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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 10, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO ________
COMMISSION FILE NUMBER 0-4377
---------------------------
SHONEY'S, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TENNESSEE 62-0799798
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1727 ELM HILL PIKE, NASHVILLE, TN 37210
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (615) 391-5201
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
As of June 19, 1998 there were 48,694,865 shares of Shoney's, Inc. $1
par value common stock outstanding.
===============================================
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
SHONEY'S, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
May 10, October 26,
1998 1997
------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,659,945 $ 11,851,223
Notes and accounts receivable, less allowance
for doubtful accounts of $1,353,000 in 1998
and $1,596,000 in 1997 11,834,181 11,611,369
Inventories 38,246,814 38,382,843
Other current assets 4,814,895 4,840,539
Deferred income taxes 46,524,076 38,835,385
Net assets held for disposal 24,762,475 28,021,259
-------------- --------------
Total current assets 135,842,386 133,542,618
Property, plant and equipment, at cost 790,376,126 790,076,204
Less accumulated depreciation and amortization (365,362,120) (343,645,369)
-------------- --------------
Net property, plant and equipment 425,014,006 446,430,835
Other assets:
Goodwill (net of accumulated amortization of
$4,605,000 in 1998 and $3,230,000 in 1997) 45,470,390 47,803,815
Deferred charges and other intangible assets 12,012,614 5,889,044
Other assets 8,156,340 11,022,447
-------------- --------------
Total other assets 65,639,344 64,715,306
-------------- --------------
$ 626,495,736 $ 644,688,759
============== ==============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 31,772,486 $ 34,156,943
Federal and state income taxes 112,319
Other accrued liabilities 118,068,078 110,501,665
Reserve for litigation settlement due within one year 372,961 16,010,297
Debt and capital lease obligations
due within one year 13,161,983 10,997,069
-------------- --------------
Total current liabilities 163,375,508 171,778,293
Long-term senior debt and
capital lease obligations 311,348,087 314,802,187
Zero coupon subordinated convertible debentures 108,363,659 103,612,284
Subordinated convertible debentures, net of
bond discount of $3,579,000 in 1998 and
$3,939,000 in 1997 47,984,443 47,624,146
Reserve for litigation settlement 260,676 294,672
Deferred income and other liabilities 19,613,264 18,922,137
Shareholders' deficit:
Common stock, $1 par value: authorized
200,000,000; issued 48,690,365 in 1998
and 48,568,109 in 1997 48,690,365 48,568,109
Additional paid-in capital 137,060,807 136,861,158
Accumulated deficit (210,201,073) (197,774,227)
-------------- --------------
Total shareholders' deficit (24,449,901) (12,344,960)
-------------- --------------
$ 626,495,736 $ 644,688,759
============== ==============
</TABLE>
See notes to consolidated condensed financial statements.
2
<PAGE> 3
SHONEY'S, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Twenty-eight Weeks Ended
May 10, May 11,
1998 1997
------------- --------------
<S> <C> <C>
Revenues
Net sales $ 608,079,939 $ 646,191,555
Franchise fees 7,881,276 8,027,143
Other income 4,275,261 4,480,346
-------------- --------------
620,236,476 658,699,044
Costs and expenses
Cost of sales 561,317,923 586,559,854
General and administrative expenses 46,938,916 43,267,361
Impairment write down of long-lived assets 2,593,482 17,612,067
Interest expense 26,671,863 24,567,103
-------------- --------------
Total costs and expenses 637,522,184 672,006,385
-------------- --------------
Loss before income taxes and extraordinary charge (17,285,708) (13,307,341)
Benefit from income taxes (6,274,000) (4,831,000)
-------------- --------------
Loss before extraordinary charge (11,011,708) (8,476,341)
Extraordinary charge on early extinguishment of debt,
net of income taxes of $806,000 (1,415,138)
-------------- --------------
Net loss $ (12,426,846) $ (8,476,341)
============== ==============
Earnings per common share
Basic and diluted:
Loss before extraordinary charge $ (0.23) $ (0.17)
Extraordinary charge for the early
extinguishment of debt (0.03)
-------------- --------------
Net loss $ (0.26) $ (0.17)
============== ==============
Weighted average shares outstanding
Basic and diluted 48,636,019 48,518,171
Common shares outstanding 48,690,365 48,568,109
Dividends per share NONE NONE
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE> 4
SHONEY'S, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Twelve Weeks Ended
May 10, May 11,
1998 1997
-------------- -------------
<S> <C> <C>
Revenues
Net sales $ 275,856,044 $ 289,448,554
Franchise fees 3,487,960 3,672,367
Other income 1,795,279 2,287,790
-------------- --------------
281,139,283 295,408,711
Costs and expenses
Cost of sales 251,273,174 258,285,541
General and administrative expenses 21,273,045 18,231,432
Interest expense 10,784,375 10,582,356
-------------- --------------
Total costs and expenses 283,330,594 287,099,329
-------------- --------------
Income (loss) before income taxes (2,191,311) 8,309,382
Provision for (benefit from) income taxes (795,000) 3,016,000
-------------- --------------
Net income (loss) $ (1,396,311) $ 5,293,382
============== ==============
Earnings per common share
Basic:
Net income (loss) $ (0.03) $ 0.11
============== ==============
Diluted:
Net income (loss) $ (0.03) $ 0.11
============== ==============
Weighted average shares outstanding
Basic 48,677,615 48,559,859
Diluted 48,677,615 48,588,517
Common shares outstanding 48,690,365 48,568,109
Dividends per share NONE NONE
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE> 5
SHONEY'S, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Twenty-eight Weeks Ended
May 10, May 11,
1998 1997
------------- -------------
<S> <C> <C>
Operating activities
Net loss $ (12,426,846) $ (8,476,341)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 26,157,118 29,092,194
Amortization of deferred charges and other
non-cash charges 11,064,083 7,780,671
Impairment write down of long-lived assets 2,593,482 17,612,067
Changes in operating assets and liabilities (524,523) (13,737,002)
-------------- --------------
Net cash provided by operating activities 26,863,314 32,271,589
Investing activities
Cash required for property, plant and equipment (16,481,351) (26,290,545)
Proceeds from disposal of property, plant and equipment 11,767,465 12,993,237
Cash provided by (required for) other assets 1,669,090 (99,431)
-------------- --------------
Net cash used by investing activities (3,044,796) (13,396,739)
Financing activities
Payments on long-term debt and
capital lease obligations (298,584,220) (14,523,696)
Proceeds from long-term debt 300,000,000
Net proceeds from short-term borrowings 4,062,000
Payments on litigation settlement (15,671,332) (11,321,783)
Cash required for debt issue costs (11,776,019) (252,648)
Proceeds from exercise of employee stock options 21,775 155,717
-------------- --------------
Net cash used by financing activities (26,009,796) (21,880,410)
-------------- --------------
Change in cash and cash equivalents $ (2,191,278) $ (3,005,560)
============== ==============
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE> 6
SHONEY'S, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
May 10, 1998
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q. As a result, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The Company, in
management's opinion, has included all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the results of
operations. Certain reclassifications have been made in the consolidated
condensed financial statements to conform to the 1998 presentation. Operating
results for the twelve and twenty-eight week periods ended May 10, 1998 are not
necessarily indicative of the results that may be expected for all or any
balance of the fiscal year ending October 25, 1998. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Shoney's, Inc. Annual Report on Form 10-K for the year ended October 26,
1997.
NOTE 2 - 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"), at the beginning of the first quarter of fiscal
1997. Based on a review of the Company's restaurants which had incurred
operating losses or negative cash flows during fiscal 1996 and a review of the
cash flows from individual restaurant properties rented to others ("rental
properties"), the Company determined that certain of its restaurant assets and
rental properties were impaired and recorded a loss to write them down to their
estimated fair values. The charge related to the initial adoption of SFAS 121
was $17.6 million ($11.2 million, net of tax) and is included in the statement
of operations for the twenty-eight weeks ended May 11, 1997 in the caption
titled Impairment write down of long-lived assets. Approximately $11.2 million
of the asset impairment write down related to properties held for disposal and
approximately $6.4 million related to assets held and used in the Company's
operations. The Company recorded an asset impairment charge of $36.4 million in
the fourth quarter of 1997, 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 held
for disposal. The fourth quarter 1997 impairment was the result of additional
analysis by management and a full years operating results from the restaurants
acquired from TPI Enterprises, Inc. ("TPI") in 1996. During the first quarter of
1998 the Company recorded an additional impairment loss of $2.6 million of which
$0.9 million was related to assets held and used in the Company's operations and
$1.7 million related to the adjustment of fair values of assets held for
disposal. At May 10,1998, the value of the 72 properties to be disposed of was
$24.8 million and is reflected on the balance sheet as net assets held for
disposal.
In addition to asset impairment charges, the Company also incurs certain exit
costs when the decision to close a restaurant is made, generally for the accrual
of the remaining leasehold obligations on leased units that are closed. The
Company recorded approximately $1.4 million and $2.6 million in exit costs for
the second quarter and first two quarters of 1998, respectively, associated with
the accrual of the remaining leasehold obligations on restaurants closed during
1998.
6
<PAGE> 7
NOTE 3 - EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standard No.128 ("SFAS
128") "Earnings per Share" at the beginning of the first quarter of 1998. SFAS
128 supersedes Accounting Principles Board Opinion No. 15 ("APB 15") "Earnings
per Share" and was issued to simplify the computation of earnings per share
("EPS") by replacing Primary EPS, which considers common stock 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 requires that all prior periods presented be restated.
The table below presents the computation of basic and diluted earnings (loss)
per share:
<TABLE>
<CAPTION>
Twelve weeks ended May 10, 1998 Twenty-eight weeks ended May 10, 1998
-------------------------------------------------------------------------------------------------
Income
Income (Loss) Shares Per Share (Loss) Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Loss before extraordinary $(1,396,311) 48,677,615 $(0.03) $(11,011,708) 48,636,019 $(0.23)
charge (1)
EFFECT OF DILUTIVE SECURITIES
Stock Options (2)
Convertible Debentures
DILUTED EPS
Loss before extraordinary
charge (1)(3) $(1,396,311) 48,677,615 $(0.03) $(11,011,708) 48,636,019 $(0.23)
<CAPTION>
Twelve weeks ended May 11, 1997 Twenty-eight weeks ended May 11, 1997
-------------------------------------------------------------------------------------------------
Income
Income (Loss) Shares Per Share (Loss) Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Net Income (Loss) $5,293,382 48,559,859 $ 0.11 $ (8,476,341) 48,518,171 $(0.17)
EFFECT OF DILUTIVE SECURITIES
Stock Options (2) 28,658
Convertible Debentures
DILUTED EPS
Net Income (Loss) (3) $5,293,382 48,588,517 $ 0.11 $ (8,476,341) 48,518,171 $(0.17)
</TABLE>
(1) - The twenty-eight weeks ended May 10, 1998 includes an extraordinary charge
of approximately $1.4 million or $0.03 per share related to the write off
of unamortized debt issue costs associated with refinanced debt
(See Note 5)
(2) - In addition to dilutive stock options, the dilutive effect of shares
reserved for future issuance related to certain employment agreements and
the Company's Stock Bonus Plan are included in this caption
(3) - For the twelve and twenty-eight weeks ended May 10, 1998 and the
twenty-eight weeks ended May 11, 1997 the Company reported a net loss,
therefore the consideration of any potentially dilutive shares in the
computation of diluted EPS would have been anti-dilutive
7
<PAGE> 8
As of May 10,1998, the Company had outstanding 7,135,733 options to purchase
shares at prices ranging from $3.06 to $25.51. In addition to options to
purchase shares, the Company had approximately 120,000 common shares reserved
for future distribution pursuant to certain employment agreements, and 9,750
common shares reserved for future distribution under its stock bonus plan. The
Company also has subordinated zero coupon convertible debentures and 8.25%
subordinated convertible debentures which are convertible into common stock at
the option of the debenture holder. As of May 10,1998, the Company had reserved
5,205,632 and 2,604,328 shares, respectively, related to these convertible
debentures. The zero coupon debentures are due in April 2004 and the 8.25%
debentures are due in July 2002. Since the Company reported a net loss for both
the twelve and twenty-eight weeks ended May 10, 1998, the effect of considering
these potentially dilutive securities would have been anti-dilutive.
NOTE 4 - INCOME TAXES
Income taxes for the twelve and twenty-eight week periods ended May 10,1998 and
May 11,1997 were provided based on the Company's estimate of its effective tax
rates of 36.3% for the entire respective fiscal years.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. A valuation allowance has
been established for net operating loss and tax credit carryforwards that are
not expected to be realized. The Company believes it is more likely than not
that the remaining deferred tax assets will be realized through the reversal of
existing taxable temporary differences within the carryforward period, the
carryback of existing deductible temporary differences to prior years' taxable
income or through the use of future taxable income.
NOTE 5 - SENIOR DEBT
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 line of credit ("Line of Credit"), and two term
notes of $100.0 million and $200.0 million ("Term A Note" and "Term B Note"),
respectively, due in April 2002. Initially, the credit facility provided for
interest at 2.5% over LIBOR or 1.5% over the prime rate for amounts outstanding
under the Line of Credit and Term A Note, and 3.0% over LIBOR or 2.0% over the
prime rate for Term B Note. 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 which was replaced by the $75.0
million Line of Credit. At May 10, 1998, the amounts available under the Line of
Credit were reduced by letters of credit of approximately $24.2 million
resulting in available credit under the facility of approximately $50.8 million.
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 program covering a notional amount of not less than $50.0 million and
not greater than $100.0 million within 60 days from the date of the loan
closing. The amount of the Company's debt covered by the hedge program was $80.0
million at May 10, 1998, which was comprised of two $40.0 million agreements,
for which the interest rates are fixed at approximately 6.1% plus the applicable
margin. At May 10, 1998 the interest rates on the term notes were 8.2% for Term
A Note and 8.7% for Term B Note . Based on the Company's financial leverage
covenant ratio as of May 10, 1998, the applicable interest rate margin is
expected to increase .25% on the term notes and Line of Credit as of June 24,
1998.
8
<PAGE> 9
Debt and obligations under capital leases at May 10, 1998 and October 26, 1997
consisted of the following:
<TABLE>
<CAPTION>
May 10, 1998 October 26, 1997
-------------------------------------------------------------
<S> <C> <C>
Senior debt - Line of Credit
Senior debt - reducing revolving line of credit $135,000,000
Senior debt - Term A Note $92,710,120
Senior debt - Term B Note 194,789,880
Senior secured bridge loan 72,900,000
Senior debt - taxable variable rate notes 27,650,000
Senior debt - various 44,857,523
Subordinated zero coupon debentures 108,363,659 103,612,284
Subordinated convertible debentures 47,984,443 47,624,146
Industrial revenue bonds 10,915,000 13,820,417
Notes payable to others 4,920,953 6,579,771
-------------------------------------------------------------
459,684,055 452,044,141
Obligations under capital leases 21,174,117 24,991,545
-------------------------------------------------------------
480,858,172 477,035,686
Less amounts due within one year 13,161,983 10,997,069
-------------------------------------------------------------
Amounts due after one year $467,696,189 $466,038,617
=============================================================
</TABLE>
The Company's new credit facility is secured by substantially all of the
Company's assets. The Company's debt agreements (1) require satisfaction of
certain financial ratios and tests (which become more restrictive during the
term of the credit facility); (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. At May 10,1998, the Company
was in compliance with all of its debt covenants.
Prior to the refinancing, the Company had unamortized debt issue costs of $2.2
million related to the refinanced debt. The write off of these unamortized costs
during the first quarter of 1998 resulted in an extraordinary loss, net of tax,
of approximately $1.4 million or $0.03 per common share. The Company also
incurred $1.1 million in additional interest expense to obtain waivers (for its
inability to make principal payments and comply with debt covenants) from its
predecessor lending group to facilitate the refinancing.
NOTE 6 - LITIGATION
On December 1, 1995, five current and/or former Shoney's Restaurant managers or
assistant restaurant managers filed the case of "Robert Belcher, et al. v.
Shoney's, Inc." ("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 sought to have the Court grant class
status to the case. 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
9
<PAGE> 10
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 and approximately 230 additional potential class members opted to
participate in the suit, but their notice was not received by the Court until
after the cutoff date and the Court has not yet ruled on their participation in
the lawsuit.
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 sought to have
the Court grant class status to the case. 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.
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. 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. On March 26, 1998, 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 at the Company's Captain D's concept restaurants during the three years
prior to the filing of the suit. Pursuant to Court order, the Company submitted
to the plaintiffs on April 27, 1998 a list of names and addresses of potential
plaintiffs. The parties have agreed to toll the issuance of notice, subject to
Court approval.
On April 17, 1998, five current and/or former TPI hourly and/or fluctuating work
week employees filed the case "Deborah Baum, et al. v. Shoney's, Inc. f/k/a TPI,
Inc." ("Baum") in the United States District Court for the Middle District of
Florida. TPI was the Company's largest franchisee and was acquired by the
Company in September 1996. Plaintiffs purport to represent themselves and a
class of other similarly situated former and current employees of TPI.
Specifically, plaintiffs allege that defendant failed to compensate properly
certain employees who were paid on a fluctuating work week basis, failed to
compensate employees properly at the required minimum wage, and improperly
required employees to work off the clock or attend regular meetings without pay.
Plaintiffs allege that such acts deprived plaintiffs of their rightful
compensation, including minimum wages, overtime pay, and bonus pay. Plaintiffs
are seeking class status in Baum.
By virtue of the provisional class status, in either of the Belcher cases or
Edelen, the Court could subsequently amend its decision and either reduce or
increase the scope of those individuals who are determined to be similarly
situated or determine that certification as a class is altogether unwarranted.
In all four 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 the Company's and TPI acts resulted in a
tolling of the statute of limitations. Discovery is proceeding in three of the
cases. In Belcher II and Edelen, discovery is in a preliminary stage. Discovery
is in a more advanced stage in Belcher I, but has not yet commenced in Baum.
On or about April 7, 1998, the plaintiffs filed a motion for partial summary
judgement in Belcher I. The plaintiffs moved for a summary judgement on the
issue of liability based on the Company's alleged practice and policy of making
improper deductions from the pay of its restaurant managers and assistant
managers.
10
<PAGE> 11
The Company filed a motion in response to plaintiff's motion requesting the
Court to deny or delay ruling on the plaintiffs' motion on the ground that the
motion is premature because the Company has not yet completed discovery. The
Court has not yet issued a ruling on these motions.
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 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. 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.
On August 5, 1997, a Fifth Quarter hourly employee filed the case of "Regina
Griffin v. Shoney's, Inc. d/b/a Fifth Quarter" ("Griffin") in the U.S. District
Court for the Northern District of Alabama. Plaintiff claimed the Company failed
to pay her minimum wages and overtime pay in violation of the Fair Labor
Standards Act. On February 24, 1998 the plaintiff served the Company with a
Motion for Leave to Amend Complaint with an accompanying proposed Amended
Complaint for Violation of Fair Labor Standards Act seeking to pursue the case
as a class action on behalf of plaintiff and "all persons who have performed the
services of waiter or waitress for Shoney's (d/b/a Fifth Quarter)". The Company
objected to the proposed amendment and, on March 16, 1998, the court denied
plaintiff's Motion for Leave to Amend Complaint. On May 18, 1998 the Court
allowed plaintiff to amend her complaint.
Management believes it has substantial defenses to the class action claims
plaintiff is seeking to assert in Griffin and would vigorously defend such
claims. However, neither the likelihood of an unfavorable outcome nor the amount
of ultimate liability, if any, with respect to these claims can be determined at
this time. Accordingly, no provision for any potential liability has been made
in the consolidated financial statements.
In addition to the litigation described in the preceding paragraphs, the Company
is a party to other legal proceedings incidental to its business. In the opinion
of management, based upon information currently available, the ultimate
liability with respect to these actions will not materially affect the operating
results or the financial position of the Company.
NOTE 7 - RESERVE FOR LITIGATION SETTLEMENT
In January 1993, court approval was granted for a consent decree settling
litigation against the Company and a former chairman. The litigation was
certified a class, under Title VII of the Civil Rights Act of 1964, consisting
of black restaurant employees, to represent claims of alleged discriminatory
failure to hire, harassment, failure to promote, discharge and retaliation. This
class consisted only of employees from the Company's "Shoney's" and "Captain
D's" restaurant concepts and the class period was from February 4, 1988 through
April 19, 1991.
Under the consent decree, the Company was required to pay $105 million to settle
these claims. The settlement covered all of the Company's restaurant concepts
and the corporate offices from February 4, 1985 through November 3, 1992. In
addition, the Company agreed to pay $25.5 million in plaintiffs' attorneys fees
and an estimated $2.3 million in applicable payroll taxes and administrative
costs. The settlement resulted in a charge of $77.2 million, net of insurance
recoveries and applicable taxes, in the fourth quarter of 1992. The Company made
its final material payment under the consent decree on March 1, 1998 in the
amount of $10.0 million.
11
<PAGE> 12
NOTE 8 - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
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 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, and management
does not anticipate its adoption will 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 Standard 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.
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.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position No. 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 is effective
for fiscal years beginning after December 15, 1998 and will require the
capitalization of certain costs incurred in connection with developing or
obtaining software for internal use after the date of adoption. The Company is
currently evaluating the expected impact of adopting of SOP 98-1, however,
management does not anticipate that its adoption will have a material effect on
the results of operations or financial position of the Company.
In May 1998, the AICPA issued Statement of Position 98-5 "Reporting on the Costs
of Startup Activities" ("SOP 98-5"). SOP 98-5 requires companies to expense the
costs of startup activities (including organization costs) as incurred. The
Company's present accounting policy is to expense costs associated with startup
activities systematically over a period not to exceed twelve months. SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. Management does
not anticipate that the adoption of SOP 98-5 will have a material effect on the
Company's results of operations.
12
<PAGE> 13
ITEM 2. MANAGEMENT's DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated results of operations and financial condition. The discussion
should be read in conjunction with the consolidated condensed financial
statements and notes thereto. The second quarter and first two quarters of
fiscal 1998 and 1997 covered periods of twelve and twenty-eight weeks,
respectively. All references are to fiscal years unless otherwise noted. The
forward-looking statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") relating to certain
matters, which reflect management's best judgment based on factors currently
known, involve risks and uncertainties, including the ability of management to
implement successfully its strategy for improving Shoney's Restaurants
performance, adequacy of management personnel resources, shortages of restaurant
labor, commodity price increases, product shortages, adverse general economic
conditions, turnover and a variety of other factors. Actual results and
experience could differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements as a result
of a number of factors, including but not limited to those discussed in MD&A.
Forward-looking information provided by the Company pursuant to the safe harbor
established under the Private Securities Litigation Reform Act of 1995 should be
evaluated in the context of these factors. In addition, the Company disclaims
any intent or obligation to update these forward-looking statements.
RESULTS OF OPERATIONS
REVENUES
Revenues for the second quarter of 1998 declined to $281.1 million, or 4.8% as
compared to revenues of $295.4 million in the second quarter of 1997. For the
first two quarters of 1998, revenues decreased 5.8% to $620.2 million as
compared to the same period in 1997. The following table summarizes the
components of the decline in revenues:
<TABLE>
<CAPTION>
(In Millions) Twelve weeks ending Twenty-eight weeks ending
May 10, 1998 May 10, 1998
-------------------------------------------------------------
<S> <C> <C>
Restaurant Revenue $(10.9) $(32.6)
Distribution and Manufacturing and
Other Sales (2.7) (5.6)
Franchise Fees (0.2) (0.1)
Other Income (0.5) (0.2)
-------------------------------------------------------------
$(14.3) $(38.5)
=============================================================
</TABLE>
The decline in revenues during the second quarter and the first two quarters of
1998 was principally due to a net decline in the number of restaurants in
operation and negative overall comparable store sales. Since the beginning of
the first quarter of 1997 there has been a net decline of 100 Company-owned
restaurants in operation. The table below presents comparable store sales for
Company-owned restaurants for the second quarter and first two quarters of 1998
by restaurant concept:
13
<PAGE> 14
<TABLE>
<CAPTION>
Twelve weeks ended May 10, 1998
-------------------------------------------------------------------------------------
Comparable Store Sales Menu Price Real Change
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shoney's Restaurants (4.1)% 0.9% (5.0)%
Captain D's 8.9 2.2 6.7
Fifth Quarter (7.1) 0.3 (7.4)
Pargo's (8.7) 0.7 (9.4)
-------------------------------------------------------------------------------------
All Concepts (0.5)% 1.3% (1.8)%
=====================================================================================
<CAPTION>
Twenty-eight weeks ended May 10, 1998
-------------------------------------------------------------------------------------
Comparable Store Sales Menu Price Real Change
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shoney's Restaurants (4.0)% 0.1% (4.1)%
Captain D's 5.2 1.9 3.3
Fifth Quarter (5.6) 0.1 (5.7)
Pargo's (6.0) 0.3 (6.3)
-------------------------------------------------------------------------------------
All Concepts (1.4)% 0.6% (2.0)%
=====================================================================================
</TABLE>
As reflected in the table above, the Company's Shoney's Restaurants continue to
experience negative overall comparable store sales. 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 re-establish Shoney's
Restaurants as a place for great-tasting food and exceptional customer service.
The Company has enhanced its food specifications on the majority of its menu
items. Management also plans to allocate a higher percentage of planned capital
expenditures (when compared to the prior year) to kitchen equipment and other
related enhancements to support higher quality food preparation. 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 currently testing a Test Menu ("Test Menu") in 51 Company-owned restaurants
which generally consists of the enhanced versions of items from the current
menu; However there are some material differences, including the following:
- The Test Menu covers all day parts (i.e. breakfast, lunch
and dinner) as compared to the separate menu for each day
part presently in use.
- The Test Menu has ala carte pricing for side items (e.g.,
french fries, onion rings) and the soup, salad and fruit bar
on sandwich items and entrees.
- The senior citizens and children's menus are replaced with
a value menu section, which feature smaller portions and
lower prices, which are available to all customers.
The effect the Test Menu will have on the average guest check will vary
depending upon the proportion of customers who choose to "add-on" a side item or
the soup, salad and fruit bar. Management believes that the Test Menu will
increase the concept's average guest check; however, there could be offsetting
declines in customer counts as the more price sensitive portion of the Company's
current customer base may choose a less expensive alternative. Management
anticipates assessing data from the utilization of the Test Menu and its
anticipated effect on comparable store sales before final determination on its
Company-wide implementation.
14
<PAGE> 15
In addition to higher quality menu items, the Company has introduced an enhanced
version of its popular breakfast bar featuring a more attractive presentation
and improved food quality through brand identification with certain breakfast
items (such as Jimmy Dean(R) sausage, Bryan(R) bacon, and Pillsbury(R) biscuits,
etc.). The enhanced breakfast bar has been introduced to essentially all of the
Company-owned Shoney's Restaurants and results for the second quarter show an
increase in comparable store sales despite a decline in customer traffic during
the breakfast day part. Management attributes a portion of the decline in
customer traffic at the breakfast day part to increased customer traffic in the
comparable 1997 period due to discount promotions on the breakfast bar in the
second quarter of 1997.
The back-to-basics initiatives also focus on improving the training function at
the Shoney's Restaurants to train restaurant-level personnel on delivering
high-quality food with exceptional customer service. During the first quarter of
1998, the Shoney's Restaurants training function was realigned by making
operating management responsible for all training at the restaurants and by
introducing a long term incentive bonus program for restaurant general managers.
Additionally, the Company has invested in additional multi-unit supervisory
personnel which is expected to result in improved training, operational
execution and reduced employee turnover.
The Company's Captain D's restaurants reported comparable store sales increases
for the second quarter and first two quarters of 1998. Management attributes the
comparable store sales gains during the first two quarters of the year to
increased marketing during Lent and a successful catfish and shrimp promotion
during and after Lent.
The following table summarizes the change in number of restaurants operated by
the Company and its franchisees during the first two quarters of 1998 and 1997:
<TABLE>
<CAPTION>
The twenty-eight weeks ended
------------------------------------------------------------------
May 10, 1998 May 11, 1997
------------------------------------------------------------------
<S> <C> <C>
Company-owned restaurants opened (1) 0 9
Company-owned restaurants closed (36) (59)
Franchised restaurants opened 11 4
Franchised restaurants closed (18) (16)
------------------------------------------------------------------
(43) (62)
==================================================================
</TABLE>
(1) The first two quarters of 1997 included 5 units acquired from franchisees.
Distribution and manufacturing revenues declined $2.7 million during the second
quarter of 1998 compared to the second quarter of 1997 and declined $5.6 million
for the first two quarters of 1998 as compared to the same period in 1997. The
decline in distribution and manufacturing revenues is principally due to a
decline in the number of franchised restaurants in operation, a decline in the
number of customers serviced, and a decline in the comparable store sales of
franchised Shoney's Restaurants.
15
<PAGE> 16
Franchise revenues declined approximately $184,000 during the second quarter of
1998 and approximately $146,000 for the first two quarters of 1998, as compared
to the same periods last year. The decline in franchise fee income is due
principally to fewer franchised restaurants in operation and lower comparable
store sales at franchised Shoney's Restaurants.
Other income decreased approximately $493,000 during the second quarter of 1998
and approximately $205,000 for the first two quarters of 1998 as compared to the
same periods in 1997. The decline in other income during the second quarter of
1998 was due principally to reduced net gains on asset sales. The decline for
the first two quarters of 1998 was due principally to reduced net gains on asset
sales and lower rental income. The principal components of other income for the
second quarter of 1998 were net gains on asset sales ($727,000), other revenue
(consisting principally of fee income from insurance subsidiaries, $564,000) and
rental income ($350,000). For the first two quarters of 1998 the principal
components of other income were net gains on asset sales ($1.9 million), other
revenue (consisting principally of fee income from insurance subsidiaries, $1.1
million), and rental income ($721,000).
COSTS AND EXPENSES
Costs of sales declined during the second quarter and first two quarters of 1998
compared to the same periods in 1997 principally as a result of a decline in
restaurant sales. Cost of sales as a percentage of revenues increased for the
second quarter of 1998 to 89.4% compared to 87.4% for the same quarter of 1997.
Cost of sales as a percentage of revenues was 90.5% for the first two quarters
of 1998 compared to 89.0% for the same period in 1997. Food and supplies costs
as a percentage of total revenues declined .30% and .10%, respectively, to 38.6%
and 38.8%, respectively, for the second quarter and first two quarters of 1998.
Food and supplies costs at the restaurant level (i.e. restaurant food and
supplies costs as a percentage of restaurant revenues) were basically unchanged
when compared to the prior periods. The decline in food and supplies costs as a
percentage of revenues can be attributed to lower distribution and manufacturing
revenues as compared to total revenues in the second quarter and first two
quarters of 1998. Distribution and manufacturing revenues have a higher
percentage of food costs when compared to the Company's restaurant operations,
therefore, as the proportion of distribution and manufacturing revenues to total
revenues declines, consolidated food and supplies costs as a percentage of
revenues declines.
Restaurant labor increased as a percentage of total revenues for both the second
quarter and first two quarters of 1998 because of higher wages for restaurant
employees resulting from tight labor market conditions in the majority of
markets in which the Company operates and increases in staffing levels at the
Company's Shoney's Restaurants in an attempt to provide better service. This
increase in staffing in the Shoney's Restaurants is expected to continue for the
remainder of the fiscal year. Restaurant labor as a percentage of revenues was
26.4% for the second quarter of 1998, up .90% as compared to the second quarter
of 1997. For the first two quarters of 1998, restaurant labor as a percentage of
revenues was 26.7%, up .60% as compared to the same period in 1997.
Management has a new menu in test in 51 Shoney's Restaurants. The preliminary
results in the restaurants with the Test Menu reflect a trend of lower food
costs (as a percentage of sales) and higher labor costs (as a percentage of
sales). Management attributes the lower food costs to the increased check
average (primarily from the ala carte pricing) and less reliance on all you can
eat food bars (with the exception of the breakfast bar). The increased labor
costs are attributed to a increased effort to enhance the service provided in
these restaurants. These trends are preliminary and accordingly there can be no
assurances they will continue in the future or in the event the Test Menu is
placed in additional restaurants.
Operating expenses as a percentage of revenues increased 1.40% to 24.4% for the
second quarter of 1998 and increased 1.00% to 25.0% for the first two quarters
of 1998, as compared to the same periods in 1997. The increase in operating
expenses was due principally to increased advertising costs and higher rent
16
<PAGE> 17
expense, due in large part to the accrual of $2.6 million in exit costs
associated with the closure of leased restaurants during the first two quarters
of 1998.
General and administrative expenses increased $3.0 million and $3.7 million in
the second quarter and first two quarters of 1998, respectively. General and
administrative expenses as a percentage of revenues increased from 6.2% in the
second quarter of 1997 to 7.6% in the second quarter of 1998 and from 6.6% for
the first two quarters of 1997 to 7.6% for the first two quarters of 1998. The
increase in general and administrative expenses was principally due to increases
in salary and related expenses and professional fees. The increase in salary and
related expenses was due in large part to an increase in severance and related
expenses associated with the termination or realignment of certain executives
during the first two quarters of 1998, which totaled $2.7 million.
Interest expense for the second quarter of 1998 increased $202,000, or 1.9%, and
$2.1 million or 8.6% for the first two quarters of 1998 as compared to the same
periods last year. The increase in interest expense is due principally to higher
rates on the refinanced debt, a $1.1 million fee to obtain waivers (resulting
from the Company's inability to make principal payments and comply with debt
covenants) from its former lending group to facilitate the refinancing, and
higher amortization of deferred financing costs related to the new debt
structure. The Company refinanced approximately $281.0 million of its senior
debt in December 1997 (see Liquidity and Capital Resources). Interest rates on
the new credit facility are generally 50 to 100 basis points higher than the
refinanced debt. The Company expects the increased costs to be incurred in 1998
as a result of higher interest rates will be partially offset by a reduction of
debt outstanding from proceeds from the sale of surplus restaurant properties
and other real estate. During the first quarter of 1998, the Company expensed
unamortized costs of $2.2 million related to the refinanced debt, which resulted
in an extraordinary loss, net of tax, of approximately $1.4 million (or $.03 per
common share outstanding).
The Company incurred asset impairment charges of $2.6 million for the first two
quarters of 1998 compared to $17.6 million for the first two quarters of 1997.
The decline in asset impairment charges is due to the fact that the first
quarter of 1997 reflects the initial adoption of Statement of Financial
Accounting Standard No. 121 "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of" which changed the method by which the
Company measures asset impairments. Asset impairment charges incurred during the
first quarter of 1998 are the result of additional analysis and the reassessment
of management's intentions as to the future disposition of assets. The Company
recorded no asset impairment charges during the second quarter of 1998 or 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has met its liquidity requirements with cash provided
by operating activities supplemented by external borrowings from lending
institutions. During the first two quarters of 1998, cash provided by operating
activities was $26.9 million, a decrease of $5.4 million as compared to the
first two quarters of 1997. The decline in cash provided by operating activities
is primarily due to a decline in the profitability of the Company's restaurant
operations, particularly the Shoney's Restaurant division, partially offset by
decreased funding requirements for operating assets and liabilities.
Cash used by investing activities during the first two quarters of 1998 totaled
$3.0 million as compared to cash used by investing activities of $13.4 million
in the same period for 1997. The decline in cash used by investing activities
was due principally to a reduction in capital spending for property, plant, and
equipment.
17
<PAGE> 18
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
had originally 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 invest its capital on
improvements to existing operations. Capital expenditures totaled $16.6 million
for the first two quarters of 1998.
During 1997, the Company closed 75 under performing restaurants. These
properties, as well as real estate from prior restaurant closings and other
surplus properties and leasehold interests, are being actively marketed. The
Company's loan agreements require that net proceeds from asset disposals be
applied to reduce its senior debt. The Company has approximately 113 properties
which were being marketed for sale. As noted above, the Company closed 36
restaurants during the first two quarters of 1998. Proceeds from asset disposals
were $11.8 million for the first two quarters of 1998 compared to $13.0 million
for the first two quarters of 1997.
During the first two quarters of 1998, the Company's cash used by financing
activities was $26.0 million compared with cash used by financing activities of
$21.9 million for the same period in 1997. Significant financing activities for
the first two quarters of 1998 included the refinancing of the Company's senior
debt which provided cash of $300.0 million, of which $280.4 million was used to
retire the refinanced debt, $11.8 million was used to fund debt issue costs on
the new debt facility, and $7.8 million was used for additional working capital
and payments on long term debt and capital lease obligations of $18.2 million.
The Company also made payments of $15.7 million on its litigation settlement,
which represented the Company's final material payment under the settlement.
Significant financing activities during the first two quarters of 1997 included
payments on long-term debt and capital lease obligations of $14.5 million and
payments on the Company's litigation settlement of $11.3 million.
The Company completed a refinancing of its senior debt on December 2, 1997. The
new $375.0 million credit facility consists of a $75.0 million revolving line of
credit ("Line of Credit") and two term notes of $100.0 million ("Term A Note")
and $200.0 million ("Term B Note"), respectively, due in 2002. The term notes
replace the Company's reducing revolving credit facility, the senior secured
bridge loan which was obtained in 1996 to provide financing for the acquisition
of substantially all the assets of TPI, and a series of mortgage financings. The
new debt facility provides the Company with additional liquidity and a debt
amortization schedule which better supports the Company's business improvement
plans.
The Company had $92.7 million and $194.8 million outstanding under Term A Note
and Term B Note, respectively, and had no amounts outstanding under the Line of
Credit at May 10, 1998. The amounts available under the Line of Credit are
reduced by letters of credit of approximately $24.2 million resulting in
available credit under the facility of approximately $50.8 million at May 10,
1998. At May 10, 1998, the Company had cash and cash equivalents of
approximately $9.7 million.
The Company's senior debt agreements require satisfaction of certain financial
as well as other affirmative and negative covenants which become more
restrictive in the fourth quarter of 1998 and during 1999. Based on forecasted
operating trends based primarily on current operating results and anticipated
levels of asset sales, management believes that the Company will be in
compliance with its financial covenants during the third quarter of 1998.
Management has requested and received approval from its lending group for
covenant modifications in the fourth quarter of 1998 and the first quarter of
1999 that either maintain covenant ratios at existing levels or reduce the
restrictions. The financial covenant modifications were requested because of
lower than anticipated levels of sales of assets held for disposal and lower
than anticipated earnings from restaurant operations. The Company currently
believes it will be in compliance with the covenants as modified.
18
<PAGE> 19
The Company is a defendant in three lawsuits which have been provisionally
certified as class actions and which allege the Company violated certain
provisions of the Fair Labor Standards Act. Discovery is proceeding in all three
of those cases. The Company is a defendant in a fourth action which was recently
filed and seeks class action status. Discovery in the fourth case, which was
filed in April 1998, 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 potential liability has been
accrued in the financial statements. In the event of an unfavorable outcome in
these cases that results in a material award for the plaintiffs, the Company's
financial position, results of operation 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, nor does
management believe that future costs will have a material impact on the
Company's future results of operations.
19
<PAGE> 20
Part II Other Information
ITEM 1 - LEGAL PROCEEDINGS
Item 3 of the Company's Annual Report on Form 10-K, filed with the Commission on
January 23, 1998, is incorporated herein by this reference. See also Note 6 to
the Notes to Consolidated Condensed Financial Statements at pages 9 through 11
of this Quarterly Report on Form 10-Q.
ITEM 2 - CHANGES IN SECURITIES
Effective April 20, 1998, the Company and Harris Trust and Savings Bank amended
the Amended and Restated Rights Agreement (the "Rights Agreement"), dated as of
May 25, 1994, as amended on April 18, 1995 and June 14, 1996, between the
Company and Harris Trust and Savings Bank, as Rights Agent. The amendment
amends the definition of "Acquiring Person" in the Rights Agreement (i) to
increase the beneficial ownership required to qualify as an Acquiring Person
from 10% to 20% or more of the outstanding shares of Common Stock and (ii) to
exclude from such definition the Company, any wholly-owned Subsidiary of the
Company and any employee stock ownership or other employee benefit plan of the
Company or a wholly-owned Subsidiary of the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
(a) The annual meeting of the Company's shareholders (the "Annual Meeting") was
held on April 2, 1998. At that time, there were present, in person or by proxy,
42,527,334 shares of the Company's common stock.
(b) At the meeting, two items were submitted to a vote of shareholders: (1) the
election of directors; and (2) a proposal to authorize and approve the Shoney's,
Inc. 1998 Stock Plan. Proxies for the Annual Meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934. There was no
solicitation in opposition to management's nominees for director as listed in
the proxy statement and all such nominees were elected.
(c) The results of voting for the election of directors at the Annual Meeting
were as follows:
<TABLE>
<CAPTION>
Nominee For Withheld
------- ---------- ---------
<S> <C> <C>
J. Michael Bodnar 42,069,064 458,270
C. Stephen Lynn 37,767,779 4,759,555
Jeffry F. Schoenbaum 42,131,306 396,028
Raymond D. Schoenbaum 42,069,430 457,904
William A. Schwartz 42,103,678 423,656
Carroll D. Shanks 42,061,683 465,651
Felker W. Ward, Jr. 42,086,312 441,022
William M. Wilson 42,084,357 442,977
James D. Yancey 42,102,231 425,103
</TABLE>
20
<PAGE> 21
There were no abstentions or broker non-votes in the election of directors.
The results of voting for the approval of the 1998 Stock Plan were as follows:
<TABLE>
<CAPTION>
For Against Withheld
---------- --------- ---------
<S> <C> <C> <C>
1998 Stock Plan proposal 39,925,596 1,819,474 782,264
</TABLE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) In accordance with the provisions of Item 601 of Regulation S-K, the
following have been furnished as Exhibits to this quarterly report on Form 10-Q:
3.2,4.2 Restated Bylaws of Shoney's, Inc.
10.1 Severance Agreement and Release dated as of April 12, 1998,
between the Company and Robert M. Langford.
10.2 Shoney's, Inc. 1998 Stock Plan.
27 Financial Data Schedule (For SEC Use Only)
(b) On April 20, 1998, the Company filed a Current Report on Form 8-K,
reporting under Item 5 thereof an amendment to the Company's shareholder
rights plan as described in Item 2 above.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized both on behalf of the registrant and in his
capacity as principal financial officer of the registrant.
Date: June 24, 1998 By: /s/ V. Michael Payne
-------------------------------------
V. Michael Payne
Senior Vice President and Controller,
Principal Financial and Chief
Accounting Officer
22
<PAGE> 1
Exhibit 3(ii)
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 or her last address of record
with the Corporation, not less than ten (10) days nor more than two (2) months
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. Notice of
any special meeting 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 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, the required majority of the outstanding
shares of stock entitled to vote 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. Notice of Nominations. Nominations for the election of
directors may be made by the Board of Directors or a committee appointed by the
Board of Directors authorized to make such nominations or by any shareholder
entitled to vote in the election of Directors generally. Any such shareholder
nomination may be made, however, only if written notice of such nomination has
been given, either by personal delivery or the United States mail, postage
prepaid, to the Secretary of the Corporation not later than (a) with respect to
an election to be held at an annual meeting of shareholders, sixty days in
advance of the anniversary date of the proxy
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statement for the previous year's annual meeting, and (b) with respect to an
election to be held at a special meeting of shareholders for the election of
Directors called other than by written request of a shareholder, the close of
business on the tenth business day following the date on which notice of such
meeting is first given to shareholders, and (c) in the case of a special meeting
of shareholders duly called upon the written request of a shareholder to fill a
vacancy or vacancies (then existing or proposed to be created by removal at such
meeting), within ten business days of such written request. In the case of any
nomination by the Board of Directors or a committee appointed by the Board of
Directors authorized to make such nominations, compliance with the proxy rules
of the Securities and Exchange Commission shall constitute compliance with the
notice provisions of the preceding sentence.
In the case of any nomination by a shareholder, each such notice shall
set forth: (a) as to each person whom the shareholder proposes to nominate for
election or re-election as a director, (i) the name, age, business address, and
residence address of such person, (ii) the principal occupation or employment of
such person, (iii) the class and number of shares of the Corporation which are
beneficially owned by such person, and (iv) any other information relating to
such person that is required to be disclosed in solicitations of proxies with
respect to nominees for election as directors, pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (including without limitation
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director, if elected); and (b) as to the shareholder giving
the notice (i) the name and address, as they appear on the Corporation's books,
of such shareholder, and (ii) the class and number of shares of the Corporation
which are beneficially owned by such shareholder; and (c) a description of all
arrangements or understandings or material interests between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder. The presiding officer of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedure.
Section 7. Notice of New Business. At an annual meeting of the
shareholders only such new business shall be conducted, and only such proposals
shall be acted upon, as have been properly brought before the meeting. To be
properly brought before the annual meeting such new business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (b) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (c) otherwise
properly brought before the meeting by a shareholder. For a proposal to be
properly brought before an annual meeting by a shareholder, the shareholder must
have given timely notice thereof in writing to the Secretary of the Corporation
and the proposal and the shareholder must comply with Rule 14a-8 under the
Securities Exchange Act of 1934. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation within the time limits specified by Rule 14a-8.
A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (a) a brief
description of the proposal desired to be
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<PAGE> 4
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the shareholder proposing such business, (c) the class
and number of shares of the Corporation which are beneficially owned by the
shareholder, and (d) any material interest of the shareholder in such proposal.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the procedures
set forth in this Section 7. The presiding officer of the meeting shall, if the
facts warrant, determine and declare to the meeting that new business or any
shareholder proposal was not properly brought before the meeting in accordance
with the provisions of this Section 7, and if he or she should so determine, he
or she shall so declare to the meeting and any such business or proposal not
properly brought before the meeting shall not be acted upon at the meeting. This
provision shall not prevent the consideration and approval or disapproval at the
annual meeting of reports of officers, directors and committees, but in
connection with such reports no new business shall be acted upon at such annual
meeting unless stated and filed as herein provided.
Section 8. Inspectors of Election; Opening and Closing the Polls. The
Board of Directors by resolution shall appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives, to act at the meetings of shareholders and make a written
report thereof. One or more persons may be designated as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate has been
appointed to act or is able to act at a meeting of shareholders, the Chairman of
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before discharging his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall have the
duties prescribed by law.
The Chairman of the meeting shall fix and announce at the meeting the
date and time of the opening and the closing of the polls for each matter upon
which the shareholders will vote at a meeting.
ARTICLE III
DIRECTORS
Section 1. Number and Qualifications. The business and affairs of the
Corporation shall be managed under the direction of 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 residents of Tennessee or shareholders of the Corporation.
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<PAGE> 5
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 6 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 by the shares entitled to vote
in the election at a meeting at which a quorum is present. 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 dates, 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 any two Directors on at least
twenty-four (24) hours notice of the date, time, place and purpose of the
meeting 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, or his or her participation in, a meeting shall constitute a waiver
of notice thereof unless the Director at the beginning of the meeting (or
promptly upon his or her arrival) objects to holding the meeting or transacting
business at the meeting and does not thereafter vote for or assent to action
taken at the 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 and Voting. A majority of the total number of
Directors then in office immediately before the meeting shall constitute a
quorum for the transaction of business. The vote or action of a majority of the
Directors present at any meeting at which a quorum is present shall decide any
matter that may come properly 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. Action taken by consent shall be effective when the
last Director signs the consent unless the consent specifies a later effective
date.
Section 7. Vacancies. If a vacancy occurs on the Board of Directors,
including a vacancy resulting from an increase in the number of Directors or a
vacancy resulting from the removal of a Director with or without cause, either
the shareholders or the Board of Directors may fill such vacancy. If the vacancy
is filled by the shareholders, it shall be filled by a plurality of the votes
cast at a meeting at which a quorum is present. If the Directors remaining in
office
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constitute fewer than a quorum of the Board of Directors, they may fill such
vacancy by the affirmative vote of a majority of all the Directors remaining in
office.
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 at a
meeting called for the purpose of removing the Director. Any Director may resign
at any time by delivering written notice to the Board of Directors or the
President. A resignation is effective when the notice is delivered unless the
notice specifies a later effective date.
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. All members of a committee
which exercises the powers of the Board of Directors must be members of the
Board of Directors and shall serve at the pleasure of the Board of Directors.
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 other
communication by which all Directors participating in the meeting can
simultaneously hear each other, and participation in a meeting pursuant to such
means shall constitute presence in person at such meeting.
Section 11. Compensation. The Directors shall receive compensation for
their services as Directors, said sum to be fixed by proper resolution of the
Board of Directors, and said compensation may include a sum for expenses of
attending the meetings of the Board of Directors. A Director may serve the
Corporation in a capacity other than that of a Director and receive compensation
for services rendered in such other capacity.
Section 12. Access to Information. Each member of the Board of
Directors shall be entitled to receive promptly upon request all information
regarding the Corporation which such Director requests.
ARTICLE IV
OFFICERS
Section 1. Designation. The officers of the Corporation shall be a
President, a Secretary and such other officers as may from time to time be
appointed by the Board of Directors or the Chief Executive Officer. The Chief
Executive Officer may appoint any officer or assistant officer other than one
who is an "executive officer" for purposes of Item 401(b) of Regulation S-K
promulgated under the federal securities laws. Any Vice President may be
designated as Executive Vice President or Senior Vice President or such other
title as the Board or the Chief Executive
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Officer may determine. Any two or more of such offices may be held by the same
person except the offices of President and Secretary. Each officer shall have
the authority, and shall perform the duties, prescribed by the Board of
Directors or the Chief Executive Officer.
Section 2. 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 or her successor has been elected or
appointed and qualified. An officer may resign at any time by delivering written
notice to the Corporation and such notice is effective when delivered unless the
notice specifies a later effective date.
Section 3. 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 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 of Directors or the Chief Executive Officer.
ARTICLE V
SHARES
Section 1. Certificates. Some or all shares of the Corporation may be
issued without certificates or may 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
or President and the Secretary or by any two other officers of the Corporation
designated by the Board of Directors.
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 or her 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.
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<PAGE> 8
Section 4. Loss of Certificates. In case of the loss, mutilation or
destruction of a certificate representing shares of the Corporation, a duplicate
certificate may be issued on such terms as the Board of Directors shall
prescribe.
Section 5. Transfer Agent, Registrar. The Board of Directors may
appoint a transfer agent or agents and/or a registrar, and a dividend disbursing
agent for the Corporation.
ARTICLE VI
SEAL
Section 1. Authority to Adopt. The Corporation may have a seal in such
form as the Board of Directors may adopt, and the Board of Directors may from
time to time change the form of the seal of the Corporation.
Section 2. Scroll Seal. In the event the Board shall not have adopted a
seal or if it is inconvenient to use the adopted seal at any time, an authorized
signature made in the name of and on behalf of the Corporation followed by the
word "Seal" enclosed in parentheses or scroll shall be deemed the seal of the
Corporation.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall end on the last Sunday of
October of each year, but the Board of Directors may from time to time change
the fiscal year of the Corporation.
ARTICLE VIII
DISTRIBUTIONS
The Board of Directors may, from time to time, declare, and the
Corporation may pay, distributions on its outstanding shares of capital stock in
the manner and upon the terms and conditions provided by applicable law. The
record date for the determination of shareholders entitled to receive the
payment of any distribution shall be determined by the Board of Directors,
subject to the rules of any exchange or trading market on which the
Corporation's Common Stock is then traded.
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<PAGE> 9
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 or she 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 or her in connection with such action, suit or proceeding to the maximum
extent permitted by, and in the manner provided by, the Corporation's charter
and the laws of the State of Tennessee, both as now in effect and as hereafter
adopted. 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. The Board of Directors
may adopt new bylaws and may amend or repeal any or all of 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. Unless
otherwise prohibited by law or the Corporation's charter, 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.
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<PAGE> 1
Exhibit 10.1
SEVERANCE AGREEMENT AND RELEASE
This Severance Agreement and Release is made this 12th day of April,
1998, by and between Robert M. Langford ("Employee") and Shoney's, Inc., a
Tennessee corporation (the "Company"). Terms used herein without definition
shall have the meanings set forth in that certain Employment Agreement, dated as
of November 1, 1996, by and between Employee and the Company (the "Employment
Agreement").
WHEREAS, Employee and the Company are parties to the Employment
Agreement;
WHEREAS, Employee has been employed by the Company since October 16,
1995 and has rendered valuable services to the Company;
WHEREAS, Employee is employed as the Senior Executive Vice President
and Chief Operating 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 April 12, 1998
(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 $1,022,262. Of the $1,022,262 payable hereunder, $444,462 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 regard to the extent of such
Company ______ (Initial Here)
Employee ______
<PAGE> 2
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 as of the Effective Date.
5. At any time within fourteen (14) days of the Effective Date, Employee may by
written notice to the Company elect to purchase the Company vehicle currently
provided to Employee at its 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. 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.
9. As conditions of the Company's performance of its obligations arising under
this Agreement, Employee agrees that he:
(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;
(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
Company ______ (Initial Here)
Employee ______
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<PAGE> 3
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; and
(d) until October 27, 1999, Employee will not, directly or indirectly,
either for himself or any other person or entity, (i) induce or attempt to
induce any employee of the Company to leave the employ of the Company, (ii) in
any way interfere with the relationship between the Company and any employee of
the Company, (iii) employ any person (with the exception of hourly employees at
the restaurant level) who has been an employee of Employer unless that person
has ceased to be an employee of Employer for at least six months without the
Company's prior written consent, (iv) induce or attempt to induce any customer,
supplier, licensee, franchisee or business relation of the Company to cease
doing business with the Company, or in any way interfere with the relationship
between any customer, supplier, licensee, franchisee, or business relation of
the Company. Employee also agrees that, in the event he directly and knowingly
breaches this paragraph 9(d), Employee will forfeit his right to receive further
payment under paragraph 2 and will pay expenses incurred by the Company in
enforcing this paragraph 9(d).
10. 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 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
Company ______ (Initial Here)
Employee ______
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<PAGE> 4
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.
11. 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.
12. 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.
13. 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 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.
Company ______ (Initial Here)
Employee ______
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<PAGE> 5
14. 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.
15. 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.
16. 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.
17. 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.
18. 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.
19. 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.
20. All notices and other communications provided for under or pursuant to this
Agreement shall be in writing (including facsimile communication) and addressed
as follows:
If to the Company: If to the Employee:
Shoney's, Inc. ROBERT M. LANGFORD
Attention: Secretary 141 Lake Valley
1727 Elm Hill Pike Hendersonville, TN 37075
Nashville, Tennessee 37217
facsimile number: (615) 231-2734
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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/ F.E. McDaniel, Sr.
----------------------------------
/s/ Grace N. Burdette Title: Chief Administrative Officer
- --------------------------------- -------------------------------
-------------------------------
/s/ Grace N. Burdette /s/ Robert M. Langford
- --------------------------------- ---------------------------------------
Robert M. Langford
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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 7 day of April, 1998.
/s/ Robert M. Langford
---------------------------------------
Robert M. Langford
7
<PAGE> 1
Exhibit 10.2
SHONEY'S, INC.
1998 STOCK PLAN
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of the Shoney's, Inc. 1998 Stock Plan (the "Plan") is to
enable Shoney's, Inc. (the "Company") to attract, retain, and reward key
employees of the Company and its Subsidiaries and Affiliates, and directors who
are not also employees of the Company, and to strengthen the mutuality of
interests between such key employees and directors and the shareholders of the
Company by awarding such key employees and directors stock incentives and/or
other equity interests or equity-based incentives in the Company. The provisions
of the Plan are intended to satisfy the requirements of Section 16(b) of the
Exchange Act, and shall be interpreted in a manner consistent with the
requirements thereof, as now or hereafter construed, interpreted, and applied by
regulations, rulings, and cases. The Plan is also designed so that awards
granted hereunder intended to comply with the requirements for "performance
based" compensation under Section 162(m) of the Code may comply with such
requirements. The creation of the Plan shall not diminish or prejudice other
compensation programs approved from time to time by the Board.
For purposes of the Plan, the following terms shall be defined as set
forth below:
A. "Affiliate" means any entity other than the Company and its
Subsidiaries that is designated by the Board as a participating employer under
the Plan, provided that the Company directly or indirectly owns at least 20% of
the combined voting power of all classes of stock of such entity or at least 20%
of the ownership interests in such entity.
B. "Board" means the Board of Directors of the Company.
C. "Change in Control" has the meaning provided in Section 7(b) of the
Plan.
D. "Change in Control Price" has the meaning provided in Section 7(d)
of the Plan.
E. "Common Stock" means the Company's common stock, par value $1.00
per share.
F. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
G. "Committee" means the Committee referred to in Section 2 of the
Plan.
H. "Company" means Shoney's, Inc., a corporation organized under the
laws of the State of Tennessee, or any successor corporation.
<PAGE> 2
I. "Disability" means disability as determined under the Company's
Group Long-Term Disability Insurance Plan.
J. "Early Retirement" means retirement, for purposes of this Plan with
the express consent of the Company at or before the time of such retirement,
from active employment with the Company and any Subsidiary or Affiliate prior to
age 65, in accordance with any applicable early retirement policy of the Company
then in effect or as may be approved by the Committee.
K. "Effective Date" has the meaning provided in Section 11 of the Plan.
L. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
M. "Fair Market Value" means with respect to the Common Stock, as of
any given date or dates, unless otherwise determined by the Committee in good
faith, the reported closing price of a share of Common Stock on The New York
Stock Exchange (the "NYSE") or such other market or exchange as is the principal
trading market for the Common Stock, or, if no such sale of a share of Common
Stock is reported on the NYSE or other exchange or principal trading market on
such date, the fair market value of a share of Common Stock as determined by the
Committee in good faith.
N. "Non-Employee Director" means a member of the Board who is a
Non-Employee Director within the meaning of Rule 16b-3(b)(3) promulgated under
the Exchange Act and an outside director within the meaning of Treasury
Regulation Sec. 162-27(e)(3) promulgated under the Code.
O. "Normal Retirement" means retirement from active employment with the
Company and any Subsidiary or Affiliate on or after age 65.
P. "Other Stock-Based Award" means an award under Section 6 below that
is valued in whole or in part by reference to, or is otherwise based on, the
Common Stock.
Q. "Outside Director" means a member of the Board who is not an officer
or employee of the Company or any Subsidiary or Affiliate of the Company.
R. "Plan" means this Shoney's, Inc. 1998 Stock Plan, as amended from
time to time.
S. "Performance Goals" means performance goals based on one or more of
the following criteria: (i) pre-tax income or after-tax income; (ii) operating
cash flow; (iii) operating profit; (iv) return on equity, assets, capital, or
investment; (v) earnings or book value per share; (vi) sales or revenues; (vii)
operating expenses; (viii) Common Stock price appreciation; and (ix)
implementation, management, or completion of critical projects or processes.
Where applicable, the Performance Goals may be expressed in terms of attaining a
specified level of the particular criteria or the attainment of a percentage
increase or decrease in the particular criteria, and may be applied to one
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<PAGE> 3
or more of the Company or any Subsidiary, or a division or strategic business
unit of the Company, or may be applied to the performance of the Company
relative to a market index, a group of other companies, or a combination
thereof, all as determined by the Committee. The Performance Goals may include a
threshold level of performance below which no payment will be made (or no
vesting will occur), levels of performance at which specified payments will be
made (or specified vesting will occur), and a maximum level of performance above
which no additional payment will be made (or at which full vesting will occur).
Each of the foregoing Performance Goals shall be determined, to the extent
applicable, in accordance with generally accepted accounting principles and
shall be subject to certification by the Committee; provided, that the Committee
or the Board, as applicable, shall have the authority to make equitable
adjustments to the Performance Goals in recognition of unusual or non-recurring
events affecting the Company or any Subsidiary or the financial statements of
the Company or any Subsidiary, in response to changes in applicable laws or
regulations, or to account for items of gain, loss, or expense determined to be
extraordinary or unusual in nature or infrequent in occurrence or related to the
disposal of a segment of business or related to a change in accounting
principles.
T. "Restricted Stock" means an award of shares of Common Stock that is
subject to restrictions under Section 5 of the Plan.
U. "Restriction Period" has the meaning provided in Section 5 of the
Plan.
V. "Retirement" means Normal or Early Retirement.
W. "Section 162(m) Maximum" has the meaning provided in Section 3(a)
hereof.
X. "Subsidiary" means any company (other than the Company) in an
unbroken chain of companies beginning with the Company if each of the companies
(other than the last company in the unbroken chain) owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other companies in the chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by a Committee of not less than two
Non-Employee Directors, who shall be appointed by the Board and who shall serve
at the pleasure of the Board. The functions of the Committee specified in the
Plan may be exercised by an existing Committee of the Board composed exclusively
of Non-Employee Directors. The initial Committee shall be the Human Resources
and Compensation Committee of the Board. In the event there are not at least two
Non-Employee Directors on the Board, the Plan shall be administered by the
Board and all references herein to the Committee shall refer to the Board.
3
<PAGE> 4
The Committee shall have authority to grant, pursuant to the terms of
the Plan, to officers, other employees, and Outside Directors eligible under
Section 4: (i) Restricted Stock and/or (ii) Other Stock-Based Awards; provided,
however, that the power to grant and establish the terms and conditions of
awards to Outside Directors under the Plan shall be reserved to the Board.
In particular, the Committee, or the Board, as the case may be, shall
have the authority, consistent with the terms of the Plan:
(a) to select the officers, key employees, and Outside
Directors of the Company and its Subsidiaries and Affiliates to whom
Restricted Stock and/or Other Stock-Based Awards may from time to time
be granted hereunder;
(b) to determine whether and to what extent Restricted Stock
and/or Other Stock-Based Awards, or any combination thereof, are to be
granted hereunder to one or more eligible persons;
(c) to determine the number of shares to be covered by each
such award granted hereunder;
(d) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including,
but not limited to, the share price and any restriction or limitation,
or any vesting acceleration or waiver of forfeiture restrictions
regarding any award and/or the shares of Common Stock relating thereto,
based in each case on such factors as the Committee or the Board, as
applicable, shall determine, in its sole discretion); and to amend or
waive any such terms and conditions to the extent permitted by Section
8 hereof;
(e) to determine whether, to what extent, and under what
circumstances shares of Common Stock and other amounts payable with
respect to an award under this Plan shall be deferred either
automatically or at the election of the participant (including
providing for and determining the amount (if any) of any deemed
earnings on any deferred amount during any deferral period);
(f) to determine the terms, conditions, and restrictions of
any Performance Goals and the number of shares of Restricted Stock or
other awards subject thereto;
(g) to determine whether to require payment of tax withholding
requirements in shares of Common Stock subject to the award; and
(h) to impose any holding period required to satisfy Section
16 under the Exchange Act.
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<PAGE> 5
The Committee shall have the authority to adopt, alter, and repeal such
rules, guidelines, and practices governing the Plan as it shall, from time to
time, deem advisable; to interpret the terms and provisions of the Plan and any
award issued under the Plan (and any agreements relating thereto); and to
otherwise supervise the administration of the Plan; and, except as expressly set
forth herein or otherwise required by law, all decisions made by the Committee
pursuant to the provisions of the Plan shall be made in the Committee's sole
discretion and shall be final and binding on all persons, including the Company
and Plan participants.
SECTION 3. SHARES OF COMMON STOCK SUBJECT TO PLAN.
(a) As of the Effective Date, the aggregate number of shares of Common
Stock that may be issued under the Plan shall be 2,000,000 shares. The shares of
Common Stock issuable under the Plan may consist, in whole or in part, of
authorized and unissued shares or treasury shares. No officer of the Company or
other person whose compensation may be subject to the limitations on
deductibility under Section 162(m) of the Code shall be eligible to receive
awards pursuant to this Plan relating to in excess of 200,000 shares of Common
Stock in any fiscal year (the "Section 162(m) Maximum").
(b) If any shares of Common Stock that are subject to any Restricted
Stock or Other Stock-Based Award granted hereunder are forfeited prior to the
payment of any dividends, if applicable, with respect to such shares of Common
Stock, or any such award otherwise terminates without a payment being made to
the participant in the form of Common Stock, such shares shall again be
available for distribution in connection with future awards under the Plan.
(c) In the event of any merger, reorganization, consolidation,
recapitalization, extraordinary cash dividend, stock dividend, stock split, or
other change in corporate structure affecting the Common Stock, an appropriate
substitution or adjustment shall be made in the maximum number of shares that
may be awarded under the Plan, in the Section 162(m) Maximum, and in the number
of shares subject to other outstanding awards granted under the Plan as may be
determined to be appropriate by the Committee, in its sole discretion, provided
that the number of shares subject to any award shall always be a whole number.
SECTION 4. ELIGIBILITY.
Officers and other key employees of the Company and its Subsidiaries
and Affiliates who are responsible for or contribute to the management, growth
and/or profitability of the business of the Company and/or its Subsidiaries and
Affiliates and Outside Directors are eligible to be granted awards under the
Plan.
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<PAGE> 6
SECTION 5. RESTRICTED STOCK.
(a) Administration. Shares of Restricted Stock may be issued
either alone, in addition to, or in tandem with other awards granted
under the Plan and/or cash awards made outside the Plan. The Committee
or the Board, as the case may be, shall determine the eligible persons
to whom, and the time or times at which, grants of Restricted Stock
will be made, the number of shares of Restricted Stock to be awarded to
any person, the price (if any) to be paid by the recipient of
Restricted Stock (subject to Section 5(b)), the time or times within
which such awards may be subject to forfeiture, and the other terms,
restrictions, and conditions of the awards in addition to those set
forth in Section 5(c). The Committee or the Board may condition the
grant of Restricted Stock upon the attainment of specified Performance
Goals or such other factors as the Committee or the Board may
determine, in its sole discretion. The provisions of Restricted Stock
awards need not be the same with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of a
Restricted Stock award shall not have any rights with respect to such
award, unless and until such recipient has executed an agreement
evidencing the award and has delivered a fully executed copy thereof to
the Company, and has otherwise complied with the applicable terms and
conditions of such award.
(i) The purchase price for shares of Restricted Stock
shall be established by the Committee or the Board, as
applicable, and may be zero.
(ii) Awards of Restricted Stock must be accepted
within a period of 60 days (or such shorter period as the
Committee or the Board may specify at grant) after the award
date, by executing a Restricted Stock Award Agreement and
paying whatever price (if any) is required under Section
5(b)(i).
(iii) Each participant receiving a Restricted Stock
award shall be issued a stock certificate in respect of such
shares of Restricted Stock. Such certificate shall be
registered in the name of such participant (or a transferee
permitted by Section 10(h) hereof), and shall bear an
appropriate legend referring to the terms, conditions, and
restrictions applicable to such award.
(iv) The Committee or the Board, as the case may be,
may require that the stock certificates evidencing such shares
be held in custody by the Company until the restrictions
thereon shall have lapsed, and that, as a condition of any
Restricted Stock award, the participant shall have delivered a
stock power, endorsed in blank, relating to the shares of
Common Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted
Stock awarded pursuant to this Section 5 shall be subject to the
following restrictions and conditions:
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<PAGE> 7
(i) In accordance with the provisions of this Plan
and the award agreement, during a period set by the Committee
or the Board, as the case may be, commencing with the date of
such award (the "Restriction Period"), the participant shall
not be permitted to sell, transfer, pledge, assign, or
otherwise encumber shares of Restricted Stock awarded under
the Plan. Within these limits, the Committee or the Board, as
applicable, in its sole discretion, may provide for the lapse
of such restrictions in installments and may accelerate or
waive such restrictions, in whole or in part, based on
service, the attainment of Performance Goals, or such other
factors or criteria as the Committee or the Board may
determine in its sole discretion.
(ii) Except as provided in this paragraph (ii) and
Section 5(c)(i), the participant shall have, with respect to
the shares of Restricted Stock, all of the rights of a
shareholder of the Company, including the right to vote the
shares, and the right to receive any cash dividends. The
Committee or the Board, as applicable, in its sole discretion,
as determined at the time of award, may permit or require the
payment of cash dividends to be deferred and, if the Committee
or the Board so determines, reinvested, subject to Section
10(e), in additional Restricted Stock to the extent shares are
available under Section 3, or otherwise reinvested. Pursuant
to Section 3 above, stock dividends issued with respect to
Restricted Stock shall be treated as additional shares of
Restricted Stock that are subject to the same restrictions and
other terms and conditions that apply to the shares with
respect to which such dividends are issued. If the Committee
or the Board, as the case may be, so determines, the award
agreement may also impose restrictions on the right to vote
and the right to receive dividends.
(iii) Subject to the applicable provisions of the
award agreement and this Section 5, upon termination of a
participant's employment with the Company and any Subsidiary
or Affiliate for any reason during the Restriction Period, all
shares still subject to restriction will vest, or be
forfeited, in accordance with the terms and conditions
established by the Committee at or after grant.
(iv) If and when the Restriction Period expires
without a prior forfeiture of the Restricted Stock subject to
such Restriction Period, certificates for an appropriate
number of unrestricted shares shall be delivered to the
participant (or a transferee permitted by Section 10(h)
hereof) promptly.
(d) Minimum Value Provisions. In order to better ensure that
award payments actually reflect the performance of the Company and
service of the participant, the Committee or the Board, as applicable,
may provide, in its sole discretion, for a tandem performance-based or
other award designed to guarantee a minimum value, payable in cash or
Common Stock to the recipient of a restricted stock award, subject to
such performance, future service, deferral, and other terms and
conditions as may be specified by the Committee or the Board.
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<PAGE> 8
SECTION 6. OTHER STOCK-BASED AWARDS.
(a) Administration. Other Stock-Based Awards, including,
without limitation, performance shares and Common Stock awards valued
by reference to earnings per share or Subsidiary performance, may be
granted either alone, in addition to, or in tandem with Restricted
Stock granted under the Plan and cash awards made outside of the Plan.
Subject to the provisions of the Plan, the Committee or the Board, as
the case may be, shall have authority to determine the persons to whom
and the time or times at which such awards shall be made, the number of
shares of Common Stock to be awarded pursuant to such awards, and all
other conditions of the awards. The Committee or the Board may also
provide for the grant of Common Stock upon the completion of a
specified performance period. The provisions of Other Stock-Based
Awards need not be the same with respect to each recipient.
(b) Terms and Conditions. Other Stock-Based Awards made
pursuant to this Section 6 shall be subject to the following terms and
conditions:
(i) Shares subject to awards under this Section 6 and
the award agreement referred to in Section 6(b)(v) below, may
not be sold, assigned, transferred, pledged, or otherwise
encumbered prior to the date on which the shares are issued,
or, if later, the date on which any applicable restriction,
performance, or deferral period lapses.
(ii) Subject to the provisions of this Plan and the
award agreement and unless otherwise determined by the
Committee or the Board at grant, the recipient of an award
under this Section 6 shall be entitled to receive, currently
or on a deferred basis, interest or dividends or interest or
dividend equivalents with respect to the number of shares
covered by the award, as determined at the time of the award
by the Committee or the Board, as the case may be, in its sole
discretion, and the Committee or the Board may provide that
such amounts (if any) shall be deemed to have been reinvested
in additional shares of Common Stock or otherwise reinvested.
(iii) Any award under Section 6 and any shares of
Common Stock covered by any such award shall vest or be
forfeited to the extent so provided in the award agreement, as
determined by the Committee or the Board, as applicable, in
its sole discretion.
(iv) In the event of the participant's Retirement,
Disability, or death, or in cases of special circumstances,
the Committee may, in its sole discretion, waive in whole or
in part any or all of the remaining limitations imposed
hereunder (if any) with respect to any or all of an award
under this Section 6.
(v) Each award under this Section 6 shall be
confirmed by, and subject to the terms of, an agreement or
other instrument by the Company and the participant.
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(vi) Common Stock (including securities convertible
into Common Stock) issued on a bonus basis under this Section
6 may be issued for no cash consideration. Common Stock
(including securities convertible into Common Stock) purchased
pursuant to a purchase right awarded under this Section 6
shall be priced at least 85% of the Fair Market Value of the
Common Stock on the date of grant.
SECTION 7. CHANGE IN CONTROL PROVISIONS.
(a) Impact of Event. In the event of:
(1) a "Change in Control" as defined in Section
7(b); or
(2) a "Potential Change in Control" as defined in
Section 7(c), but only if and to the extent so determined by
the Committee or the Board at or after grant (subject to any
right of approval expressly reserved by the Committee or the
Board at the time of such determination),
(i) Subject to the limitations set forth below in
this Section 7(a), the restrictions applicable to any
Restricted Stock and Other Stock-Based Awards, in each case to
the extent not already vested under the Plan, shall lapse and
such shares and awards shall be deemed fully vested.
(ii) Subject to the limitations set forth below in
this Section 7(a), the value of all outstanding Restricted
Stock and Other Stock-Based Awards, in each case to the extent
vested, shall, unless otherwise determined by the Board or by
the Committee in its sole discretion prior to any Change in
Control, be cashed out on the basis of the "Change in Control
Price" as defined in Section 7(d) as of the date such Change
in Control or such Potential Change in Control is determined
to have occurred or such other date as the Board or Committee
may determine prior to the Change in Control.
(iii) The Board or the Committee may impose
additional conditions on the acceleration or valuation of any
award in the award agreement.
(b) Definition of Change in Control. For purposes of Section
7(a), a "Change in Control" means the happening of any of the
following:
(i) any person or entity, including a "group" as
defined in Section 13(d)(3) of the Exchange Act, other than
the Company or a wholly-owned subsidiary thereof or any
employee benefit plan of the Company or any of its
Subsidiaries, becomes the beneficial owner of the Company's
securities having 50% or more of the combined voting power of
the then outstanding securities of the Company that may be
cast for
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<PAGE> 10
the election of directors of the Company (other than as a
result of an issuance of securities initiated by the Company
in the ordinary course of business); or
(ii) as the result of, or in connection with, any
cash tender or exchange offer, merger, or other business
combination, sales of assets or contested election, or any
combination of the foregoing transactions, less than a
majority of the combined voting power of the then outstanding
securities of the Company or any successor Company or entity
entitled to vote generally in the election of the directors of
the Company or such other company or entity after such
transaction are held in the aggregate by the holders of the
Company's securities entitled to vote generally in the
election of directors of the Company immediately prior to such
transaction; or
(iii) during any period of two consecutive years,
individuals who at the beginning of any such period constitute
the Board cease for any reason to constitute at least a
majority thereof, unless the election, or the nomination for
election by the Company's shareholders, of each director of
the Company first elected during such period was approved by a
vote of at least two-thirds of the directors of the Company
then still in office who were directors of the Company at the
beginning of any such period.
(c) Definition of Potential Change in Control. For purposes of
Section 7(a), a "Potential Change in Control" means the happening of
any one of the following:
(i) the approval by shareholders of an agreement by
the Company, the consummation of which would result in a
Change in Control of the Company as defined in Section 7(b);
or
(ii) the acquisition of beneficial ownership,
directly or indirectly, by any entity, person or group (other
than the Company or a Subsidiary or any Company employee
benefit plan (including any trustee of such plan acting as
such trustee)) of securities of the Company representing 50%
or more of the combined voting power of the Company's
outstanding securities and the adoption by the Committee or
the Board of a resolution to the effect that a Potential
Change in Control of the Company has occurred for purposes of
this Plan.
(d) Change in Control Price. For purposes of this Section 7,
"Change in Control Price" means the highest price per share of Common
Stock paid in any transaction reported on the NYSE or such other
exchange or market as is the principal trading market for the Common
Stock, or paid or offered in any bona fide transaction related to a
Potential or actual Change in Control of the Company at any time during
the 60 day period immediately preceding the occurrence of the Change in
Control (or, where applicable, the occurrence of the Potential Change
in Control event), in each case as determined by the Committee or the
Board.
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SECTION 8. AMENDMENTS AND TERMINATION.
The Board may at any time amend, alter, or discontinue the Plan without
shareholder approval to the fullest extent permitted by the Exchange Act and the
Code; provided, however, that no amendment, alteration, or discontinuation shall
be made which would impair the rights of a participant under a Restricted Stock
or Other Stock-Based Award theretofore granted, without the participant's
consent.
The Committee or the Board, as the case may be, may amend the terms of
any award theretofore granted, prospectively or retroactively, but, subject to
Section 3 above, no such amendment shall impair the rights of any holder without
the holder's consent. Solely for purposes of computing the Section 162(m)
Maximum, if any awards previously granted to a participant are canceled and new
awards having a lower exercise price or other more favorable terms for the
participant are substituted in their place, both the initial awards and the
replacement awards will be deemed to be outstanding (although the canceled
awards will not be exercisable or deemed outstanding for any other purposes).
SECTION 9. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant by the Company, nothing contained herein shall give any such
participant any rights that are greater than those of a general creditor of the
Company. In its sole discretion, the Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Common Stock or payments in lieu of or with respect to awards hereunder;
provided, however, that, unless the Committee otherwise determines with the
consent of the affected participant, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
SECTION 10. GENERAL PROVISIONS.
(a) The Committee may require each person purchasing shares
pursuant to an award under the Plan to represent to and agree with the
Company in writing that the participant is acquiring the shares without
a view to distribution thereof. The certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer. All certificates for shares of Common Stock
or other securities delivered under the Plan shall be subject to such
stop-transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations, and other requirements of the
Commission, any stock exchange upon which the Common Stock is then
listed, and any applicable Federal or state securities law, and the
Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
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<PAGE> 12
(b) Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in
specific cases.
(c) The adoption of the Plan shall not confer upon any
employee of the Company or any Subsidiary or Affiliate any right to
continued employment with the Company or a Subsidiary or Affiliate, as
the case may be, nor shall it interfere in any way with the right of
the Company or a Subsidiary or Affiliate to terminate the employment of
any of its employees at any time.
(d) No later than the date as of which an amount first becomes
includible in the gross income of the participant for Federal income
tax purposes with respect to any award under the Plan, the participant
shall pay to the Company, or make arrangements satisfactory to the
Committee regarding the payment of, any Federal, state, or local taxes
of any kind required by law to be withheld with respect to such amount.
The Committee may require withholding obligations to be settled with
Common Stock, including Common Stock that is part of the award that
gives rise to the withholding requirement. The obligations of the
Company under the Plan shall be conditional on such payment or
arrangements and the Company and its Subsidiaries or Affiliates shall,
to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant.
(e) The actual or deemed reinvestment of dividends or dividend
equivalents in additional Restricted Stock (or other types of Plan
awards) at the time of any dividend payment shall only be permissible
if sufficient shares of Common Stock are available under Section 3 for
such reinvestment (taking into account other awards then outstanding
under the Plan).
(f) The Plan and all awards made and actions taken thereunder
shall be governed by and construed in accordance with the laws of the
State of Tennessee.
(g) The members of the Committee and the Board shall not be
liable to any employee or other person with respect to any
determination made hereunder in a manner that is not inconsistent with
their legal obligations as members of the Board. In addition to such
other rights of indemnification as they may have as directors or as
members of the Committee, the members of the Committee shall be
indemnified by the Company against the reasonable expenses, including
attorneys' fees actually and necessarily incurred in connection with
the defense of any action, suit, or proceeding, or in connection with
any appeal therefrom, to which they or any of them may be a party by
reason of any action taken or failure to act under or in connection
with the Plan, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a
judgment in any such action, suit, or proceeding, except in relation to
matters as to which it shall be adjudged in such action, suit, or
proceeding that
12
<PAGE> 13
such Committee member is liable for negligence or misconduct in the
performance of his or her duties; provided that within 60 days after
institution of any such action, suit, or proceeding, the Committee
member shall in writing offer the Company the opportunity, at its own
expense, to handle and defend the same.
(h) In addition to any other restrictions on transfer that may
be applicable under the terms of this Plan or the applicable award
agreement, no Restricted Stock award or Other Stock-Based Award or
other right issued under this Plan is transferable by the participant
without the prior written consent of the Committee other than transfers
by will or by the laws of descent and distribution. The designation of
a beneficiary will not constitute a transfer.
(i) The Committee may, at or after grant, condition the
receipt of any payment in respect of any award or the transfer of any
shares subject to an award on the satisfaction of a six-month holding
period, if such holding period is required for compliance with Section
16 under the Exchange Act.
SECTION 11. EFFECTIVE DATE OF PLAN.
The Plan shall be effective as of the date of approval of the Plan by a
majority of the votes cast by the holders of the Company's Common Stock.
SECTION 12. TERM OF PLAN.
No Restricted Stock award or Other Stock-Based Award shall be granted
pursuant to the Plan on or after the tenth anniversary of the Effective Date of
the Plan, but awards granted prior to such tenth anniversary may be extended
beyond that date.
13
<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 MAY 10, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-25-1998
<PERIOD-START> OCT-27-1997
<PERIOD-END> MAY-10-1998
<CASH> 9,659,945
<SECURITIES> 0
<RECEIVABLES> 13,187,401
<ALLOWANCES> 1,353,220
<INVENTORY> 38,246,814
<CURRENT-ASSETS> 135,842,386
<PP&E> 790,376,126
<DEPRECIATION> 365,362,120
<TOTAL-ASSETS> 626,495,736
<CURRENT-LIABILITIES> 163,375,508
<BONDS> 467,696,189
0
0
<COMMON> 48,690,365
<OTHER-SE> (73,140,266)
<TOTAL-LIABILITY-AND-EQUITY> 626,495,736
<SALES> 608,079,939
<TOTAL-REVENUES> 620,236,476
<CGS> 561,317,923
<TOTAL-COSTS> 637,522,184
<OTHER-EXPENSES> 49,532,398
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,671,863
<INCOME-PRETAX> (17,285,708)
<INCOME-TAX> (6,274,000)
<INCOME-CONTINUING> (11,011,708)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,415,138)
<CHANGES> 0
<NET-INCOME> (12,426,846)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
