Sections 3 and 8 of the Settlement
Agreement (the "Surviving Provisions") shall not be terminated and shall
continue in full force and effect.
C. Miscellaneous.
(a) Each of the parties agrees that it will not avoid or seek
to avoid the observance or performance of any of the terms hereof or of the
Surviving Provisions (whether by alleging in any court that one or more of the
provisions of this Termination Agreement or the Surviving Provisions is invalid
or unenforceable, or otherwise), but will act at all times in good faith to
assist in the carrying out of all such terms, and each of the parties hereby
irrevocably waives any claim that any provision hereunder or in the Surviving
Provisions may be invalid or unenforceable and agrees not to contend to the
contrary. In addition, each of the parties agrees that it will use all
reasonable efforts to defend against any claim by a third party that any of the
provisions of this Termination Agreement or the Surviving Provisions is invalid
or unenforceable.
(b) Each of the parties acknowledges and agrees that
irreparable injury to the other parties hereto would occur if any of the
provisions of this Termination Agreement or the Surviving Provisions were not
performed in accordance with their specific terms or were otherwise breached and
that such injury would not be compensable in money damages. It is accordingly
agreed that each party hereto (the "Moving Party") shall be entitled to specific
enforcement of the terms
<PAGE> 2
hereof and the Surviving Provisions and injunctive or other equitable relief as
a remedy for such nonperformance or breach, and each party further waives any
requirement for the securing or posting of any bond in connection with such
remedy. The other parties hereto will not take action, directly or indirectly,
in opposition to the Moving Party seeking such relief on the grounds that any
other remedy or relief is available at law or in equity. The remedies for which
this Section provides shall not be deemed to be the exclusive remedies for
breach of this Termination Agreement or the Surviving Provisions, but shall be
in addition to all other remedies available at law or equity.
(c) If any term, provision, covenant or restriction of this
Termination Agreement or the Surviving Provisions is held by a court of
competent jurisdiction to be illegal, invalid, void or unenforceable, the
parties agree that such provision, covenant or restriction will be enforced to
the maximum extent permissible so as to effect the intent of the parties, and
the legality, validity and enforceability of the remaining provisions of this
Termination Agreement or the Surviving Provisions shall not in any way be
affected or impaired thereby. The parties will negotiate in good faith to amend
this Termination Agreement and the Surviving Provisions to replace the
unenforceable language with enforceable language which as closely as possible
reflects such intent.
(d) Any waiver by any party hereto of a breach of any
provision of this Termination Agreement or the Surviving Provisions shall not
operate as or be construed to be a waiver of any other breach of such provision
or of any breach of any other provision of this Termination Agreement or the
Surviving Provisions. The failure of a party hereto to insist upon strict
adherence to any term of this Termination Agreement or the Surviving Provisions
on one or more occasions shall not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that term or any
other term of this Termination Agreement or the Surviving Provisions.
(e) This Termination Agreement and the Surviving Provisions
contain the entire understanding of the parties hereto with respect to their
subject matter. There are no restrictions, agreements, promises,
representations, warranties, covenants or undertakings other than those
expressly set forth herein and in the Surviving Provisions. This Termination
Agreement and the Surviving Provisions may be amended only by a written
instrument duly executed by the parties hereto.
(f) This Termination Agreement and the Surviving Provisions
shall be governed by and construed and enforced in accordance with the laws of
Tennessee, without reference to the conflict of laws principles thereof.
(g) This Termination Agreement may be executed in
counterparts, each of which shall be an original, but each of which together
shall constitute one and the same Agreement.
-2-
<PAGE> 3
IN WITNESS WHEREOF, and intending to be legally bound hereby, each of
the undersigned parties has executed or caused this Termination Agreement to be
executed on the date first above written.
SHONEY'S, INC.
By: /s/ F.E. McDaniel, Jr.
------------------------------------
Name: F.E. McDaniel, Jr.
------------------------------
Title: Chief Administrative Officer,
-----------------------------
Secretary, and General Counsel
------------------------------
/s/ Raymond D. Schoenbaum
---------------------------------------
Raymond D. Schoenbaum
/s/ Betty J. Schoenbaum
---------------------------------------
Betty J. Schoenbaum
-3-
<PAGE> 1
(11) STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------------
OCTOBER 26, OCTOBER 27, OCTOBER 29,
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Earnings per Common Share - Primary
Average shares outstanding 48,539,573 42,590,581 41,405,428
Net effect of dilutive stock options-based on the treasury
stock method using average market price (B) 87,916 113,688
------------ ----------- -----------
Totals 48,539,573 42,678,497 41,519,116
============ =========== ===========
Income (loss) from continuing operations $(35,710,842) $26,045,894 $11,202,369
Income from discontinued operations 397,816 8,136,588
Income from gain on sale of discontinued operations 22,080,375 5,532,748
------------ ----------- -----------
Net income (loss) $(35,710,842) $48,524,085 $24,871,705
============ =========== ===========
Per Share Amount:
Income (loss) from continuing operations $ (.74) $ .61 $ .27
Income from discontinued operations .01 .20
Income from gain on sale of discontinued operations .52 .13
------------ ----------- -----------
Net income (loss) $ (.74) $ 1.14 $ .60
============ =========== ===========
Earnings per Common Share - Fully Diluted:
Average shares outstanding 48,539,573 42,590,581 41,405,428
Net effect of dilutive stock options-based on the treasury
stock method using the year end market price, if higher
than average market price (B) 97,569 113,688
Assumed conversion of convertible debentures (A) 5,577,679 (A)
------------ ----------- -----------
Totals 48,539,573 48,265,829 41,519,116
============ =========== ===========
Income (loss) from continuing operations $(35,710,842) $26,045,894 $11,202,369
Add convertible debentures interest, net of
income tax (A) 4,806,760 (A)
------------ ----------- -----------
Total from continuing operations (35,710,842) 30,852,654 11,202,369
Income from discontinued operations 397,816 8,136,588
Income from gain on sale of discontinued operations 22,080,375 5,532,748
------------ ----------- -----------
Net income (loss) $(35,710,842) $53,330,845 $24,871,705
============ =========== ===========
Per Share Amount:
Income (loss) from continuing operations $ (.74) $ .64 $ .27
Income from discontinued operations .01 .20
Income from gain on sale of discontinued operations .45 .13
------------ ----------- -----------
Net income (loss) $ (.74) $ 1.10 $ .60
============ =========== ===========
</TABLE>
(A) The 1997 and 1995 fully diluted computations exclude the effects of the
assumed conversion of the debentures because it had an antidilutive effect.
(B) For 1997, both primary and fully diluted loss per share computations exclude
the effects of common stock equivalents in the determination of the weighted
average number of shares outstanding because their inclusion had an
antidilutive effect.
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF SHONEY'S, INC.
Pargo's of Frederick, Inc.
Shoney's Equipment Corporation
Shoney's Investments, Inc.
Corporate Benefit Services, Incorporated of Nashville
Commissary Operations, Inc.
Shoney's of Canada, Inc.
Pargo's of York, Inc.
Shoney's of Michigan, Inc.
SHN Properties, LLC
TPI Entertainment, Inc.
TPI Insurance Corporation
TPI Restaurants, Inc. ("TPIR")
Subsidiaries of TPIR
TPI Transportation, Inc.
TPI Commissary, Inc.
TPI West Palm, Inc.
TPI Properties, Inc.
Insurex Agency, Inc.
Insurex Benefits Administrators, Inc.
<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-3 (File No. 333-20875) and related Prospectus pertaining to the Shoney's,
Inc. 1996 Stock Option Plan; 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; 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 December 18, 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 26, 1997.
Nashville, Tennessee
January 20, 1998 /s/ ERNST & YOUNG LLP
<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 26, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-26-1997
<PERIOD-START> OCT-28-1996
<PERIOD-END> OCT-26-1997
<CASH> 11,851,223
<SECURITIES> 0
<RECEIVABLES> 13,206,997
<ALLOWANCES> 1,595,628
<INVENTORY> 38,382,843
<CURRENT-ASSETS> 133,542,618
<PP&E> 790,076,204
<DEPRECIATION> 343,645,369
<TOTAL-ASSETS> 644,688,759
<CURRENT-LIABILITIES> 171,778,293
<BONDS> 466,038,617
0
0
<COMMON> 48,568,109
<OTHER-SE> (60,913,069)
<TOTAL-LIABILITY-AND-EQUITY> 644,688,759
<SALES> 1,202,755,479
<TOTAL-REVENUES> 1,227,076,365
<CGS> 1,093,789,290
<TOTAL-COSTS> 1,277,173,669
<OTHER-EXPENSES> 138,368,585
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,015,794
<INCOME-PRETAX> (50,097,304)
<INCOME-TAX> (14,386,462)
<INCOME-CONTINUING> (35,710,842)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,710,842)
<EPS-PRIMARY> (0.74)
<EPS-DILUTED> (0.74)
</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 26, 1997:
Reserves and
allowances deducted
from asset accounts:
Allowance for
doubtful accounts $1,504,000 $ 110,000 $ 209,000(B) $ 227,000(A) $ 1,596,000
========== ========== ========== =========== ===========
Valuation
allowance for
deferred tax
assets $4,749,000 $5,860,000(E) $ 0 $ 0 $10,609,000
========== ========== ========== =========== ===========
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
========== ========== =========== =========== ===========
</TABLE>
(A) Accounts 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 carry forwards.
(E) Increased the valuation allowance for deferred tax assets which are not
expected to be realized.
